Hayden Partners Ltd. Partnership v. Maricopa County

• Decision Date: 04 October 1990
• Docket Number: CA-TX,No. 1,1
• Citation: Hayden Partners Ltd. Partnership v. Maricopa County, 800 P.2d 987, 166 Ariz. 121 (Ariz. App. 1990)
• Parties: HAYDEN PARTNERS LIMITED PARTNERSHIP, an Arizona limited partnership, Plaintiff-Appellant, v. MARICOPA COUNTY, a political subdivision of the State of Arizona; and the Department of Revenue of the State of Arizona, Defendants-Appellees. 89-007.
• Court: Arizona Court of Appeals

Page 987

800 P.2d 987

166 Ariz. 121

HAYDEN PARTNERS LIMITED PARTNERSHIP, an Arizona limited partnership, Plaintiff-Appellant, v.MARICOPA COUNTY, a political subdivision of the State of Arizona; and the Department of Revenue of the State of Arizona, Defendants-Appellees.

No. 1 CA-TX 89-007.

Court of Appeals of Arizona Division 1, Department T.

Oct. 4, 1990.

Nearhood & Associates, P.C. by James R. Nearhood, Phoenix, for plaintiff-appellant.

Robert K. Corbin, Atty. Gen. by Jack B. Schiffman, John William Ranby and Sandra B. Kelley, Asst. Attys. Gen., Phoenix, for defendants-appellees.

OPINION

FIDEL, Judge.

The appellant, the developer of a partially completed and partially sold residential subdivision, appeals the trial court's determination that certain subdivision property still owned by the developer was properly classified as class four undetermined usage property rather than class five residential property for the 1986 tax year.¹We consider three types of property: (1) unsold residential lots containing completed or partially completed residences; (2) common area tracts on which a swimming pool and ramada or landscaping had been completed; and (3) residential lots on which the developer had completed landscaping, grading, paving, and utility installations, but had not yet started to build houses.We conclude that all three types of property were objectively committed to a residential end use and that a class five designation was improperly denied.

FACTS

A parcel of approximately nine acres in Scottsdale, Arizona, is the subject of this case.When the taxpayer, Hayden Partners Limited Partnership, acquired the parcel in June 1980, there were no streets, curbs, sidewalks, utility connections, or structures on it.

Hayden Partners undertook to develop the parcel as a residential subdivision and, on June 16, 1983, recorded a subdivision plat.The subdivision, named "Villa Antano," consisted of seventy-seven residential lots and eight common area tracts.Hayden Partners began grading and leveling the property in July 1983, and commenced adding utilities, streets, curbs, and sidewalks the following month.

In September 1983, Hayden Partners recorded a declaration of covenants, conditions, and restrictions for Villa Antano that restricted the property exclusively to single family residential use.The common areas and facilities are limited to use by Villa Antano residents and their guests and invitees.

As of January 1, 1986, the eight common area tracts were fully landscaped.A swimming pool and ramada had been installed on one of them; paving, curbs, sidewalks, gutters, water lines, sewer lines, gas lines, electric lines, telephone lines, grading, and landscaping for the rest of the subdivision were complete.The forty-three (of seventy-seven) residential lots that had been sold contained fully completed residences and were classified as class five property ("used for residential purposes") within A.R.S. § 42-162(A)(5)(Supp.1989).

On January 1, 1986, Hayden Partners retained ownership of the eight common area tracts and of the thirty-four unsold residential lots.Fourteen of these lots contained fully or partially completed residences; the remaining twenty lots were vacant.The Assessor classified nine of the lots containing fully or partially completed residences as class five residential property.This classification is uncontested.The subject of this appeal is the class four undetermined usage designation given to the remaining five fully or partially completed lots, the eight common area tracts, and the twenty vacant lots.

In a property tax appeal in the superior court, Hayden Partners contested the class four classification of the disputed properties.It contended that these parcels should be classified as class five property pursuant to A.R.S. §§ 42-136(A) and (B)(1980)[now A.R.S. §§ 42-162(A) and (B)(Supp.1989) ] because their use or intended use was residential.The matter was presented on cross-motions for summary judgment, and the trial court granted summary judgment for the Department of Revenue(Department), holding:

that the phrase "intended use" contained in subsection B of A.R.S. § 42-162 refers to a use to be made of the subject property by the person owning the property on the classification date, and does not refer to a use which may be made of the property by a person who may buy that property after the classification date.

