2.10 Common Area Taxation

• Jurisdiction: Arizona

§ 2.10 Common Area Taxation

In 1999, the Arizona legislature acknowledged that there was a problem with the property taxation of “common areas” in planned communities. A.R.S. § 33-1204 , part of the Arizona Condominium Act that governs condominiums, states that there can be no separate taxation of “common elements” in a condominium. The property valuation for tax purposes of a unit in a condominium includes the value of the common elements that are appurtenant to that particular unit. That was not true for noncondominiums. Parcels of real property owned by a planned community association were routinely assessed by county assessors and taxed for their full “value.” This resulted in “double taxation.” If an owner’s assessments to the association were used to pay the tax on the common areas, and the value of the owner’s home was enhanced because of the existence of the amenities in the common areas, that particular owner was effectively taxed twice.

As a result, A.R.S. §§ 42-13401 to 42-13404 were adopted to minimize the taxation of common areas. These statutes establish an exclusive method for identifying and valuing “common areas.” A.R.S.
§ 42-13402 established that the changes in valuation of common areas would be retroactive to valuation years beginning from and after December 31, 1998. This has made a significant tax difference for many planned community associations.

A.R.S. § 42-13402 defines “common areas” as used in A.R.S. §§ 42-13401 to 42-13404 . Subsection (B) states:

In general, common areas consist of improved or unimproved

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