Purpose

Retroactive to July 1, 2002, sets the assessment ratio for all classes of property at ten percent of the full cash value for secondary property taxes used to pay for bonds and long-term obligations that voters authorize after June 30, 2002.

Background

Currently, property in Arizona is divided into different property classes for taxation purposes, with some classes of property having higher assessment ratios than others. These ratios apply to both primary property taxes, which are used to fund the general operations of counties, cities and school districts, and secondary property taxes, which are used to pay for voter-approved bonds. The table below illustrates the property classification system and applicable assessment ratios for both primary and secondary assessments:

Class

Property Description

Assessment Ratio

Class 1

Class 2

Class 3

Class 4

Class 5

Class 6

Class 7

Class 8

Class 9

Mines, utilities, most commercial

Agricultural, golf courses

Residential

Rental property, care facilities

Railroads, flight property

Historic, military reuse, enterprise zones

Commercial/commercial historic

Rental/commercial historic

Improvements on government property

25%

16%

10%

formula

25%/1%

10%/1%

*Class 7 and 8 have a different assessment ratio for the property and improvements to the property. These classes are historic properties, which have an assessment ratio that is the same for similar properties. However, improvements to these properties are currently assessed at one percent for up to ten years. (This encourages preservation and renovation of historic properties.) After ten years, the assessment ratio is the same for the property and the improvement.

Arizona is one of approximately nine states using a property classification system for taxes; other states typically use a single assessment ratio to calculate property taxes, and no other state has two sets of values. S.B. 1114 removes the classification system for secondary property taxes in Arizona so that all property is assessed at ten percent. The single assessment ratio applies to obligations that voters approve after June 30, 2002.

The impact of S.B. 1114 on homeowners is expected to vary, depending on the types of property that make up a taxing jurisdiction’s tax base. For example, Gilbert Unified School District’s tax base has a high proportion of residential property. According to the Arizona Tax Research Association, homeowners there could see a 25 percent increase in secondary property taxes assessed to repay bonds approved after June 30, 2002. St. John’s Unified School District, on the other hand, has a larger proportion of commercial property, and homeowners there could see secondary property tax increases of 128 percent to repay bonds approved in the future.

The impact to political subdivisions varies depending on the different classes of property in each district. However, S.B. 1114 should not affect any existing bonds or overrides that were approved prior to June 30, 2002. In the future, each jurisdiction will have to take into account the valuation of its district’s property to determine future impacts. The Cities of Phoenix and Mesa have indicated that S.B. 1114 will reduce its ability to levy future general obligation bonds under local debt limitations (Article 9, section 8, paragraph 1, Arizona Constitution).

A fiscal note has been requested from Joint Legislative Budget Committee staff, but has not been received.

Provisions

1. Sets the assessment ratio for all classes of property at ten percent of full cash value for secondary property taxes used to pay for bonds and long-term obligations that voters authorize after June 30, 2002.

2. Applies to secondary property taxes levied by counties, cities, towns, school districts and community college districts.

3. Makes conforming changes.

4. Contains a retroactivity clause of July 1, 2002.

Prepared by Senate Staff