Court Opinion

ID: 9387602
Source: CourtListenerOpinion
Date Created: 2023-04-18 16:03:49.289768+00
Date Added: 2024-06-11T17:18:14.694240
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE

             5133 N CENTRAL, LLC, et al., Plaintiffs/Appellants,

                                         v.

             MARICOPA COUNTY, et al., Defendants/Appellees.

                              No. 1 CA-TX 22-0005
                                FILED 4-18-2023

                     Appeal from the Arizona Tax Court
                            No. TX2019-001719
                    The Honorable Danielle J. Viola, Judge

                                   AFFIRMED

                                    COUNSEL

Mooney Wright Moore & Wilhoit, PLLC, Mesa
By Paul J. Mooney, Jim L. Wright, Paul Moore, Bart S. Wilhoit
Counsel for Plaintiffs/Appellants

Carden Livesay, Ltd., Mesa
By Roberta S. Livesay, Joshua W. Carden
Counsel for Defendant/Appellee Maricopa County

Arizona Attorney General’s Office, Phoenix
By Jerry A. Fries, Lisa A. Neuville
Counsel for Defendant/Appellee Arizona Department of Revenue
          5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                       Decision of the Court

                       MEMORANDUM DECISION

Judge Angela K. Paton delivered the decision of the Court, in which
Presiding Judge Jennifer M. Perkins and Judge D. Steven Williams joined.

P A T O N, Judge:

¶1           5133 N. Central, LLC, and 5115 N. Central, LLC, representing
a class of property owners who held Class One assessed properties in
Maricopa County in the 2018 tax year (collectively “Taxpayers”),
challenged the valuation method used by the Maricopa County Assessor
(“Assessor”) to determine their tax liability. The superior court granted
summary judgment in favor of Maricopa County and the Arizona
Department of Revenue (“ADOR” or “Department”). For the following
reasons, we affirm.

                  FACTS AND PROCEDURAL HISTORY

¶2           In 2019, Taxpayers sued Maricopa County and ADOR, and
argued the county’s method of calculating the limited property value
(“LPV”) of their properties violated Arizona tax law. Taxpayers sought a
refund of taxes collected using the county’s assessment method. The
superior court granted summary judgment in favor of Maricopa County
and ADOR. Taxpayers timely appealed. We have jurisdiction under
Arizona    Revised    Statutes     (“A.R.S.”)  Sections   12-120.21(A)(1)
and -2101(A)(1).

                                DISCUSSION

¶3            We review de novo both the superior court’s order granting
summary judgment and its interpretation of our tax statutes. Qasimyar v.
Maricopa Cnty., 250 Ariz. 580, 584, ¶ 6 (App. 2021). Our primary goal in
interpreting a statute is to effectuate the text. See James v. City of Peoria, 253
Ariz. 301, 303, ¶ 9 (2002). When statutory language is unambiguous, we
apply it without resorting to secondary methods of interpretation. Id.

I.     Methods of establishing LPVs

¶4           Under Arizona’s property taxation system, each county is
responsible for levying and collecting taxes for the properties within its
limits. Every year, the county assessor must determine the full cash value

                                        2
         5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                      Decision of the Court

(“FCV”) of all real property within the county that is subject to taxation.
A.R.S. § 42-13051(B)(2). In 2012, Arizona voters adopted Proposition 117,
which amended Arizona’s constitution to require that real property taxes
be assessed based on the property’s LPV rather than its FCV. See Ariz.
Const. art. 9, § 18 (establishing LPV in subsection (3) though not using the
term); see also Qasimyar, 250 Ariz. at 584, ¶ 9 (citing other relevant statutes
and legislative authorities).

¶5             Real property taxes are calculated by multiplying a property’s
LPV by an assessment ratio, which is dictated by statute based on the
property’s classification. See Aileen H. Char Life Int. v. Maricopa Cnty., 208
Ariz. 286, 291, ¶ 8 (2004). The result is the property’s assessed value, which,
when applied to the relevant tax rate, determines the amount of property
tax due. See id.

