calculating property taxes where property taxes go · • increasing property values do not...

ASBA Law Conference

September 9, 2015

Presentation Overview

• CALCULATING PROPERTY TAXES

• WHERE PROPERTY TAXES GO • 30 minutes

ASBA Law Conference

September 9, 2015

ARIZONA PROPERTY TAX BASICS

•  Levied by multiple jurisdictions –  Cities, Counties, School Districts, Community College Districts, Special Districts –  State (minimum QTR only) and County (statewide)

•  Levied for two types of purposes –  Primary - Maintenance and operations –  Secondary - Voter approved bonds, overrides and special districts (i.e. Fire Districts, Sanitary Districts

Community Facilities Districts)

•  Property valued by two entities –  Locally Assessed – County Assessors –  Centrally Valued – Department of Revenue

•  Two types of property –  Real –  Personal

•  Three types of tax rates –  Rate specific – rate established outside the levying jurisdictions –  Levy specific – use specific debt service/override amount or maximum allowable levy to calculate rate –  Statewide Truth-in-Taxation rates

•  Multiple property values –  Market Value –  Full Cash Value –  Limited Property Value

CALCULATING PROPERTY TAXES

ASBA Law Conference

September 9, 2015

CALCULATING TAX LIABILITY

•  Formula: ASSESSED PROPERTY VALUE x PROPERTY TAX RATE = TAXES

•  Assessed Property Value –  Post-Prop 117 basis for all taxation is “limited” property value

•  Limited value of existing property may not increase by more than 5% each year

•  Limited value may not exceed full cash value –  Assessment Ratio application

•  Determines percent of property subject to taxation •  Based on property use •  Range from 1% to 18.5% •  Vast majority of property in Class 1 (commercial and industrial) and Class 3

(owner residential) –  Class 1 Assessment Ratio 18.5% going down to 18% –  Class 3 Assessment Ratio 10%

ASBA Law Conference

September 9, 2015



•  Property Tax Rate –  Sum of rates for all jurisdictions in which property lies –  Jurisdictions may have primary rates and secondary rates –  Some rates are “fixed”

•  Specific rate •  Predetermined debt service amount

–  Some rates subject to levy limits –  Some rates determined outside jurisdiction –  Total combined rate is applied “per $100 of assessed valuation”

ASBA Law Conference

September 9, 2015



•  Example

Property Classification

Taxable Value

Assessment Ratio

Assessed Value

Tax Rate per $100 Tax Liability

COMMERCIAL $100,000 18.5% $18,500 $9.00 $1,665RESIDENTIAL $100,000 10% $10,000 $9.00 $900

ASBA Law Conference

September 9, 2015

CALCULATING TAX LIABILITY – Takeaways


•  Higher tax rates DO NOT necessarily mean higher taxes •  Increasing property values DO NOT necessarily mean higher

taxes •  Generally, individual property value as percent of total property

value in jurisdiction “matters” for determining tax liability •  Assessment ratios “matter”

–  Taxpayer’s assessment ratio –  Assessment ratio for other classes of property –  Impacted by property classification “split” in each jurisdiction

ASBA Law Conference

September 9, 2015


SCENARIO 1 - Property Value Change ORIGINAL COMPARISON

Property

Value Assessment

Ratio Assessed

Value AV % of

Total Property

Value Assessment

Ratio Assessed

Value AV % of

Total HOUSE 1 $100,000 10% $10,000 5.7% $100,000 10% $10,000 6.2% HOUSE 2 $125,000 10% $12,500 7.1% $125,000 10% $12,500 7.8% HOUSE 3 $145,000 10% $14,500 8.2% $145,000 10% $14,500 9.0% STORE 1 $350,000 18% $63,000 35.7% $350,000 18% $63,000 39.1% STORE 2 $425,000 18% $76,500 43.3% $340,000 18% $61,200 38.0%

ASBA Law Conference

September 9, 2015


SCENARIO 2 - Store Assessment Ratio Change ORIGINAL COMPARISON

Property

Value Assessment

Ratio Assessed

Value AV % of

Total Property

Value Assessment

Ratio Assessed

Value AV % of

Total HOUSE 1 $100,000 10% $10,000 5.7% $100,000 10% $10,000 8.7% HOUSE 2 $125,000 10% $12,500 7.1% $125,000 10% $12,500 10.9% HOUSE 3 $145,000 10% $14,500 8.2% $145,000 10% $14,500 12.7% STORE 1 $350,000 18% $63,000 35.7% $350,000 10% $35,000 30.6% STORE 2 $425,000 18% $76,500 43.3% $425,000 10% $42,500 37.1%

ASBA Law Conference

September 9, 2015


SCENARIO 3 - House Assessment Ratio Change ORIGINAL COMPARISON

Property

Value Assessment

Ratio Assessed

Value AV % of

Total Property

Value Assessment

Ratio Assessed

Value AV % of

Total HOUSE 1 $100,000 10% $10,000 27.0% $100,000 20% $20,000 27.0% HOUSE 2 $125,000 10% $12,500 33.8% $125,000 20% $25,000 33.8% HOUSE 3 $145,000 10% $14,500 39.2% $145,000 20% $29,000 39.2%

ASBA Law Conference

September 9, 2015

PROPERTY TAX LIABILITY FACTORS

FACTORS IMPACTING INDIVIDUAL PROPERTY TAX LIABILITY

Statutory Rate

Specific Primary Levy

Limited Levy Specific Statewide Truth in Taxation Rates

EXAMPLES CFD M&O

Fire District M&O Fire District Assistance

City Primary County Primary

Debt Service School District Override Non State Aid Primary

Items Outside RCL

Minimum QTR Levy State Aid District QTL County Equalization

Individual Property Value Change X X X X X

Change in Existing Property Value in Jurisdiction

X

Change in Total Jurisdictional Property Value

X X

Levy or Authorized Spending Amount X X

Change in Existing Statewide Property Value

X X

Cash Balances Prior Delinquencies X X X (QTL only)

