Arizona Court of Appeals Division One Holds That Once a County Approves a Property Classification Change Without Taking Exception, the County Must Correct the Tax Roll to Reflect the New Classification and Must Refund Any Overpaid Taxes.

In 2004, Taxpayer sought to change its Property’s tax classification for tax years 2001, 2002, and 2003 to become eligible for refunds for those years.  The County agreed to the classification change without taking exception but later refused to pay any refunds.  Taxpayer filed a complaint in the Arizona Tax Court seeking refunds for the tax years at issue.  Taxpayer and the County both moved for summary judgment.  The tax court denied Taxpayer’s motion after determining that it was not entitled to refunds for the tax years at issue because it did not properly request a classification change for those years.  The court also denied the County’s motion with respect to tax years 2004 and beyond, finding that the classification change was proper for those years.  Both parties timely appealed.

The ArizonaAppeals Court affirmed in part and reversed in part.  It reversed the tax court’s denial of refunds to Taxpayer for tax years 2001, 2002, and 2003, holding that once the County agreed to change the classification of the Property, A.R.S. § 42-16254(E) required it to correct the tax roll and refund any taxes that had been overpaid with interest.  A.R.S. § 42-16254(E) states:  “If . . . the parties agree on all or party of the proposed correction, the board of supervisors shall direct the county treasurer to correct the tax roll to the extent agreed, and any taxes that have been overpaid shall be refunded with interest.”  (Emphasis added.)  Because the County agreed to the classification change for tax years 2001, 2002, and 2003, Taxpayer’s failure to properly request a classification change for those years was irrelevant.

The Court also affirmed the tax court’s ruling with respect to the classification of the Property for 2004, finding that the issue was moot because the County had issued a notice of proposed correction to Taxpayer and Taxpayer had agreed to reclassify the Property for 2004.  Finally, the Court affirmed the tax court’s denial of the County’s request for sanctions under A.R.S. § 12-349, finding that it did not abuse its discretion.

Presiding Judge Winthrop authored the opinion; Judges Hall and Portley concurred.