HB2261 - Property tax; agricultural real property

House Engrossed property tax; agricultural real property State of Arizona House of Representatives Fifty-seventh Legislature Second Regular Session 2026 HOUSE BILL 2261 AN ACT amending sections 42-12002, 42-12004, 42-12051, 42-12152, 42-12153, 42-12154, 42-12155, 42-12156, 42-12157, 42-12158, 42-12159, 42-13101, 42-13102 and 42-15252, Arizona Revised Statutes; relating to agricultural real property. (TEXT OF BILL BEGINS ON NEXT PAGE) Be it enacted by the Legislature of the State of Arizona: Section 1. Section 42-12002, Arizona Revised Statutes, is amended to read: START_STATUTE 42-12002. Class two property For purposes of taxation, class two is established consisting of three subclasses: 1. Class two (R) consists of: (a) Real property and improvements to property that are used for as agricultural purposes real property and that are valued at full cash value or pursuant to chapter 13, article 3 of this title, as applicable. (b) Real property and improvements to property that are primarily used for as agricultural purposes real property to produce trees other than standing timber, vines, rosebushes, ornamental plants or other horticultural crops, regardless of whether the crop is grown in containers, soil or any other medium, that are not included in class one, three, four, six, seven or eight and that are valued at full cash value or pursuant to chapter 13, article 3 of this title, as applicable. (c) Real property and improvements to property that are owned and controlled by a nonprofit organization that is exempt from taxation under section 501(c)(3), (4), (7), (10) or (14) of the internal revenue code if the property is not used or intended for the financial benefit of members of the organization or any other individual or organization, unless the financial benefit is for charitable, religious, scientific, literary or educational purposes, and that are valued at full cash value. (d) Real property of golf courses that is valued at full cash value or pursuant to chapter 13, article 4 of this title. (e) Real property and improvements to property of a guest ranch that meets the requirements prescribed in chapter 13, article 12 of this title, that are not included in class four and that are valued at full cash value. (f) All other real property and improvements to property, if any, that are not included in class one, three, four, six, seven or eight and that are valued at full cash value. 2. Class two (P) consists of: (a) Personal property that is used for agricultural purposes and that is valued at full cash value or pursuant to chapter 13, article 3 of this title, as applicable. (b) Personal property that is primarily used for agricultural purposes to produce trees other than standing timber, vines, rosebushes, ornamental plants or other horticultural crops, regardless of whether the crop is grown in containers, soil or any other medium, that is not included in class one, three, four, six, seven or eight and that is valued at full cash value or pursuant to chapter 13, article 3 of this title, as applicable. (c) Personal property that is owned and controlled by a nonprofit organization that is exempt from taxation under section 501(c)(3), (4), (7), (10) or (14) of the internal revenue code if the property is not used or intended for the financial benefit of members of the organization or any other individual or organization, unless the financial benefit is for charitable, religious, scientific, literary or educational purposes, and that is valued at full cash value. (d) Personal property of golf courses that is valued at full cash value or pursuant to chapter 13, article 4 of this title. (e) Personal property of a guest ranch that meets the requirements prescribed in chapter 13, article 12 of this title and that is not included in class four and that is valued at full cash value. (f) All other personal property that is not included in class one, three, four, six, seven or eight and that is valued at full cash value. 3. Class two (C) consists of real property, and improvements to real property, that is burdened by a conservation easement that has been created and is currently in effect pursuant to title 33, chapter 2, article 4. END_STATUTE Sec. 2. Section 42-12004, Arizona Revised Statutes, is amended to read: START_STATUTE 42-12004. Class four property A. For the purposes of taxation, class four is established consisting of: 1. Real and personal property and improvements to the property that are used for residential purposes, including residential property that is owned in foreclosure by a financial institution, that is not otherwise included in another classification and that is valued at full cash value. The homesite that is included in class four may include: (a) Up to ten acres on a single parcel of real property on which the residential improvement is located. (b) More than ten, but not more than forty, acres on a single parcel of real property on which the residential improvement is located if it is zoned exclusively for residential purposes or contains legal restrictions or physical conditions that prevent the division of the parcel. For the purposes of this subdivision, "physical conditions" means topography, mountains, washes, rivers, roads or any other configuration that limits the residential usable land area. 2. Real and personal property and improvements to the property that are used for residential purposes and solely leased or rented, that are not included in class one, two, three, six, seven or eight and that are valued at full cash value. 3. Child care facilities that are licensed under title 36, chapter 7.1 and that are valued at full cash value. 4. Real and personal property and improvements to property that are used to operate nonprofit residential housing facilities that are structured to house or care for persons with disabilities or who are at least sixty-two years of age and that are valued at full cash value. 5. Real and personal property and improvements that are used to operate licensed residential care institutions or licensed nursing care institutions that provide medical services, nursing services or health-related services and that are structured to house or care for persons with disabilities or who are at least sixty-two years of age and that are valued at full cash value. 6. Real and personal property consisting of not more than eight rooms of residential property that are leased or rented to transient lodgers, together with furnishing not more than a breakfast meal, by the owner who resides on the property and that is valued at full cash value. 7. Real and personal property that consists of residential dwellings maintained for occupancy by agricultural employees as a condition of employment or as a convenience to the employer, that is not included in class three and that is valued at full cash value. The land associated with these dwellings shall be valued as agricultural land real property pursuant to chapter 13, article 3 of this title. 8. Real property and improvements to property constituting common areas that are valued pursuant to chapter 13, article 9 of this title. 