WHERE PROPERTY TAXES GO

ASBA Law Conference

September 9, 2015

TYPICAL PROPERTY TAX BILL – Tax Year 2014

PROPERTY VALUE INFORMATION

ASBA Law Conference

September 9, 2015

TYPICAL PROPERTY TAX BILL

Primary Rate: $11.8313 Secondary Rate: $5.2046 Combined Rate: $17.0359

ASBA Law Conference

September 9, 2015

TYPICAL PROPERTY TAX BILL

ASBA Law Conference

September 9, 2015

SEPARATION OF PRIMARY AND SECONDARY TAXES

•  Constitutional 1% cap on residential property –  Maximum taxes limited to 1% of limited property value –  Taxes for certain purposes excluded from cap limitation –  Excluded purposes are “secondary” taxes

•  1% cap equates to $10 primary property tax rate –  That’s how the math works

•  10% residential assessment ratio •  Rate applied per $100 of assessed valuation •  $10 rate equates to 1% of limited property value

•  Additional State Aid –  Homeowners’ rebate nets against 1% cap – automatic for owner residential –  “More” additional state aid – if needed

•  Final remedy against 1% cap violation •  2015 legislation – cap on 1% cap distributions ($1 million per county)

ASBA Law Conference

September 9, 2015

PROPERTY TAX LEVYING JURISDICTIONS and PURPOSES

Levying Jurisdiction PRIMARY TAX SECONDARY TAX City M&O

(levy specific) GO Debt Service

(levy specific)

County M&O (levy specific)

GO Debt Service (levy specific)

School District M&O (rate specific)

Items Outside RCL Deseg, Adjacent Ways, TRCL/TSL

(levy specific)

GO Debt Service (levy specific) Overrides (levy specific)

Community College District M&O (levy specific)


Special Districts (e.g. JTEDs, CFDs, MIHS)

M&O (rate specific or levy specific)


“State” (equalization) State GF Offset for GFL (auto set by truth-in-taxation)

ASBA Law Conference

September 9, 2015

EQUALIZATION TAX RATES – For School Purposes

•  Qualifying Tax Rate (QTR) –  Determines mix between local property tax funding and equalization assistance –  Applicable for State Guaranteed Funding Level (equalization base) –  Not actual property tax rate

•  State Equalization Tax Rate (SETR) –  Single property tax rate levied statewide –  Collections directly offset state general fund obligation for equalization assistance

•  Rates subject to Truth-in-Taxation –  Formula to determine allowable rates each year

•  As existing property value goes up, rates go down •  As existing property value goes down, rates go up

–  Legislative enactment of rates higher than formula, requires specified procedures –  Rates are subject to voter approved caps

•  QTR - $4.2530 •  SETR - $0.5123

ASBA Law Conference

September 9, 2015

QUALIFYING TAX RATE

$1,000,000 Guaranteed Funding Level

$1,200,000

$550,000

$1,000,000

Hypothetical School Districts $2,250,000

Equalization Assistance

$125,000 Minimum

QTR amount

QUESTIONS

ASBA Law Conference

September 9, 2015

General Information Exclusion Disclosure

Stifel, Nicolaus & Company, Incorporated (“Stifel”) has prepared the attached materials. Such material consists of factual or general information (as defined in the SEC’s Municipal Advisor Rule). Stifel is not hereby providing a municipal entity or obligated person with any advice or making any recommendation as to action concerning the structure, timing or terms of any issuance of municipal securities or municipal financial products. To the extent that Stifel provides any alternatives, options, calculations or examples in the attached information, such information is not intended to express any view that the municipal entity or obligated person could achieve particular results in any municipal securities transaction, and those alternatives, options, calculations or examples do not constitute a recommendation that any municipal issuer or obligated person should effect any municipal securities transaction. Stifel is acting in its own interests, is not acting as your municipal advisor and does not owe a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934, as amended, to the municipal entity or obligated party with respect to the information and materials contained in this communication. Stifel is providing information and is declaring to the proposed municipal issuer and any obligated person that it has done so within the regulatory framework of MSRB Rule G-23 as an underwriter (by definition also including the role of placement agent) and not as a financial advisor, as defined therein, with respect to the referenced proposed issuance of municipal securities. The primary role of Stifel, as an underwriter, is to purchase securities for resale to investors in an arm’s- length commercial transaction. Serving in the role of underwriter, Stifel has financial and other interests that differ from those of the issuer. The issuer should consult with its’ own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent it deems appropriate. These materials have been prepared by Stifel for the client or potential client to whom such materials are directly addressed and delivered for discussion purposes only. All terms and conditions are subject to further discussion and negotiation. Stifel does not express any view as to whether financing options presented in these materials are achievable or will be available at the time of any contemplated transaction. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Stifel to provide or arrange any financing for any transaction or to purchase any security in connection therewith and may not relied upon as an indication that such an offer will be provided in the future. Where indicated, this presentation may contain information derived from sources other than Stifel. While we believe such information to be accurate and complete, Stifel does not guarantee the accuracy of this information. This material is based on information currently available to Stifel or its sources and is subject to change without notice. Stifel does not provide accounting, tax or legal advice; however, you should be aware that any proposed indicative transaction could have accounting, tax, legal or other implications that should be discussed with your advisors and /or counsel as you deem appropriate. This presentation cannot be distributed or duplicated without the permission of Stifel. Stifel invests significant time and effort in preparing these materials and requests that you respect our prerogative to limit distribution to our clients and as we deem consistent with our business plan.

calculating property taxes where property taxes go · • increasing property values do not...

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