Opinion ID: 1179917
Heading Depth: 2
Heading Rank: 1

Heading: The Constitutional and Statutory Levy Limits

Text: In 1980, the Arizona electorate approved and adopted Article 9, § 19 of the Arizona Constitution, which provides as follows: (1) The maximum amount of ad valorem taxes levied by any county, city, town or community college district shall not exceed an amount two per cent greater than the amount levied in the preceding year.       (4) The limitation prescribed by subsection (1) shall be increased each year to the maximum permissible limit, whether or not the political subdivision actually levies ad valorem taxes to such amounts.       (6) The limitation prescribed by subsection (1) of this section shall be increased by the amount of ad valorem taxes levied against property not subject to taxation in the prior year and shall be decreased by the amount of ad valorem taxes levied against property subject to taxation in the prior year and not subject to taxation in the current year. Such amounts of ad valorem taxes shall be computed using the rate applied to property not subject to this subsection. (7) The legislature shall provide by law for the implementation of this section. The effect of art. 9, § 19 is that, subject to certain enumerated exceptions, the yearly increase in the maximum primary property tax levy of a city, county, or other governmental subdivision is limited to 2%, adjusted to reflect the addition of property to or removal of property from the tax rolls. Pursuant to art. 9, § 19(7), the legislature enacted A.R.S. § 42-301, which implements the constitutional levy limitation provision as follows: A. In addition to any other limitations that may be imposed, the counties, cities, including charter cities, towns and community college districts shall not levy primary property taxes in any year in excess of an aggregate amount computed as follows: 1. Determine the maximum allowable primary property tax levy limit for such jurisdiction for the prior tax year. 2. Multiply paragraph 1 by 1.02. 3. Determine the assessed value for the current tax year of all property in such entity that was subject to tax in the preceding tax year. 4. Divide the dollar amount determined in paragraph 3 by one hundred and then divide the dollar amount determined in paragraph 2 by the resulting quotient. The result rounded to four decimal places is the maximum allowable tax rate for the jurisdiction. 5. Determine the finally equalized valuation of all property, less exemptions, appearing on the tax roll for the current tax year including an estimate of the unsecured property tax roll determined pursuant to § 42-304.01. 6. Divide the dollar amount determined in paragraph 5 by one hundred and then multiply the resulting quotient by the rate determined in paragraph 4. The resulting product is the maximum allowable primary property tax levy limit for the current fiscal year for all political subdivisions. The statute thus operates as follows. The maximum tax rate is equal to the prior year's maximum levy limit multiplied by 102, then divided by the current assessed value of all property subject to tax in the prior year. Because the rate is based on a proportion, the lower the figure used for the current value of property subject to tax in the prior year, the higher the maximum permissible tax rate for the current tax year. The maximum tax levy for the current year in each taxing district is equal to the prior year's maximum levy multiplied by 1.02, then multiplied by a proportion reflecting the addition or deletion of property to the tax rolls from the prior year. The levy formula thus implements the mandate of art. 9, § 19 of the Constitution by first increasing the prior year's maximum levy by 2%, and then increasing or decreasing the maximum levy to reflect the proportionate change in the size of the tax base resulting from the addition to or removal of property from the tax roll. The use of a proportion prevents the maximum levy from increasing solely as a function of inflation or other increase in the value of assessed property because any such increase is reflected in both the numerator and the denominator. Finally, as the parties have observed, the effect of these calculations is cumulative. That is, the higher the maximum permissible levy in one year, the higher the maximum tax rate (and, consequently the maximum levy) the next year, and so on into the future. Conversely, because the adjustment to the levy limit attributable to changes in the size of the tax base is calculated through a proportion, if the growth of the tax base is not reflected in an increase in the levy limit in the year that it occurs, that growth is lost forever, and the maximum tax rates and levies in the future will thereafter be smaller than they otherwise would have been. [4]