¶6            There are two ways to calculate a parcel’s LPV, depending on
the property’s status. See Qasimyar, 250 Ariz. at 584, ¶ 10. “Rule A” is the
“general rule” and applies when there have been no significant changes to
the property that would affect its value since the previous tax period. See
id. Under Rule A, a property’s LPV increases by 5% each year provided
that the LPV never exceeds the property’s current FCV. A.R.S. § 42-
13301(A)–(B). Rule A “prevents rapid rises in [LPV] that might result from
market increases.” Premiere RV & Mini Storage LLC v. Maricopa Cnty., 222
Ariz. 440, 442, ¶ 4 (App. 2009).

¶7            “Rule B” properties are properties which have undergone
modifications, omissions, or changes since the preceding tax year. See
A.R.S. § 42-13302; Premiere RV & Mini Storage LLC, 222 Ariz. at 442, ¶ 4.
Under Rule B, a property’s LPV is determined “by reference to the value of
comparable properties.” See id. Specifically, the Legislature has directed
county assessors to establish the LPV of Rule B properties “at a level or
percentage of [FCV] that is comparable to that of other properties of the
same or a similar use or classification.” A.R.S. § 42-13302. The LPV
established under Rule B is used to calculate the parcel’s Rule A LPV in the
following tax year. See A.R.S. § 42-13301.

¶8            Until the 2018 tax year, nearly every county in Arizona used
the same method, referred to as the “Ratio Aggregate Method,” to calculate
the Rule B Ratios. In 2018, Maricopa County adopted a different method
for calculating Rule B Ratios, known as the “Ratio Average Method.”

                                      3
               5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                            Decision of the Court

          A.      Ratio Average Method

    ¶9            Under the Ratio Average Method, the county assessor
    calculates the ratio of LPV to FCV (LPV divided by FCV) of each Rule A
    property in a class. The assessor then adds those ratios together and divides
    that sum by the number of properties in the class. In other words, under
    the Ratio Average Method, the assessor calculates the Rule B ratio by
    averaging the LPV/FCV ratios of all similar Rule A properties.

          B.      Ratio Aggregate Method

    ¶10           Under the Ratio Aggregate Method, the assessor establishes
    the Rule B Ratio by dividing the aggregate LPV of all the Rule A Parcels in
    a given class by the aggregate FCV of those same parcels.

          C.      Example of Ratio Average Method and Ratio Aggregate
                  Method

Class X properties      FCV                  LPV              RATIO (LPV/FCV)

1                       $1,000,000           $800,000         0.80

2                       $500,000             $340,000         0.68

3                       $250,000             $190,000         0.76

                 Sum: $1,750,000               $1,330,000     2.24

    ¶11           Under the Ratio Average Method, the assessor would add the
    individual ratios of each Class X property (0.80 + 0.68 + 0.76 = 2.24) and
    divide that by the number of properties in the class (3), resulting in a Rule
    B Ratio of 75% (2.24/3 = 0.75).

    ¶12          Under the Ratio Aggregate Method, the assessor would
    divide the sum of the LPVs of the Class X properties ($1,330,000) by the sum
    of those properties’ FCVs ($1,750,000), resulting in a Rule B Ratio of 76%
    ($1,330,000/$1,750,000 = 0.76).

    ¶13          Here, the parties agree that under the Ratio Aggregate
    Method, the LPV of Taxpayers’ properties would have been calculated at
    75% of FCV, but because the Assessor used the Ratio Average Method, their
    properties were calculated at 79% of FCV.

                                         4
            5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                         Decision of the Court

II.    The Ratio Average Method does not violate Section 42-13302.

¶14            Section 42-13302(A) provides that the LPV of Rule B
properties shall be calculated at a “level or percentage of full cash value that
is comparable to that of other properties of the same or a similar use or
classification.” (emphasis added). Taxpayers argue the term “that” in the
statute refers to a single “level or percentage” (or ratio) of FCV that is
uniform to all properties of the same or similar use or classification. But
that uniform ratio does not exist: each Rule A property has a different
individual LPV/FCV ratio.

