Business Realty of Arizona, Inc. v. Maricopa County

• Decision Date: 04 April 1995
• Docket Number: No. CV-93-0374-PR,CV-93-0374-PR
• Citation: 181 Ariz. 551,892 P.2d 1340
• Parties: BUSINESS REALTY OF ARIZONA, INC., a corporation, Plaintiff-Appellee, v. MARICOPA COUNTY, a political subdivision of the State of Arizona, Defendant-Appellant.
• Court: Arizona Supreme Court

Page 1340

892 P.2d 1340

181 Ariz. 551

BUSINESS REALTY OF ARIZONA, INC., a corporation, Plaintiff-Appellee, v. MARICOPA COUNTY, a political subdivision of the State of Arizona, Defendant-Appellant.

No. CV-93-0374-PR.

Supreme Court of Arizona, In Banc.

April 4, 1995.

[181 Ariz. 552] Fennemore Craig, P.C. by Paul J. Mooney, Kendis K. Muscheid, and Donald P. Roelke, Phoenix, for Business Realty of Arizona.

Helm & Kyle, Ltd. by John D. Helm, Roberta S. Livesay, Ileen K. Keenan, Tempe, for Maricopa County.

OPINION

FELDMAN, Chief Justice.

Maricopa County (the county) petitioned this court to review a court of appeals opinion affirming a tax court judgment in favor of Business Realty of Arizona (taxpayer). We first granted review on one issue only: whether the court of appeals had improperly interpreted A.R.S. § 42-147. We later granted review on an issue we had originally declined: whether the court of appeals' interpretation of that statute rendered it void for vagueness. These issues have statewide importance because they directly affect other cases and the government's critical ability to tax. We have jurisdiction under Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-102.

FACTS AND PROCEDURE

Taxpayer owns Camelview Plaza Shopping Center in Scottsdale. This major shopping center (the property) encompasses over 426,000 square feet of improvements, including department stores, many smaller retail tenants, a movie theater, and two large parking structures. This appeal arises from the county's 1990 valuation of the property for real property taxation.

Using the cost approach to valuation, the county assessor originally valued the property at $26,301,328. Taxpayer protested this valuation and demanded that the county instead employ the straight line building residual (SLBR) method of A.R.S. § 42-147(B). ¹ Using this method, the Maricopa County Board of Equalization (board), the initial reviewing body, reduced the property's assessed full cash value to $18,475,184. Still displeased, taxpayer appealed to the tax court under A.R.S. § 42-245(A)(1). ² That court reduced the assessed value to $12,896,672.

From this judgment, the county appealed. Although disagreeing in part with the tax court's analysis, the court of appeals affirmed the judgment. Business Realty of Arizona, Inc. v. Maricopa County, 178 Ariz. 29, 870 P.2d 1125 (Ct.App.1993). The county then petitioned this court for review. The key issues in this appeal are relatively simple and hinge on the interpretation of Arizona's idiosyncratic statutes on the valuation of shopping center property. We begin with legislative policy and the relevant constitutional provisions and statutes. We agree with the court of appeals that the statutes at issue are poorly worded, but conclude that a reasonable analysis of their text and historical context make the legislative intent quite clear. See id. at 36, 870 P.2d at 1132.

Arizona's historic approach to tax valuation has been to require assessment of property at fair market value. See, e.g., Rev.Stat.Ariz., Civil Code § 4849 (1913); A.R.S. § 42-201(4). In the present case, therefore, we look for indications that the legislature wanted to have shopping center property, as defined by A.R.S. § 42-147(F)(2), assessed at anything other than the fair market value that our legislature has traditionally regarded as the fundamental basis for tax assessment.

VALUE AND FAIR MARKET VALUE

A. Value in Arizona tax assessment

For tax purposes, Arizona values all property at full cash value. A.R.S. § 42-221(B). In Arizona and nationally, full cash value generally means fair market value. See, e.g., Supervisor of Assessments v. Har Sinai West Corp., 95 Md.App. 631, 622 A.2d 786, 794 (Md.Ct.Spec.App.1993), BLACK'S LAW DICTIONARY 597-98 (6th ed. 1990). Until 1989, the definition section of the Arizona tax statutes explicitly defined "full cash value" for property taxation as "synonymous with market value." A.R.S. § 42-201(4). That continued an Arizona tradition dating at least to 1913, when the first state legislature decreed:

All taxable property must be assessed at its full cash value. The term "full cash value" ... means the price at which property would sell if voluntarily offered for sale by the owner thereof, upon such terms as such property is usually sold, and not the price which might be realized if such property was sold at a forced sale.