9. Real and personal property that is defined as timeshare property by section 32-2197 and valued pursuant to chapter 13, article 10 of this title, except for any property used for commercial, industrial or transient occupancy purposes and included in class one to the extent of that use. 10. Real and personal property and improvements that are used for residential purposes and that are leased or rented to lodgers, except for: (a) Property occupied by the owner of the property as the owner's primary residence and included in class three. (b) Property used for commercial purposes and included in class one. 11. Low-income multifamily residential rental properties that are valued pursuant to chapter 13, article 13 of this title. 12. Real and personal property and improvements to property of a guest ranch that meets the requirements prescribed in chapter 13, article 12 of this title and that is included in the Arizona dude ranch heritage trail program established by section 41-867 and that are valued at full cash value. B. Subsection A, paragraphs 4 and 5 of this section do not limit eligibility for exemption from taxation under chapter 11, article 3 of this title. END_STATUTE Sec. 3. Section 42-12051, Arizona Revised Statutes, is amended to read: START_STATUTE 42-12051. Treatment of partially completed or vacant improvements; notification; exception A. For the purposes of classifying property under article 1 of this chapter, partially completed or vacant improvements on the land , including improved common area tracts , shall be classified according to their intended use as demonstrated by objective evidence. B. For property that is not valued by the department, an improvement on the land is considered to be partially completed when the foundation of the structure or structures to be located on the property is in place. C. The only portion affected by the reclassification is the improvement on the land and that portion of the land that is necessary to support the use of the structure or structures, except that common area tracts in residential developments associated with partially completed improvements shall receive the same classification as the partially completed improvements. D. Property that is not valued by the department, that does not have a structure or structures and that is actively used for commercial purposes shall be classified as prescribed by article 1 of this chapter. E. The department shall prescribe a form to be completed by the owner to notify the assessor that the requirements of this section have been completed. The form shall state the requirements for classification and shall provide the owner with information concerning the reclassification of property. Filing the notice is mandatory, but failing to notify the assessor does not prevent the reclassification of property if the requirements are completed. F. This section does not apply to property that is classified as agricultural real property pursuant to article 4 of this chapter. END_STATUTE Sec. 4. Heading change The article heading of title 42, chapter 12, article 4, Arizona Revised Statutes, is changed from "AGRICULTURAL PROPERTY CLASSIFICATION" to "AGRICULTURAL REAL PROPERTY CLASSIFICATION". Sec. 5. Section 42-12152, Arizona Revised Statutes, is amended to read: START_STATUTE 42-12152. Criteria for classification as agricultural real property; exception; affidavit A. Property is not eligible for classification as property used for as agricultural purposes real property unless it meets the following criteria: 1. The primary use of the property is as agricultural land and the property has been in active production according to generally accepted agricultural practices for at least three of the last five years. Property that has been in active production may be: (a) Inactive for a period of not more than twelve months as a result of acts of God. (b) Inactive as a result of participation in: (i) A federal farm program that allows voluntary land conserving use acreage or acreage conservation, or both. (ii) A scheduled crop rotation program. (c) Inactive or partially inactive due to a temporary or partial reduction in or transfer of the available water supply or irrigation district water allotments for agriculture use in the farm unit. For land within an irrigation district in a county with a population of less than nine hundred thousand persons, the temporary or partial reduction or transfer may be verified by an official certification from the irrigation district to the county assessor that confirms the reduction or transfer, except that if that land is located in an active management area and the land does not have an irrigation grandfathered groundwater right, the land is not eligible as cropland. A certification for temporary or partial reduction is not valid for full inactivity of the farm unit for more than one year. (d) Grazing land that is inactive or partially inactive due to reduced carrying capacity or generally accepted range management practices. 2. There is a reasonable expectation of operating profit, exclusive of land cost, from the agricultural use of the property. 3. If the property consists of noncontiguous parcels, the noncontiguous parcels must be managed and operated on a unitary basis and each parcel must make a functional contribution to the agricultural use of the property. B. If feedlot or dairy operations that are in active production are moved to another property at which the operations are in active production, the requirement that the property be in active production for at least three of the last five years does not apply to the property to which the operations are moved for the first three years after the operations are moved. C. The requirement in subsection A, paragraph 2 of this section is satisfied if the owner files with the assessor an affidavit of agricultural use, signed by the owner attesting that all information in the affidavit is true and the property is actively producing with an expectation of profit. END_STATUTE Sec. 6. Section 42-12153, Arizona Revised Statutes, is amended to read: START_STATUTE 42-12153. Application for classification of property used as agricultural real property A. The county assessor shall make agricultural use real property application forms available that require the following information in addition to any other information prescribed by the department: 1. The size of the property. 2. The type of crops grown on the property. 3. The type and number of animal units raised on the property. 4. The number of acres leased for agricultural purposes and the terms of the lease for each parcel leased. 5. A verification that the property meets the requirements prescribed in section 42-12152. B. The owner of property or the owner's designated agent under section 42-16001 shall file a completed agricultural use real property application form with the county assessor before the property may be classified as being used for agricultural purposes real property . If the ownership of a property changes, an agricultural use real property application form must be filed by the new owner within sixty days after the change in ownership to maintain the agricultural use real property status. If the owner or the owner's agent fails to file an application form as prescribed in this subsection, the assessor shall not classify the property, on notice of valuation, as being used for agricultural purposes real property . The owner or agent may appeal the classification as prescribed by chapter 16, article 2 or 5 of this title regardless of whether the owner or agent filed an application form. END_STATUTE Sec. 7. Section 42-12154, Arizona Revised Statutes, is amended to read: START_STATUTE 42-12154. Approval of nonconforming property A. The county assessor may: 1. Approv [Text truncated for display. Full text available on LegiScan.]