Arizona Court ofAppeals Division One Holds That a Tax Discrimination Claim May Be Based on the Initial Values Assessed.

Appellees Taxpayers suedAppellantMaricopaCounty for property tax discrimination in violation of the Uniformity Clause of the Arizona Constitution, which states that “all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax.”  Ariz. Const. art. 9 § 1.  During the 1995-1996 tax period, the County valued Taxpayers’ properties at 100% of their full cash value while rolling overvaluations on similar properties, resulting in valuations less than full cash value.  Taxpayers prevailed on summary judgment.  The court awarded Taxpayers a portion of their requested costs and $30,000 in attorneys’ fees but denied their expert witness costs.  The County timely appealed the grant of summary judgment and Taxpayers timely cross-appealed the costs and fees awards.

The ArizonaAppeals Court affirmed the summary judgment but vacated and remanded the costs award.  Citing Aileen H. Char Life Interest v. Maricopa County, 208 Ariz. 386, 93 P.3d 486 (2004), the Court first held that tax discrimination applies with respect to initial values assessed by the County, not just final tax values or taxes actually paid.  The Court noted two practical problems with requiring evidence of final tax values to establish tax discrimination: (1) final tax values resolved through administrative appeals are based on evidence from the initial valuation; and (2) if a taxpayer appeals the administrative appeal to the State Board of Equalization, the taxpayer must still use evidence from the initial valuation.  Consequently, evidence surrounding the initial valuation is necessary to demonstrate any tax discrimination.

The Court then held that a reasonable jury could not have found in favor of the County on Taxpayer’s tax discrimination claim.  Discriminatory valuation requires proof that (1) taxing officials acted deliberately and systematically, and (2) their conduct resulted in “greatly disproportionate tax treatment” within a class of property.  The Court held that the County’s conduct was deliberate and systematic, a finding consistent with Aileen Char.  The Court rejected the County’s argument that its conduct was based on a coding mistake, noting that the County did not merely make an appraisal error, but repeatedly applied a wholly different valuation procedure to properties within the same class.  The Court also held that the County’s conduct caused a great inequality – Taxpayers’ property was valued at 100% of its full cash value while the favored properties were valued at only 56% of full cash value.  The fact that only a small percentage of the class was favored was irrelevant to the inequality analysis. 

Finally, the Court affirmed the $30,000 award of attorneys’ fees, holding that the $30,000 statutory limit in A.R.S. 12-348 applied to each judicial level of appeal.  It also affirmed the trial court’s denial of an award of expert witness fees.  It vacated and remanded the costs award, however, because Taxpayers’ were entitled to recover all costs that were not contested.

Presiding Judge Portley authored the opinion; Judges Barker and Gemmill concurred.