Property tax laws are rarely simple, but here in Arizona, an unusual set of rules makes things even more complicated. The state uses two different values as part of its assessment process: the full cash value and the limited property value.
Here is a brief explanation of the difference.
Full cash value
A property’s full cash value is simply its market value. Essentially, it answers the question: How much is it worth? This means the full cash value can fluctuate depending on the market. If there is a sudden surge (or dip), the full cash value will follow.
It can be based on a few different things, including the sale price of similar properties in the same market, or an analysis of the current and future income stream for the property.
This full cash value is the starting point for determining primary property tax rates, but is not what actually decides your property taxes.
Limited property value
The limited property value is what Arizona uses to determine your property tax assessment. TO determine a property’s limited property value, they use one of two formulas, referred to as Rule A or Rule B. Which method is used depends on a few things, including whether the property has been significantly modified or its use changed in the past year.
The formulas generally involve taking a property’s full cash value, then comparing it to either the prior year’s value or the full cash value of similar parcels, then applying a specific rate to it. While the process is a bit complex, know that a property’s limited property value can not be higher than its full cash value.
This limited property value is what the law uses to determine property taxes.
Appealing a tax assessment
It is not uncommon for a property owner to experience sticker shock upon receiving their latest tax assessment. This can be particularly true when an assessment uses Rule B to determine limited property value. A small addition, for example, could result in a significant increase to your property tax bill.
Fortunately, there are appeal options. If you’re unhappy with an assessment, it’s possible to question the conclusion by challenging the property’s valuation or classification, pointing out assessment mistakes, taking advantage of exemptions and more. These strategies can help reduce the impact of unfair assessments.