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HB2261 - 572R - H Ver
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. Approve the
agricultural
classification of property
as agricultural real property
if
the property has either:
(a) Fewer than the minimum number of acres or animal
units as prescribed in section 42-12151.
(b) Been in commercial agricultural production for
less than the period prescribed in section 42-12152, subsection A,
paragraph 1.
2. Continue the agricultural
real
property
classification of owner occupied property if a change in
classification of the property would cause extreme hardship to the property
owner.
B. The county assessor may continue the agricultural
real property
classification of owner occupied property
that has fewer than the minimum number of animal units as prescribed in section
42-12151, paragraph 3 if the number of animal units equals, as nearly as
practicable, the property's carrying capacity.
END_STATUTE
Sec. 8. Section 42-12155, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-12155.
Notice of approval or disapproval; appeal
A. The county assessor shall notify the property
owner whether the assessor has approved or disapproved the agricultural
real property
classification of the property on or before the
date on which the assessor next mails the owner the notice of valuation for the
property.
B. If the assessor disapproved the agricultural
real property
classification, the assessor shall notify the
owner of the reason for disapproval within one hundred twenty days of the
application.
C. The owner may appeal the decision of the assessor
as prescribed by chapter 16, article 2, 5 or 6 of this title.
END_STATUTE
Sec. 9. Section 42-12156, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-12156.
Notice of change in use
A. If all or part of the property ceases to qualify
as agricultural
real
property under this article, the
person who owns the property at the time of change shall notify the county
assessor within sixty days after the change.
B. If the county assessor determines that there has
been a change of use and the property ceases to qualify as agricultural
real
property under this article, the county assessor shall
notify the property owner by certified mail of the reason for reclassifying the
property and include information for the property owner to appeal the
reclassification.
END_STATUTE
Sec. 10. Section 42-12157, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-12157.
Recapture and penalty for false information or failure to notify
of change in use
If an owner of property or the owner's agent intentionally
provides false information on an
agricultural real property
application
form, or fails to provide the notice required under section 42-12156:
1. The property shall be reclassified immediately as
being used for a nonagricultural use and shall be valued at its nonagricultural
full cash value.
2. The owner is liable for the additional taxes on
the difference between the nonagricultural full cash value and the full cash
value of the property for all of the tax years in which the property was
classified based on the false information.
3. The owner shall also pay a penalty equal to
twenty-five
per cent
percent
of
the additional taxes computed under paragraph 2 of this section. The
assessor may abate this penalty for good cause. Twenty
per cent
percent
of the penalty shall be
deposited in the state general fund, and eighty
per cent
percent
of the penalty shall be deposited with the county
treasurer to be used by the county assessor's office.
END_STATUTE
Sec. 11. Section 42-12158, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-12158.
Inspections by county assessor
The county assessor or the assessor's deputies shall:
1. Make an on-site inspection of twenty-five
percent of the property classified as
being used for
agricultural
purposes each year
real
property
.
2. Make an on-site inspection and appraise all
of these properties within every four years.
3. If the county assessor or the assessor's deputy
determines that the property does not meet the criteria for agricultural
real property
classification, notify the property owner
pursuant to section 42-12156.
END_STATUTE
Sec. 12. Section 42-12159, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-12159.
Restoration of agricultural real property classification and
valuation; refund
A. A county assessor may reclassify real property as
class two pursuant to section 42-12002 and this article under the following
conditions:
1. The current owner previously held title to the
property but sold the property before September 1, 1989.
2. Title to the property has reverted to the current
owner involuntarily, or voluntarily in lieu of foreclosure or forfeiture, from
the buyer or a successor in title, and the current owner did not receive a
notice of valuation for the tax year in question.
3. The former owner of the property failed to apply
for classification of the property as
used for
agricultural
purposes
real property
pursuant to this article or prior law and failed to appeal the denial of
agricultural status during the property tax appeal period for the tax year in
question.
4. The property met the requirements prescribed by
section 42-12152, subsection A.
5. The current reversionary owner of the property
applies to the county assessor for reclassification and revaluation within four
years after the date the property was reverted.
