Property tax rule facing big test

Company fights protection for homeowners
East Valley Tribune
Sunday, December 14, 2003
Howard Fischer

An Arizona mining company is trying to kill the main constitutional protection for homeowners against high property taxes.

Asarco is asking Maricopa County Superior Court Judge Michael Yarnell to void a voter-approved provision of the state Constitution, which limits primary property taxes to no more than 1 percent of a home’s full cash value. That translates to a primary tax rate for homeowners of no more than $10 per $100 of assessed value.

Attorney Paul Mooney claims the provision is unconstitutional discrimination because there is no similar limit on taxes for businesses. He also is arguing this constitutional provision violates another one which precludes the enactment of any law that gives special privileges to any individual, association or corporation.

Asarco’s fight is mainly with the town of Hayden and the Hayden-Winkleman Unified School District. Together they have a primary property tax rate of $62.50 per $100 of assessed valuation.

Homeowners are not hit with the excess over $10, with the state picking up that burden.

If Asarco wins its legal battle, homeowners in other communities where the tax rate already exceeds that $10 figure would see immediate hikes in their tax bills.

And removing the homeowner protections also could undermine efforts by other businesses throughout the state to get different forms of tax relief.

The issue goes back to 1980, after California had adopted Proposition 13 limiting property taxes. Bill Heuisler, a Tucson private detective, proposed a similar measure here, rolling back property values to their 1975 levels and then allowing an increase of only 2 percent a year.

State lawmakers responded with their own measure, including the 1 percent cap. The tactic worked and the initiative went down to defeat.

Pima County Assessor Rick Lyons said the legislatively crafted provision was part of a larger compromise that included keeping the ability of lawmakers to alter assessment ratios.

That, he said, was a significant victory for businesses, mainly the mines and utilities.

They had been assessed at 60 percent and 50 percent of their full cash values, respectively. Since that time, lawmakers have lowered that to 25 percent, the same as other types of business.

Assessment ratios are significant because that figure is used to compute the tax owed.

For example, a $150,000 home is assessed for tax purposes at 10 percent of its value, or $15,000. So a tax rate of $8 per $100 would result in a tax of $1,200.

Using that same $8 figure, a $10 million mine assessed at 60 percent of its value would have a $480,000 tax. But at 25 percent assessment its tax is less than half that.

All that, said Lyons, meant a shift in the property tax burden from businesses to homeowners. But that 1 percent cap provided a limit to that shift.

"For homeowners, this is their only protection," Maricopa County Assessor Kevin Ross said.

He noted the lawsuit comes even as the governor’s Citizens Finance Review Commission is weighing further changes in property taxes, including reducing the assessment ratio for all businesses to 20 percent from 25 percent.

What makes that shift significant for homeowners is the way taxes are computed.

Cities, counties, schools and most other entities that rely on property taxes have limits on what they can raise. That limit is divided into the total assessed value of the taxing district to come up with a tax rate.

Lowering the assessment ratios of businesses means a lower overall assessed valuation of the district — meaning a higher tax rate. And the ones most affected by that are those whose assessment ratios are unchanged, meaning the homeowners.

Ross said that 1 percent cap has been significant to keep homeowner property taxes in Arizona much lower than other states.

Without it, he said, the levy on homeowners will rise.

Mooney would not comment on the litigation. And multiple calls to Groupo Mexico, Asarco’s parent company, were not returned.

Kevin McCarthy, executive director of the Arizona Tax Research Association, said if the company is successful it could have one beneficial impact for businesses: It might change the behavior of city councils, county supervisors and school boards.

McCarthy, whose organization represents many of the state’s major taxpayers, said the Hayden city council and school board felt free to impose high taxes because there was little political fallout: The homeowners — the people who vote — would not feel the full impact.

Lyons said he doubts a court will side with Asarco. He pointed out that prior challenges to other differences between taxes on businesses and homeowners have been upheld as legal.