¶15           Indeed, as demonstrated above, both methods produce a
single Rule B Ratio, derived from the FCVs and LPVs of each Rule A
property “of the same or a similar use or classification” that is “comparable”
to the ratios of other similarly used or classified property. See A.R.S.
§ 42-13302. Both the Ratio Aggregate Method and Ratio Average Method
use the same data in different ways to determine the Rule B Ratio.

III.   Assessors have discretion to choose different Rule B Ratio
       calculation methods.

       A.      Section 42-13302 does not require all county assessors to use
               the same method to calculate Rule B Ratios.

¶16           Taxpayers’ argument that the Ratio Average Method is
impermissible because it yields different results from the Ratio Aggregate
Method is similarly unpersuasive. Section 42-13302(A) only requires
assessors to establish an LPV for Rule B properties “at a level or percentage
of [FCV] that is comparable to that of other properties of the same or a
similar use or classification.” That the Ratio Average Method may yield
different results from the Ratio Aggregate Method does not render the Ratio
Average Method illegal under the statute, which neither prescribes nor
prohibits any method of calculating the LPV of Rule B properties.

       B.      Section 42-13002(A)(1) does not require the Department to
               ensure statewide uniformity of Rule B Ratio calculation
               methods.

¶17          At oral argument, Taxpayers argued that Section
42-13002(A)(1) requires county assessors throughout the State to use the
same method of calculating Rule B Ratios. We disagree.

¶18          Section 42-13002(A)(1) provides that the Department shall
“ensure that all property is uniformly valued for property tax purposes.”

                                       5
         5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                      Decision of the Court

”Valuation” is defined, in relevant part, as the “limited property value that
is determined for real or personal property.” A.R.S. § 42-11001(18). The
“uniformity” that the Department is tasked with ensuring, therefore, refers
to how counties value—that is, determine the LPV of—Rule B properties.
In other words, the uniformity in Section 42-13002(A)(1) is tied to how
counties apply the Rule B Ratio rather than how they arrive at that ratio.
Here, regardless of the method county assessors use to arrive at the Rule B
Ratio, they uniformly apply that Ratio to calculate LPVs by multiplying the
Rule B Ratio by the property’s FCV.

¶19           Further, Section 42-13002(A)(1) is ambiguous in that it does
not specify the territorial limits within which property must be “uniformly
valued.” We thus resort to secondary methods of statutory interpretation
to determine whether Section 42-13002(A)(1) refers to “uniformity” within
a taxing authority’s jurisdiction, or within the State. “Statutory provisions
should be read in context to determine meaning,” and we “consider statutes
that are in pari materia—of the same subject or general purpose—for
guidance.” See State v. Ariz. Bd. of Regents, 253 Ariz. 6, 12, ¶ 24 (2022)
(citation omitted).

¶20           We read Section 42-13002(A)(1) in pari materia with Article 9,
Section 1 of the Arizona Constitution, which provides that “all taxes shall
be uniform upon the same class of property within the territorial limits of
the authority levying the tax.” Accordingly, even if Section 42-13002(A)(1)
required methodological uniformity in calculating Rule B Ratios, that
uniformity is only required within the territorial limits of the county
assessors’ authority, which here is Maricopa County. See A.R.S. § 42-
13051(A). All parties agree that the Maricopa County Assessor calculated
and applied the Rule B Ratio uniformly for all Rule B properties in the
county.