B. If the applicant submits a complete, correct and
timely application under subsection A of this section, together with a sworn
statement, under penalty of perjury, that the information contained in the
application is true according to the applicant's best belief and knowledge and
if the county assessor is satisfied that the property meets the requirements
prescribed by subsection A of this section, the assessor shall:
1. Reclassify the property as class two under
section 42-12002.
2. Redetermine the valuation of the property for the
tax year in question pursuant to this article.
3. Issue a certificate of revaluation to the
applicant.
C. The owner shall submit the certificate of
revaluation to the county treasurer. After receiving the
certificate, the county treasurer shall refund any taxes paid by the current
owner with respect to the property for the tax year in question in excess of
the taxes that would be due under the reclassification and revaluation, if the
applicant submits proof that the applicant has paid the taxes for the tax year
in question. The county treasurer is entitled to credit for the
refund in the next accounting period with each taxing jurisdiction to which the
tax monies may have been transmitted.
END_STATUTE
Sec. 13. Section 42-13101, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-13101.
Valuation of agricultural real property
A.
Land that is used for agricultural
purposes
Property classified as agricultural real
property
shall be valued using only the income approach to value without
any allowance for urban or market influences.
B. The income of agricultural
real
property
shall be determined using the capitalized average annual net cash rental of the
agricultural real
property. For
the
purposes of this subsection
,
the average
annual net cash rental of the
agricultural real
property:
1. Is the average of the annual net cash rental,
excluding real estate and sales taxes, determined through an analysis of
typical arm's length rental agreements collected for a
five year
five-year
period before the year for which the valuation
is being determined for comparable agricultural
land used for
agricultural purposes
real property
and located in
the vicinity, if practicable, of the
agricultural real
property being valued.
2. Shall be capitalized at a rate 1.5 percentage
points higher than the average long-term annual effective interest rate for all
new farm credit services loans for the
five year
five-year
period
before the year for which the valuation is being determined.
END_STATUTE
Sec. 14. Section 42-13102, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-13102.
Statement of agricultural lease
A. Each lease of agricultural
land
real property
or agreement to rent agricultural
land
real property
for a period of more
than ninety days shall be abstracted in a written statement in a form approved
by the department containing at least the following information:
1. The name and address of the lessor and lessee.
2. The complete legal description of the
agricultural real
property.
3. The situs address, if any, of the
agricultural
real
property.
4. The cash or cash equivalent of the lease
payments.
5. The conditions of the lease, including the relationship,
if any, of the parties.
6. The lessor expenses associated with the property
excluding land cost, interest on land cost, income tax depreciation and capital
improvements.
B. The county assessor shall not use the information
listed pursuant to chapter 15, article 2 of this title to supplement the
information obtained pursuant to this section.
C. The owner or lessor or an agent of the owner or
lessor shall file the statement with the county assessor for use by the
assessor for the valuation process under section 42-13101. If
the ownership or the lessor or lessee of the
agricultural real
property changes or if there is a change in the lease as abstracted pursuant to
subsection A of this section, a new statement shall be filed with the assessor
within three months after the change or before January 31, whichever is later.
D. The assessor shall transmit a copy of the
statement to the department.
END_STATUTE
Sec. 15. Section 42-15252, Arizona Revised
Statutes, is amended to read:
START_STATUTE
42-15252.
Determining assessed valuation of remote municipal property
A. The county assessor shall determine the full cash
value and assessed valuation of remote municipal property at the same amount
and using the same method of assessment as applied to private property that is
used for the same purpose in the county.
B. Remote municipal property that is used
for
as
agricultural
purposes
real property
as provided in chapter 12, article 4 of
this title shall be valued pursuant to chapter 13, article 3 of this
title. Remote municipal property that has been retired from
irrigated agricultural
real property
use but that is not
used for any commercial purpose shall be valued at its market value and
assessed as class two property pursuant to sections 42-12002 and 42-15002.
C. The assessor shall transmit the determination of
the value of the property to the county board of supervisors on or before the
third Monday in June.
END_STATUTE