Rev.Stat.Ariz., Civil Code § 4849 (1913); see also Rev.Code Ariz. § 3068 (1928) (same); Ariz.Code § 73-203 (1939) (same); Bank of Arizona v. Howe, 293 F. 600, 609 (D.Ariz.1923) ("It will be seen by the Constitution and laws of the state that ... all taxable property within the state must be assessed at its full cash value."); Federal Land Bank v. County of Yuma, 42 Ariz. 45, 48, 22 P.2d 405, 406 (1933) ("The law requires that all property be assessed at its full cash value.").

In 1989, the legislature tempered the full cash value premise by amending the general tax definitions. A.R.S. § 42-201(4); 1989 Ariz.Sess.Laws ch. 259, § 1. After the 1989 amendment, "full cash value" for property tax purposes meant "that value determined as prescribed by statute. If no statutory method is prescribed, full cash value is synonymous with market value." § 42-201(4). It is important to note that this 1989 law specifically identified and reaffirmed the general traditional approach using market value as the standard goal for tax valuation.

B. Defining and finding fair market value

Fair market value is, of course, that "amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts." BLACK'S LAW DICTIONARY at 597; see also APPRAISAL INSTITUTE, THE APPRAISAL OF REAL ESTATE 18-22 (10th ed. 1992). For tax purposes, fair market value is determined by use of three common appraisal approaches: capitalizing the income stream, estimating replacement cost less depreciation, and estimating market value by comparable sales. § 42-221(E). ³ The Arizona Legislature has rarely used its power to prescribe an alternative to the fair market value concept of full cash value for tax valuation purposes. ⁴

C. Shopping center tax valuation

The basic tax classifications for Arizona property appear in § 42-162(A). Shopping centers are class 3 property, generally defined as "all real ... property ... devoted to any commercial or industrial use...." § 42-162(A)(3)(a).

Taxpayer's entire argument turns on a claim that the legislature has somehow created special tax value for shopping centers in § 42-147, which prescribes the valuation system for shopping centers. In relevant part, § 42-147 states:

A. The valuation of a shopping center shall be determined by ... utilizing the replacement cost less depreciation method, except as provided in subsections B and C of this section....

B. Upon a review or appeal, at the election of a taxpayer, the income method commonly known as the straight line building residual method shall be used in the valuation of a shopping center, subject to the provision of subsection D, if the taxpayer submits all reasonably necessary income and expense information. The reviewing body shall utilize the information submitted by the taxpayer and may also utilize any other information customarily analyzed under this method. [Specific capitalization and recapture rates omitted.]

C. Upon election by a taxpayer, a property may be valued by the method prescribed by subsection B of this section....

D. Upon appeal of a valuation determined by the income method or an appeal where the taxpayer has elected the income method pursuant to subsection B, if after computing the value by the income method the reviewing body finds that other valuation factors must be applied to determine the value of the property it may utilize such other factors as it finds necessary; provided that it shall specify in its written order what other factors were considered, the manner in which they were applied, and the change in the final value, if any, resulting from the use of such other factors....

(Emphasis added.)

A shopping center, to which the quoted sections apply, is defined by § 42-147(F)(2) as:

[A]n area comprised of three or more commercial establishments, the purpose of which is primarily retail sales, which has a combined gross leasable area of at least twenty-seven thousand square feet, owned or managed as a unit and one or more of the establishments having a gross leasable area of at least ten thousand square feet.

TRIAL COURT AND COURT OF APPEALS ANALYSES

When first valuing the property, the county assessor used the replacement cost less depreciation method required by § 42-147(A). On appeal to the board, taxpayer chose to have the property valued under the SLBR method, as allowed by § 42-147(B). Although the board reduced the property's value by $6 million, taxpayer appealed that valuation to the tax court. Because of its generic language, it is impossible to determine the appeal's exact basis. ⁵ However, it appears that taxpayer claimed the board incorrectly considered information or theories outside the SLBR method in valuing the property. By weighing those other factors, the board supposedly reached a higher valuation than it would have using only the SLBR method.

The trial court agreed with taxpayer, finding that the SLBR method must be used "absent extraordinary circumstances such as those which might exist if one or more of the [SLBR] factors ... could not be determined." The trial court ruled that when, as in this case, no such circumstances exist, subsection (D) did not apply. The trial court acknowledged that by not considering other valuation factors, the court's estimate of the property's value was much lower than the board's, and valued the property at just under $13 million. In reaching this decision, the trial judge conceded that the valuation he reached did not represent the...