Maricopa Cnty. v. Viola
| Decision Date | 20 May 2021 |
| Docket Number | No. 1 CA-SA 21-0023,1 CA-SA 21-0023 |
| Citation | 251 Ariz. 276,490 P.3d 385 |
| Court | Arizona Court of Appeals |
| Parties | MARICOPA COUNTY, Petitioner, v. The Honorable Daniella J. VIOLA, Judge of the Superior Court of the State of Arizona, in and for the Arizona Tax Court, Respondent Judge, El Rancho Affordable Housing, LP, and El Rancho Affordable Housing II, LP, Real Parties in Interest, Northern Gardens/Phoenix, LP, Real Party in Interest/Intervenor. |
Helms, Livesay & Worthington, Ltd., Mesa, By Roberta S. Livesay, Joshua W. Carden, Counsel for Petitioner
Frazer Ryan Goldberg & Arnold, L.L.P., Phoenix, By Douglas S. John, Counsel for Real Parties in Interest El Rancho Affordable Housing, LP and El Rancho Affordable Housing II, LP
Quarles & Brady, LLP, Phoenix, By Dawn R. Gabel, Jared Wayne Miller, Co-Counsel for Real Party in Interest/Intervenor Northern Gardens/Phoenix, LP
Dickinson Wright, PLLC, Phoenix, By Bennett Evan Cooper, Co-Counsel for Real Party in Interest/Intervenor Northern Gardens/Phoenix, LP
¶1 Maricopa County's petition for special action asks us to overturn the approach the tax court adopted in Cottonwood Affordable Housing v. Yavapai County , 205 Ariz. 427, 72 P.3d 357 (Ariz. Tax Ct. 2003), to valuing low-income housing. Affirming Cottonwood , we agree with the tax court that assessors must use actual rents charged when they determine the full cash value of low-income housing tax credit ("LIHTC") properties for taxation purposes. For that reason, we accept jurisdiction but deny relief.
¶2 Congress created the LIHTC program to encourage construction, rehabilitation, and acquisition of affordable housing for low-income households. The program, administered by the U.S. Treasury under 26 United States Code ("U.S.C.") section 42, allows states to issue federal tax credits to apartment owners in exchange for thirty-year restrictions on the amount of rent they may charge tenants. The program requires a Land Use Restrictive Agreement to be recorded against a property to bind the current owner and any subsequent owners. The tax credits are granted at the beginning of a project and made available for a ten-year period, and an owner that fails to abide by the restrictions must reimburse the Treasury for any credits it has used.
¶3 The Arizona Department of Housing ("ADOH") administers the program in Arizona. The ADOH establishes the maximum rent an owner may charge based on tenants’ incomes as a percentage of the Area Median Gross Income ("AMGI"). For an apartment complex to be eligible, either 20% or more of the units must be occupied by households with incomes at or below the AMGI, or 40% or more of the units must be occupied by households with incomes at or below 60% of the AMGI.
¶4 The Arizona Department of Revenue ("ADOR") issued guidelines (the "Guidelines") for county assessors to use in valuing LIHTC properties for tax purposes. The Guidelines instruct assessors to value the LIHTC properties based on the market rent charged by "conventional" apartment complexes, without regard to the rent restrictions that encumber LIHTC properties.
¶5 Using ADOR's valuation methodology, the Maricopa County assessor valued one of the LIHTC apartment complexes at issue here, El Rancho Affordable Housing, LP ("El Rancho") at $4,620,000. El Rancho filed a complaint in the tax court, seeking to reduce the full cash value to $1,300,000, a valuation calculated based on the complex's actual restricted rental rates. Maricopa County filed a motion asking the court to enter an order declaring that LIHTC properties must be valued for property tax purposes using market rents charged by conventional complexes.
¶6 The tax court denied Maricopa County's motion and held that an "LIHTC property [is] to be valued using restricted as opposed to market rents to achieve a full cash value," citing Cottonwood , 205 Ariz. at 430, 72 P.3d 357 (). Maricopa County then filed this special action petition, and two other LIHTC properties moved to intervene as real parties in interest: El Rancho Affordable Housing II, LP ("El Rancho II") and Northern Gardens/Phoenix, LP ("Northern Gardens"). El Rancho, El Rancho II, and Northern Gardens (collectively, the "Apartment Complexes") all argue their full cash values should be calculated based on their actual restricted rents.
