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RESIDENTIAL REAL ESTATE |
REAL ESTATE TOPICS: TAXES: REAL ESTATE, PERSONAL PROPERTY, INCOME, SALES, ESTATE
Taxes - we all love to pay them, no matter what form they come in – the more the better. Right. Arizona’s tax picture is something to understand if you are considering relocation to this fine state. It seems that every state has some peculiar twist on what is taxed and what isn’t and there are significant variations in rates and exemptions. Bottom line is that every state, every county, and every municipality has to pay for pretty much the same things: roads, water and sewer lines, police, schools, parks, libraries, government administration, various public services and programs, etc., etc., etc. So, they all have to receive enough money to do that – one way or the other. If one state doesn’t have an income tax, it’s a pretty safe bet they are collecting that missing revenue by some other tax.
For those Certified Public Accountant (CPA) types who would like to just cut to the chase and dive right into the Arizona Revised Statutes on Taxation of everything other than Income, click away:
http://www.azleg.gov/ArizonaRevisedStatutes.asp?Title=42 .
For Income taxation information:
http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?Title=43.
For a more pedestrian discussion read on:
Real Estate Property Taxes
For Tucson and all areas in Pima County, the best and most direct source of information on this subject is from the Pima County Treasurer’s Office:
http://www.to.pima.gov/faq.html.
By statute, all Arizona counties tax owner occupied residences at the rate of 1% of full cash value. Commercial property is taxed at 2.5%. These are the underlying fundamental rates. However, the reality of tax assessment is a little more complicated.
There are adjustments based on municipality, school district, and fire district. And, there is a Primary Tax Rate and a Secondary Tax Rate. Primary taxes are used to pay the operating expenses of a jurisdiction and the rate is applied to the Limited Cash Value of your property. The secondary taxes are used to pay for special districts, such as fire districts, and other voter approved items, for example, bonds and budget overrides. This rate is multiplied by each $100 of the Full Cash Value of your property. The Full Cash Value or assessed value is the thing that nobody but the County Assessor has any control over. Very often, these values do not seem to have much correlation to reality.
Here is an actual, real life example (the writer’s residence) on a residential property located in Pima County, Arizona but not within any particular city limits. The actual market value is realistically estimated to be about $360,000 based on recent comparable sales in the same subdivision. The residential Notice of Value for the 2007 Tax Year (which was issued on March 1, 2007) shows a Total Full Cash Value of $232,921 with an Assessment Ration of 10%, yielding an Assessed Value of $23,292. The assessed value divided by 100, times the tax rate (which will be set in August of 2008) determines property taxes.
If you don’t have a headache yet, you should have been an accountant.
Anyhow, the actual property tax due for the tax year 2007 is not yet known. However, by way of comparison, the actual property tax for 2006 was $2,275.76 when the Assessed Value was set at $20,125. The estimated actual market value during 2006 was about $320,000. So, if that estimate is realistic the actual percentage of tax paid on it was 0.71% - which is less than the alleged 1% tax rate. Let’s not tell the assessor though – this is my residence. However, you can see that the $2,275.76 amount was a little more than 1% of the $201,250 full cash value – it is 1.08%. That extra is for the school and fire district portion.
Most property taxes are payable in two installments. The first installment is due October 1st and becomes delinquent November 1st at 5:00PM. The second installment is due March 1st and becomes delinquent May 1st at 5:00 PM. If your taxes are $100 or less, they become due and payable in full October 1st and delinquent November 1st at 5:00 PM. If you pay both installments by December 31st, any interest that may have accrued after November 1st is waived. However, the first installment is legally considered delinquent if it is made after November 1st. If any of the delinquency dates fall on a Saturday, Sunday or legal holiday, the time of delinquency is 5:00 PM the next business day.
Exemptions from Real Estate Taxes
Widows, widowers and 100% disabled persons may qualify for a reduction in property taxes. There are qualifying requirements including income limitations and a property value limit for this program.
Also, if the property owner is at least 65 years of age, and the property is their primary residence for the last two years the Full Cash Value of the home may be frozen at the current year’s value for the next three years – with certain income limitations.
Personal Property Taxes
For all practical purposes, in Arizona, personal property is defined as all types of property except real estate.
Taxable personal property includes property used for commercial, industrial, and agricultural purposes. Personal property is considered to be movable and not permanently attached to real estate. Although there are exceptions, personal property usually can be removed without causing damage to either the real estate from which it is removed or the item of property itself. Manufactured housing (mobile homes) is also personal property unless the owners file an affidavit affixing the unit to their real estate. So, property taxes in Arizona are imposed on both real and personal property.
