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Property Taxes: A Shopping Center May Not Always be a Shopping Center

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By:  Rick Herold, Craig McPike & Ben Reeves

In the world of real property taxes, Valuation + Classification = Assessed Valuation.  Sounds simple, right?  The County Assessor determines the first factor, valuation (subject to certain guidelines under applicable Arizona law).  The Arizona State Legislature determines the second factor, the property’s legal classification and corresponding assessment ratio (i.e., tax rate).  Given the wide disparity in assessment ratios, classification can be a major issue for taxpayers.

Recently, the Court of Appeals confirmed that a shopping center for valuation purposes may not be a shopping center for classification purposes.  Scottsdale/101 Associates LLC v. Maricopa County, 2015 WL 5711999, 722 Ariz.Adv.Rep. 28 (9/29/15) (“We thus conclude that categorization for valuation purposes does not necessarily establish categorization for assessment[/classification] purposes.”).  Confused?  Keep reading.

These consolidated cases were significant ones for the appellant-property owners, as Class One properties were assessed (during the tax years in question, 2004-2008) at a 23.5% to 25% assessment ratio while Class Nine properties were assessed at only 1%.  After the tax court granted the County’s motion for summary judgment, concluding that the movie theaters (all located within shopping centers) met the requirements for the County to treat them at the higher Class One assessment ratio, the taxpayers appealed.  The Court of Appeals reversed in favor of the taxpayers.

How could this happen?  Well, there are several reasons.  First, the opinion noted that separate statutes determine whether movie theaters are properly categorized as shopping centers for valuation purposes versus classification purposes (comparing A.R.S. §§42-13201 to -13206 on valuation to A.R.S. §§42-12001 to – 12009 and A.R.S. §§42-15001 to -15009 on classification).  Second, the Court noted its obligation to resolve ambiguities in statutes imposing taxes in favor of the taxpayers.  Third, the Court relied on the County’s historical classification of a day-care center within a shopping center as a Class Four (i.e., not a Class One) property.  Based on all of these factors, the Court of Appeals held that it was error for the tax court to rule that “movie theaters within a shopping center must be classified as Class One properties.”  Accordingly, it reversed and remanded the case to the tax court to determine whether the movie theaters qualified as Class Nine properties at the lower assessment ratio.

This case offers up two useful reminders:  (a) different statutes, or even the judicial gloss (i.e., case law) on those statutes, may yield different and unexpected results; and (b) the County’s prior assessment treatment of other taxpayers and properties may very well be relevant to a real property tax appeal.