IV.   The Legislature did not impermissibly delegate authority to county
      assessors.

¶21             Taxpayers next argue that permitting county assessors to
calculate Rule B Ratios using the Ratio Average Method is an impermissible
delegation of legislative power. In support of their argument, Taxpayers
cite Southern Pacific Company v. Cochise County, 92 Ariz. 395 (1963), which
states that the Legislature may not delegate to an official “the power to fix
a rate of taxation according to a standard [and] also the power to prescribe
the standard” because “a statute [giving] unlimited regulatory power to a
. . . board or agency with no prescribed restraints offends the Constitution
as a delegation of legislative power.” Id. at 404.

                                     6
         5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                      Decision of the Court

¶22            As an initial matter, and as the Department points out, if it is
an unlawful delegation of power for the Assessor to calculate LPVs using
the Ratio Average Method, it is equally unlawful for it to calculate LPVs
using the Ratio Aggregate Method because the Legislature has not
prescribed either method. But here, as in Southern Pacific, the Legislature’s
delegation of power to county assessors is constitutionally permissible
because “in no event can it be construed to give [county assessors]
unlimited power to change the uniform method of assessment prescribed
by the legislature.” 92 Ariz. at 404.

¶23            Indeed, the Legislature did not give county assessors
unfettered discretion to assess taxes on Rule B properties. Rather, the
Legislature directed assessors to determine the LPV of Rule B properties at
a rate “comparable to that of other properties of the same or a similar use
or classification.” A.R.S. § 42-13302(A). While Taxpayers would prefer that
the authority delegated to the county assessor be further constrained, we
will not construe the county assessor’s role more narrowly than the statute
directs.

V.     The Department’s use of the Ratio Aggregate Method in its
       Assessment Procedure Manual does not require every county
       assessor to use that method.

¶24              Taxpayers argue that the Department “teaches assessors to
establish Rule B Ratios using the Aggregate Method” because the
Department’s Procedure Manual provides examples of the Ratio Aggregate
Method and not the Ratio Average Method. But the legality of a Rule B
Ratio calculation is determined by whether it complies with Section
42-13302, not the Department’s manual. And as we explained above, the
Ratio Average Method is legal because it comports with the statute. To the
extent the examples the Department includes in its manual constitute its
interpretation of what the statute requires, that interpretation is not binding
authority. See Maricopa Cnty. v. Viola, 251 Ariz. 276, 279, ¶ 11 (App. 2021)
(noting ADOR guidelines are “just that, guidelines, not formal regulations
. . . .”). The final word on statutory interpretation belongs to the judiciary,
not to administrative agencies. See U.S. Parking Systems v. City of Phoenix,
160 Ariz. 210, 211 (App. 1989).

¶25         Nevertheless, we agree with the superior court’s
determination that “even if the Manual was entitled to deference, the [Ratio
Average Method] is consistent with the instructions included in the
manual.” In the Manual, the Department states that the Rule B Ratio is
“determine[d] by using the ratio for properties in the same legal

                                      7
         5133 N CENTRAL, et al. v. MARICOPA COUNTY, et al.
                      Decision of the Court

classification or within the same property use code grouping” and is “based
upon the relationship between the full cash and limited values of existing
properties that are subject to Rule A limited value calculation.” The Manual
does not provide that the Ratio Aggregate Method is the only permissible
method, and the Ratio Average Method is consistent with the Manual’s
guidance (and the language of Section 42-13302) that Rule B Ratios are
determined “using the ratio[s] for properties in the same legal
classification.”

VI.    The 2018 Rule B Ratios did not result in illegal LPVs in subsequent
       years.

¶26           Taxpayers further contend that the “illegal LPVs set by the
assessor have resulted in illegal LPVs in subsequent years.” But as we have
explained above, the LPVs set by the Assessor in 2018 complied with
Arizona tax law, and the Assessor did not err in calculating the Rule B
Ratios. Accordingly, because there was no initial error in the 2018
calculation for Rule B Ratios, there is also no resulting error for subsequent
tax periods.

                               CONCLUSION

¶27           We affirm.

                            AMY M. WOOD • Clerk of the Court
                            FILED: AA

                                        8