A complete treatment of personal property taxation is presented in the Arizona Department of Revenue, Publication 545, Revised March 2004: http://www.azdor.gov/brochure/545.pdf
This publication answers common questions about Arizona property taxes on personal property that is valued by the County Assessor. The personal property of utilities, railroads, pipelines, and mining properties is generally valued by the Arizona Department of Revenue. Questions about such property should be referred to the Department.
Vehicle Taxes
Perhaps it’s semantics, but technically Arizona doesn’t charge personal property tax (as identified above) on vehicles. They do charge a Vehicle License Tax. Does that make you feel better? I didn’t think so. Full information about vehicles, registration, licenses, etc. is available on the Arizona Department of Transportation’s Motor Vehicle Division’s website: http://www.azdot.gov/mvd/index.asp
Here is an excerpt that addresses the question of how much the Vehicle License Tax will cost you:
It varies depending on the vehicle. There is a $4.00 title fee; an $8.00 registration fee; plus an air quality research fee of $1.50; and a vehicle license tax (VLT) assessed in place of a personal property tax charged by other states. There may also be a weight fee for commercial vehicles and other fees. The VLT is based on an assessed value of 60% of the manufacturer's base retail price reduced by 16.25% for each year since the vehicle was first registered in Arizona (15% before 8/1/98). Then, as of the Dec 1, 2000 reduction, the rate is calculated as $2.80 (new vehicles)/$2.89 (used vehicles) for each $100 of the assessed value. For example, for a new vehicle that costs $25,000, the first year assessed value would be $15,000 and the VLT would be $420.00. The second year the assessed value would be $12,562.50 and the VLT would be $363.06.
This tax eventually does decrease to a minimum annual charge of $10.00.
This tax is paid directly to the Motor Vehicle Division as part of the regular vehicle license and registration fee. It is not addressed on your personal income tax or personal property tax statement.
Income Taxes
As with most states that impose a personal income property tax, the starting point for determining what may be owed is the Federal Adjusted Gross Income. Beyond that, there may be other additions and subtractions made based on individual circumstances to arrive at your Arizona Taxable Income.
The standard deduction for a single taxpayer or a married taxpayer filing a separate return is $4,247. The standard deduction for a head of household or a married couple filing a joint return is $8,494.
For 2006, the state tax rates range from 2.73% to 4.79% through five income brackets.
Complete information and the 2006 Arizona Tax Rate Tables X and Y for Form 140 can be found at:
Sales Taxes
The state sales tax rate is 5.6%. In addition, individual municipalities may have their own sales tax. For example, the cities of Tucson, Oro Valley, and Marana add 2%. Some communities have an additional hotel/motel tax ranging anywhere from 2% to 6%. The city of Tucson also has a $1 per room surcharge.
There are many exemptions to sale tax including: real estate, groceries, and medical prescriptions.
Corporate Taxes
The corporate income tax rate is 6.968%
Gasoline Taxes
Always changing, gasoline taxes have become ever more significant and expensive. As of October 2006 the nationwide average for federal and state excise taxes and other taxes collected on gasoline was 45.5 cents per gallon.
Arizona happened to enjoy being ranked 37th among the 50 states at 37.4 cents per gallon. New York was ranked number 1 at 60.1 cents per gallon, and Alaska came in last at 26.4 cents per gallon.
These numbers do change frequently and are subject to the whims of the legislators and voters.
Tobacco Taxes
As of December 8, 2006 Arizona’s cigarette tax is $2.00 per pack. Also, note that effective May 1, 2007 a voter passed “Smoke Free Arizona” initiative will ban smoking in most public places of business – in particular, restaurants and bars without special smoking facilities.
Incidentally, New Jersey currently has the highest tax of $2.575 per pack while the national average is at about $1.00 per pack. Arizona ranks fourth highest in the United States.
Estate & Gift Taxes
Arizona does not currently impose estate or gift taxes.
DISCLAIMER
John P. Hale is owner and Designated Broker of Touchstone Residential Realty, Inc., 2485 West Tom Watson Drive, Tucson, Arizona 85745. He has been a residential real estate agent in the greater Tucson Metropolitan area since 2000. In addition to being licensed as a Broker rather than a salesperson, John holds the following designations awarded by the National Association of REALTORS®: ABR – Accredited Buyer Representative, ASR – Accredited Seller Representative, CRS – Certified Residential Specialist, and GRI – Graduate Realtor Institute. And, John is among the very few that have been named, MRE – Master of Real Estate by the Arizona Association of Real Estate.
Please note that this article was written by him to reflect the author’s opinion of good practice at the time of its’ writing for the general benefit of those considering sale or purchase of residential real estate, it is not intended as definitive legal advice and you should not act upon it as such without seeking independent legal counsel. Frequent changes in the law and standards of practice may cause this information to become outdated and no longer applicable or even incorrect.