Appealing My Tax Bill

Twice this year I have had conversations with the Pima County Assessor's office about the tax bills on two of my rentals. I am learning more about what they expect and how to file successful appeals.

The first time I went in with 28 pages of documentation to support my claim that the assessed value of one of my rentals was way too high relative to the assessed values of nearby rentals. The judge said she didn't have time to look at all that and denied my claim.

I had spent several hours preparing to demonstrate that my house wasn't worth the assessed value based on the gross rent multipliers and capitalization rates of nearby comparable rentals. She clearly had no idea what I was talking about, and told me my presentation was meaningless to her because I identified the comparable rentals in my analysis by street address, rather than parcel numbers.

The county appraiser gave me his spreadsheet showing the parcel numbers of the comparable properties he used in his analysis of my rental property's value. It was my job to look up the addresses on my own time, so I had no way to challenge his approach. His spreadsheet had many columns of numbers, with incomprehensible abbreviations in the column headers and no key to explain what it was all about.

Note to self: if I ever go to another assessment hearing, have a one page spreadsheet showing addresses and parcel numbers of the comparable properties, plus a map of the properties showing their proximity to my property. Anything else will be ignored. Forget trying to establish value based on return on investment. The judge has no interest in the only thing that an investor should consider when deciding what a property is worth.

I almost went to another hearing tomorrow, but thanks to a long phone conversation today with a very knowledgeable and helpful member of the county assessor appraisal staff, I got my questions answered and cancelled my hearing.

Here is what I learned today:

The full cash value (FCV) is reevaluated every year based on nearby sales of similar properties. A computer does the preliminary evaluation, and then the county appraiser looks at the parcels and discards outlier sale prices and sales that are not similar in age or condition to the subject property. The county appraiser who explained this to me used to be a real estate agent, and she said that when she sold houses, "everyone" thought FCV was 72% of market value. Many sellers have told me with confidence that FCV is 80% of market value. When she started working for Pima County, she was told it was no such thing. FCV is supposed to be market value, but it is usually a little less.

She said taxes are based on limited value, which can not be appealed. Only FCV can be appealed, but it's only loosely related to the limited value. The limited value can go up no more than 5% a year. If the FCV decreases, the limited value will probably decrease. At one time FCV and limited value were the same, but that has changed due to the annual reevaluation of FCV and the 5% annual limit on increase in limited value. 

If taxes are based on limited value, and a tax payer can not appeal the limited value, what is the point of appealing the FCV? The appraiser said there really isn't much point. 

To calculate property tax, first multiply limited value by assessment ratio, which is 10% for residential real estate. So if the 2016 limited value is $200,000, the assessed value is 10% of that, or $20,000. Then you have to multiple the assessed value by the primary tax rate (11.5%, for example) shown on your tax bill to get the primary tax ($2,300). The assessed value is also multiplied by the secondary tax rate (4.5%, or example) to get the secondary tax ($900). The primary tax and secondary tax are added together for the total property tax ($3,200). There are probably also override and bond rates to add to the tax bill.

The primary tax rate, secondary tax rate, bond rate and override rate vary by neighborhood and school district. And the secondary rate is higher for rentals than it is for owner-occupied houses. This is why I have to pay $2,219 in property tax, more than on any of my other houses, for my smallest rental, which is a simple 750 square foot, 70 year old house, located near the University Medical Center.