Tax bills are based on the limited property value that is determined by a statutory formula.

The purpose of the Limited Property Value (LPV) was to create a hedge against inflationary increases in the market value of the property. The calculations by law limit the amount of increase that can occur from one year to the next. Limited Property Value is the one used against the Primary and Secondary Tax Rates.

The Limited Property Value is determined by law. State statutes provide the formulas to be used in calculating the Limited Property Value (see Arizona Revised Statutes §§ 42-13301 through 13304).

Typically, for real property, the Limited Value will increase 5% over the prior year's Limited Property Value. The Limited Property Value can never exceed the Full Cash Value. The limit on the 5% increase applies to the limited property value and not the dollar amount of the tax bill.

One exception to this calculation of the Limited Property Value is if there has been a physical change (new improvements, demolition, change in land size) or change in use of the property or an erroneous assessment in prior years. In these instances, the Limited Property Value is established by the relationship (percentage) of Full Cash Value to Limited Property Value of other properties within the same Legal Classification within a specified area.

Taxes cannot be appealed. Only property valuation and classification can be appealed according to A.R.S. § 42-16051.

It may be helpful to understand why a tax bill experienced a significant increase from one year to the next. A typical cause of an increase in tax bill is because of an increase in the limited property value (LPV) since the tax bill is based on the limited property value and not the full cash value. There are two methods by which the LPV can be increased from one valuation year to the next valuation year. These methods are identified as "Rule A" and "Rule B”.

  • Rule A - The Rule A formula is applicable to:  
    1. Properties in which there has been no physical change in either the land or improvement(s);
    2. Properties for which there has been no change in use;
    3. Properties which were not totally omitted from the tax roll in the preceding valuation year.

      Rule A formula: Properties that apply to the rule A criteria, the limited property value of property for property taxation purposes is the limited property value of the property in the preceding valuation year plus five per cent of that value (A.R.S. § 42-13301.A). The current limited property value of a parcel of property shall not exceed its current full cash value.

  • Rule B - The Rule B formula is applicable to:  
    1. Properties for which the land or improvement(s) were erroneously omitted from the property tax roll for the preceding tax year;
    2. Properties that have had a change in use since the preceding tax year;
    3. Properties that were modified by new construction, or were subject to the destruction or demolition of existing improvements since the preceding valuation year;
    4. Properties that have been split (i.e., divided) or consolidated (i.e., “combined”) from January 1 through September 30 of the current valuation year excluding parcel splits or consolidations that were “initiated by a government entity”.

      Rule B formula: Limited property values are established at a level or percentage of FCV that is comparable to that of other properties of the same or similar use or classification. (A.R.S. § 42-13302

The Arizona Constitution limits the total amount of primary property taxes that counties, cities, and community college districts can levy. In addition, there is a limitation on owner-occupied residences (Legal Class 3 property). The combined primary tax from all jurisdictions of Legal Class 3 property may not exceed 1% of their combined Limited Value. In cases where the tax exceeds that amount (a primary tax rate of $10 or more per $100 of assessed Limited Valuation), the school district taxes are reduced on the primary tax amount, and the state provides additional aid to the school district to make up the difference between the overall primary tax rate and $10.

The Arizona Legislature annually appropriates money to pay a percentage (35% in 1996) of the primary school district tax on owner-occupied homes (Legal Class 3 only). The "Homeowner Rebate" appears automatically on tax bills. That rebate is reflected on the tax bill on the line titled STATE AID TO EDUCATION. Thus, homeowners actually pay a lower primary tax rate than other property owners.

In addition, the legislature has provided qualified homeowners over age 69 the ability to request a property tax deferral. The qualifications and procedures are outlined in Arizona Revised Statutes (A.R.S.) §§ 42-17301 through 17313.

The Arizona Constitution also provides property tax exemptions in varying dollar amounts to some disabled persons and to some widows and widowers whose spouses died while they were residents of Arizona. The dollar amounts are scaled to the combined value of property owned, but eligibility is restricted to taxpayers with total incomes below prescribed levels. The dollar amounts of the exemptions apply to the assessed value of the property and are applied in the same amount to both the Full Cash and Limited Values. If the exemption amount qualified for is greater than the total assessed value of the real property, the remaining amount can be applied to the assessed value of a motor vehicle. The required application forms must be filed annually with the county assessors office ( See A.R.S. § 42-11111) .

On or before October 1 of each year, the County Treasurer sends a notice to the owner (and/or the mortgage company if there is one) of all taxes assessed against the property. Property taxes are levied on a calendar year, although Arizona governments work on a fiscal year. Property values are established as of January 1 of each year. Tax rates for those values are set on the third Monday in August of the following year. Therefore, values are set in the year prior to the year taxes are due.

The first installment on the tax bill is due on October 1 and is considered delinquent after November 1. The entire amount may be paid in October if the taxpayer so desires, and taxes of $25 or less must be paid in full in October. The second installment is due March 1 of the year following and is delinquent after May 1.

Arizona is unique in that it uses two values and two tax rates for property taxation.

  1. Primary Tax Rates fund the maintenance and operation of budgets of state and local government entities. In most instances, primary tax rates represent a greater share of property taxes.
  2. Secondary Tax Rates are used to fund such things as bond issues, budget overrides and special district funding. - LOGIN