Correcting Property Tax Errors: Notice of Claim and Notice of Error Procedures.

Originally published June, 2001

A. INTRODUCTION.

Effective November 1, 1994, new procedures went into effect to provide for the correction of property tax errors by either a taxpayer or the taxing authority. See A.R.S. s.s. 42-16251 to 16258.

B. WHAT IS AN "ERROR."

A property tax error is narrowly defined by the statute and for the most part does not include ordinary valuation disputes. "Error" is defined as follows:

"Error" means any mistake in assessing or collecting property taxes resulting from:

(a) An imposition of an incorrect, erroneous or illegal tax rate that resulted in assessing or collecting excessive taxes.

(b) An incorrect designation or description of the use of property or its classification pursuant to chapter 12, article 1 of this title.1

(c) Applying the incorrect assessment ratio percentages prescribed by chapter 15, article 1 of this title.2

(d) Misreporting or failing to report property if a statutory duty exits to report the property.

(e) Subject to the requirements of s. 42-16255, subsection B, a valuation that is based on an error that is exclusively factual in nature or due to a specific legal restriction that affects the subject property and that is objectively verifiable without the exercise of discretion, option or judgment and that is demonstrated by clear and convincing evidence, such as:

(i) A mistake in the description of the size, use or ownership of land, improvements or personal property.

(ii) Clerical or typographical errors in reporting or entering data that was used directly to establish valuation.

(iii) A failure to timely capture on the tax roll a change in value caused by new construction, destruction, demolition or splitting or consolidating interests in real property existing on the valuation date.

(iv) The existence or nonexistence of the property on the valuation date.

(v) Any other objectively verifiable error that does not require the exercise of discretion, opinion or judgment.

"Error" does not include a correction that results from a change in the law as a result of a final nonappealable ruling by a court of competent jurisdiction in a case that does not involve the property for which a correction is claimed.

C. NOTICE OF ERROR -- INCREASE OF TAXES BY TAXING AUTHORITY.

If a taxing authority finds that real or personal property has been assessed improperly, the taxing authority may send a Notice of Error to the taxpayer explaining the nature of the error and the correction proposed. The taxpayer may either agree with the correction or file a written response within 30 days disputing the proposed correction. If an owner of real property consents to the proposed correction, the tax roll will be corrected to allow property taxes to be levied and collected but no tax, interest or penalty may be imposed for any tax year preceding the date of the notice of error. This is not the case for personal property and the notice of error for personal property may cover the past three years. For personal property, if a person reports the error to the taxing authority before receiving a notice of error, no penalty will be applied and the tax roll can be corrected to allow property taxes for the period covered by the error to be levied and collected. In short, if an owner of real property consents to the correction of error, then the tax roll can be corrected only for the current year. For personal property, if a taxpayer reports the error before a notice of error is issued, then all penalties will be abated but taxes for the three past years can be assessed.

At the request of the taxpayer, the taxing authority must meet with the taxpayer. If the parties fail to agree, the taxing authority will serve notice on the taxpayer that the error will be corrected unless the taxpayer files a petition with the State Board of Equalization, within 30 days. The Board must hold a hearing and, if the taxpayer disagrees with the result, the taxpayer may appeal to the Tax Court within 60 days after the date the Board's decision is mailed. See A.R.S. s. 42-16252.

D. NOTICE OF CLAIM -- REFUND OF TAXES TO TAXPAYER.

If the taxpayer believes his or her property has been incorrectly assessed, by being overvalued, incorrectly classified, etc., he or she may file a Notice of Claim with the appropriate taxing authority (County Assessor or Department of Revenue). Within 60 days after receiving a Notice of Claim, the taxing authority may file a written response to either consent to or dispute the claim. If the taxing authority fails to respond in the 60-day time period, such failure constitutes consent to the claim. If the taxing authority disputes the claim, it will schedule a meeting with the taxpayer. If there is still disagreement after the meeting, the taxpayer may appeal to the State Board for property located in Maricopa and Pima counties and to the local county board for all other counties within 150 days after the Notice of Claim is filed. The Board will hold a hearing within 30 days and issue its decision. If the taxpayer still disagrees with the result, the taxpayer may appeal to the Tax Court. See A.R.S. s. 42-16254.

E. RECENT CASES.

Park Central Mall, LLC v. Maricopa County, Court of Appeals, 1 CA-TX 98-0020 (April 27, 2000). When a county attempts to correct an assessment error for the current tax year by the Notice of Error procedures of A.R.S. s. 42-16252, the county must wait until after the third Monday in August of that year to send out the Notice of Error. In this case, Maricopa County issued the Notice of Error for the current year prior to the third Monday in August. The court invalided that notice as premature.

Pima County Assessor v. Arizona State Board of Equalization, 1 CA-TX 98-0011 (opinion filed 9-30-99). Arizona has a property tax error correction mechanism in which a taxpayer may file a refund claim for overpaid property taxes going back up to three years if the taxing jurisdiction made a "error" in valuing or assessing the property. The issue was whether a property owner that had appealed the valuation of his property for the year in question is then precluded from subsequently filing a notice of error raising a different issue than valuation. The Court concluded that if the taxpayer knew of or reasonably should have discovered an "error" in sufficient time to assert its tax appeal, then the error correction statutes cannot later provide a remedy. If the "error" has escaped the taxpayer's attention despite the exercise of reasonable care to discover it in time, the error correction mechanism can provide a remedy regardless of whether the taxpayer prosecuted a tax appeal for the tax year in question.

F. APPENDIX.

Charts of Notice of Error and Claim Procedures.

Notice of Claim and Notice of Error Statutes, A.R.S. s.s. 42-16251 through 16258.

Personal Property Manual, Chapter 9, Correction of Errors.

Assessment Procedures Manual, Part 3, Chapter 9, Correcting Property Tax Errors.

Form of Notice of Claim.

Park Central Mall, LLC v. Maricopa County, Court of Appeals, State of Arizona, 1 CA-TX 98-0020, April 27, 2000.

Footnotes

1 Section 42-12001 et seq.

2 Section 42-15001 et seq.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Patrick Derdenger

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