The trial court made findings pursuant to Ariz.R.Civ.P. 54(b), and entered a formal judgment in accordance with its ruling.Hayden Partners timely appealed.We have jurisdiction pursuant to A.R.S. § 12-2101(B)(Supp.1989), and the appeal is assigned to Department T, the tax department of this court, pursuant to A.R.S. § 12-170(C)(Supp.1989).

CLASSIFICATION OF UNSOLD AND PARTIALLY COMPLETED RESIDENCES

We first consider the classification of the five lots in Villa Antano that contained partially completed or completed but unsold residences as of January 1, 1986.Section 42-162(B) provides that "partially completed or vacant improvements shall be classified according to their intended use."A.R.S. § 42-162(B).The parties agree that the classification of these lots is covered by § 42-162(B), but dispute the meaning of that statute's reference to "intended use."

The Department argues that the statute refers to the use that the owner-taxpayer, in this case a developer, intends to make of its vacant and partially completed improvements.The Department emphasizes that Hayden Partners did not intend to reside in the Villa Antano parcels in 1986; it owned them to develop and sell them.As this intended use was not residential, according to the Department, the property could not properly be placed within class five.

Hayden Partners argues to the contrary that the term "intended use" refers to the end use of property under development and that this use should be determined according to objective physical facts.Hayden Partners relies on County of Maricopa v. North Central Dev. Co., 115 Ariz. 540, 544-45, 566 P.2d 688, 692-93(App.1977)(partially completed office building held "devoted to commercial use" within former A.R.S. § 42-136(A)(3)), and Arizona Department of Revenue v. Cyprus-Bagdad Copper Co., 122 Ariz. 505, 508, 596 P.2d 31, 34(1979)(partially completed ore reduction mill properly classified as property of a producing mine within former A.R.S. § 42-136(A)(1) rather than commercial or industrial property under former § 42-136(A)(3)).

We find Hayden Partners' analysis correct.Nothing in A.R.S. § 42-162(B) supports the Department's view that the legislature intended partially completed or vacant improvements to be classified based on the transient mental states of their current owners.The Department seeks support, but finds none, in A.R.S. § 42-221(B)(Supp.1989)(county assessor must determine names of all persons owning, claiming, or having possession or control of property subject to taxation by January 1 of each year).Although that section understandably requires taxing authorities to maintain records of current ownership, it provides no assistance in deciding whether, under A.R.S. § 42-162(B), the intended usage of partially completed or vacant improvements should be decided by reference to the motivating purpose of the current owner or by reference to the property's objective improvement toward a determinable end use.

The Department's argument is likewise unsupported by its reference to A.R.S. § 42-141(A)(5)(Supp.1989)("In the standard appraisal methods and techniques adopted [by the Department], current usage shall be included in the formula for reaching a determination of full-cash value.").That section concerns valuation in accordance with current usage;section 162(B) concerns classification in accordance with intended use.The former gives no guidance in deciding whether intended use under the latter is decided by a subjective or an objective standard.

The Department additionally relies upon a case that interprets § 42-141(A)(5)(the valuation in light of current usage section), but the case, to the extent that it is pertinent at all, is more helpful to the taxpayer than to the Department.In Stewart Title and Trust Co. v. Pima County, 156 Ariz. 236, 751 P.2d 552(App.1987), taxpayers sought to preserve a beneficial agricultural designation for land that they had purchased for investment, and they established to the satisfaction of the trial court that, despite their investment purpose, they were devoting the land to current uses that met departmental criteria for agricultural designation.156 Ariz. at 239, 240, 751 P.2d at 555, 556.On appeal by the taxing authorities, Division 2 of this court held that these objective criteria, rather than the owners' subjective intentions, determined the valuation of the land.156 Ariz. at 243, 751 P.2d at 559.Stewart Title concerns the current usage of land in use, not the intended usage of land under development; thus, it is of little assistance in deciding this case.Yet it demonstrates that current usage determinations under the state tax statutes are made by reference to objective, not subjective, criteria.

We find a similar focus proper under A.R.S. § 42-162(B) when we consider the historical context of its adoption.That section was added to the property tax classification scheme in the wake of the trial court's decision in County of Maricopa v. North Central Dev. Co., 115 Ariz. 540, 566 P.2d 688(App.1977).When North Central was decided, the tax classification statutes made no provision for partially improved property.115 Ariz. at 542-43, 544, 566 P.2d. at 690-91, 692.The developer-taxpayers in that case challenged the reclassification of their partially completed commercial buildings from class four undetermined use to class three commercial use; they argued that such property could not be classified as devoted to a use until improvements were complete.115 Ariz. at 544, ...