The following is our understanding of Prop 117. If you need more clarification – let me know and I’ll give you contact info for folks that specialize in this work. Understanding the new law will be a great help in selling a property – especially to California buyers – where values and taxes can jump considerably upon a sale.
Starting in calendar year 2014 for the 2015 tax year, the voter approved amendment to the state constitution known as Prop 117 will change how Arizona property taxes are calculated and will impact the manner in which your property’s valuation should be reviewed.
Although properties will continue to receive a noticed market valuation (Full Cash Value or FCV), the FCV will no longer be used to calculate your property taxes. As explained below, the FCV will continue to be important to review and appeal as appropriate.
Beginning with your 2015 property tax bill, your property taxes will be calculated solely on the Limited Property Value (LPV). The LPV is a statutory valuation; meaning the value is set by statute and not by market conditions and is not appealable. The LPV is limited to a 5% increase each year, never to exceed the FCV (market value). This limitation does not apply for new construction or parcel splits.
Even though the LPV “taxable” value is limited to a 5% increase each year, it does not necessarily mean that your taxes are limited to a 5% increase. The taxing districts can set higher tax rates each year based on their budgets and voter approved bonds and over-rides.
The LPV “taxable” value each year cannot exceed the FCV (market value). Therefore, a thorough review of the FCV (market value) each year will ensure the FCV is fair and appropriate. In addition, an appeal of the FCV (market value) that results in a reduction to the FCV may limit the increase of the FCV (market value) for the following year and as a result limit property tax increases.
An appeal and reduction to the FCV (market value) may not only limit the LPV “taxable” value for the year appealed, but may also limit its increase for the following tax year and as a result, limit your property taxes due. In some cases, there may be no change to the LPV “taxable” value in the first year. The benefit may come in the cap to the LPV “taxable” value growth only in the following year.
Jim Kasten, CCIM (602 677 0655, Jim@KLCommercialGroup.com)