72 P.3d 357 (Ariz.Tax 2003), 2001-000616, Cottonwood Affordable Housing v. Yavapai County

Docket Nº:TX 2001-000616.
Citation:72 P.3d 357, 205 Ariz. 427
Party Name:COTTONWOOD AFFORDABLE HOUSING v. YAVAPAI COUNTY, et al.
Case Date:May 09, 2003
Court:Tax Court of Arizona
 
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Page 357

72 P.3d 357 (Ariz.Tax 2003)

205 Ariz. 427

COTTONWOOD AFFORDABLE HOUSING

v.

YAVAPAI COUNTY, et al.

No. TX 2001-000616.

Tax Court of Arizona

May 9, 2003

Page 358

[205 Ariz. 428] Dawn R. Gabel of Steptoe & Johnson, Phoenix, for Plaintiff Cottonwood Affordable Housing.

Glenn M. Gustafson, Deputy County Attorney, for the Defendant Yavapai County.

OPINION

PAUL A. KATZ, J.

Nature of the Case

Plaintiff, Cottonwood Affordable Housing Ltd. Partnership ("Cottonwood") owns and operates a low-income housing project in Cottonwood, Arizona. This Arizona limited partnership was formed to construct and operate low income housing under the federal Low Income Housing Tax Credit ("LIHTC") program. Cottonwood's limited partners bought LIHTCs under that program. In assessing Cottonwood's property, the Yavapai County Assessor assigned a full cash value to the property of $2,121,859 for the 2002 and 2003 tax years. Cottonwood challenged this value claiming it was in excess of the true market value for the property. The parties agree the property should be valued via the income approach to value. However, the parties disagree as to what items of income should be used to arrive at the full cash value. Cottonwood contends the actual income and expenses of the project should form the basis for valuation. The County contends either, that market rents generated by regular commercial apartment complexes should be used to determine the value of the property via the income approach rather than actual rents collected by Cottonwood or the credits themselves should be added to the income stream.

This case presents several issues. The first issue is whether LIHTCs are intangible property. The second issue is whether LIHTCs should be included in the value of Cottonwood's property. And the third issue is whether the restrictions imposed by the LIHTC program should be considered in valuing Cottonwood's property.

The Low Income Housing Tax Credit Program

The Low Income Housing Tax Credit was created by the Tax Reform Act of 1986. It was codified at 26 I.R.C. § 42. Congress created the LIHTC to encourage new construction and rehabilitation of existing rental housing for low-income households and to increase the amount of affordable rental housing for low-income households. The LIHTC program authorizes the states to issue federal tax credits for the acquisition, rehabilitation, or new construction of affordable rental housing. To qualify for the LIHTCs, a project must have a portion of its units set aside for low-income households. The project's use of the property is restricted by deed to low income housing for at least fifteen years. The rents on the units are limited to a percentage of the qualifying income. After the state...

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