¶7 Special action review is generally appropriate when there is no "equally plain, speedy, and adequate remedy by appeal." Ariz. R.P. Spec. Act. 1(a) ; see generally Sw. Gas Corp. v. Irwin , 229 Ariz. 198, 201, ¶¶ 5-7, 273 P.3d 650, 653 (App. 2012). Our decision to accept special action jurisdiction is discretionary. State v. Superior Court (Morgan) , 237 Ariz. 419, 421, ¶ 5, 352 P.3d 451, 453 (App. 2015). Acceptance of special action jurisdiction is "appropriate in matters of statewide importance, issues of first impression, cases involving purely legal questions, or issues that are likely to arise again." State v. Superior Court (Landeros) , 203 Ariz. 46, 47, ¶ 4, 49 P.3d 1142, 1143 (App. 2002).
¶8 Here, the issue the petition raises is a pure question of law and is of statewide importance. Maricopa County notes that there are at least twenty-five similar cases pending in the tax court. Accordingly, we accept special action jurisdiction.
¶9 For tax purposes, Arizona values property at its "full cash value." Bus. Realty of Ariz., Inc. v. Maricopa County , 181 Ariz. 551, 553, 892 P.2d 1340, 1342(1995). "Full cash value" generally means "fair market value," which our supreme court has defined as "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." Id. (internal quotation marks and citation omitted). As prescribed by statute, "[c]urrent usage shall be included in the formula" used to determine a property's full cash value. Arizona Revised Statutes ("A.R.S.") section 42-11054(C)(1).
¶10 The legislature directed ADOR to create "guidelines for applying standard appraisal methods and techniques" for ADOR and county assessors to determine the valuation of property. A.R.S. § 42-11054(A)(1). ADOR's guidelines require assessors to value LIHTC apartment complexes as if they are conventional apartment complexes that charge market rents because they are not subject to LIHTC restrictions.1 For nearly twenty years, however, the tax court has maintained that the ADOR valuation method, which disregards the deed restrictions that limit rents that may be charged by an LIHTC property, "will not result in a determination of fair market value for" such a property. Cottonwood , 205 Ariz. at 430, 72 P.3d at 360.
¶11 Maricopa County contends we must defer to the Guidelines because an administrative agency's interpretation of a statute is presumed correct and lawful. Maricopa County further argues that the legislature's failure to amend the valuation statutes to override the Guidelines since the tax court issued the Cottonwood decision in 2003 shows it approves of the Guidelines. The Guidelines, however, are just that, guidelines, not formal regulations, and were created for use by assessors. For that reason, the legislature's silence about the validity of the Guidelines post- Cottonwood lends little support to the inference that it approves them without reservation. Further, while courts may consider an agency's interpretation of a statute it is authorized to implement, the agency's interpretation is not binding legal authority and cannot be inconsistent with statutory provisions. See Cent. Citrus Co. v. Ariz. Dep't of Revenue , 157 Ariz. 562, 565-66, 760 P.2d 562, 565–66 (App. 1988) ; Stewart Title & Tr. of Tucson v. Pima County , 156 Ariz. 236, 243, 751 P.2d 552, 559 (App. 1987) ; Thomas & King, Inc. v. City of Phoenix , 208 Ariz. 203, 206, ¶ 8, 92 P.3d 429, 432 (App. 2004) ; cf. A.R.S. § 12-910(E) ().
¶12 As noted above, § 42-11054 requires that a property's "current usage" be "included in the formula for reaching a determination of full cash value" of the property. A.R.S. § 42-11054(C)(1). They are low-income complexes with restrictions on the rent that may be charged and the incomes and tenants who may occupy them. Most significantly, LIHTC property rental prices are set below the market rates of conventional housing. Failing to recognize the "current use" of LIHTC projects as low-income complexes would require assessors to value them at an amount far greater than their actual market value in violation of the relevant statutes. See supra , ¶ 9 (). Arizona law requires that low-income properties be valued as low-income properties, not as ordinary properties.
¶13 As the tax court in Cottonwood stated, the long-term rent "restrictions imposed under the LIHTC program have a direct and immediate [e]ffect upon marketability." 205 Ariz. at 430, 72 P.3d at 360. The court further noted:
A willing buyer, knowing that there is a restriction as to the amount of rent that can be charged, would pay less for a low income housing project than for a regular commercial apartment complex. This property should not be valued as though a buyer would not consider the restrictions. A valuation for an LIHTC project, determined under any of the standard appraisal methods, that does not take the deed restrictions into account will not...
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