MCCD could answer Maricopa County's $45m question with a massive lawsuit

The total repayment amount across various entities is about $329 million.

PUBLISHED OCT 17, 2024

This reclassification resulted in a significant financial burden on the community college district.

Phoenix, Arizona: The Maricopa County Community College District (MCCCD) is considering a lawsuit against Maricopa County to resolve a $45 million tax bill dispute.

This stems from the 2016 Qasimyar vs. Maricopa County lawsuit, where a group of property owners successfully argued that their properties were misclassified, leading to higher taxes. The total repayment amount across various entities, including school districts, cities, and fire districts, is about $329 million.

The Buckeye Union High School District must repay around $900,000, while Mesa Public Schools, the state's largest district, faces a repayment of about $11.2 million. Scottsdale Unified School District has the highest individual burden at $27.5 million.

The issue hinges on the reclassification of certain properties from primary residences to rental properties, which affected property tax collections. This reclassification resulted in a significant financial burden on the community college district, which relies heavily on property tax revenue.

School districts are exploring various options to manage these repayments.

In an eight-page notice of claim the Maricopa County College Board (MCCCD) laid out its grievances and attempted to negotiate, but a resolution has yet to be reached.

The $45 million tax obligation comes from refunds that need to be issued to property owners who were overcharged in previous years. The county treasurer estimates that hundreds of thousands of dollars are now owed to taxpayers across the district, leaving MCCCD and other taxing entities stumped.

The Scottsdale Unified School District's governing board has considered issuing Tax Anticipation Notes (TANS) to cover the shortfall. This would operate as a loan, allowing the district to manage its repayments over a more extended period at a lower interest rate than the prime rate.

The issue hinges on the reclassification of certain properties from primary residences to rental properties.

Some members of the community college district board have voiced concerns about the potential impact on educational services. They have emphasized that raising tuition to cover the shortfall is not a preferred option, as their goal is to maintain affordable education for students.

MCCCD has also criticized the way the county is handling the distribution of funds, calling the process unfair. The district remains hopeful that a legal battle can be avoided, but tensions are high as both sides struggle to find a resolution.

While Maricopa County officials have acknowledged the difficulties of the situation, they have refrained from commenting on any potential litigation. The community college district, meanwhile, continues to push for a fair settlement, stating that they will do whatever it takes to ensure they can continue offering affordable educational services without being crippled by this tax bill.

What was Maricopa County's defense?

In the Qasimyar vs. Maricopa County lawsuit, Maricopa County's defense centered on their interpretation and application of property tax assessments. The county officials argued that the change in property classification from an owner-occupied residential home to a rental or secondary home, or vice versa, did not constitute a change in use under the existing tax code. Therefore, they believed that reassessment of these properties was not required. The Maricopa County Assessor's Office maintained that these properties were still residential, and thus, no significant reevaluation was necessary.

The county contended that their methods of assessment were consistent with the state's guidelines and tax laws at the time. They also argued that reassessing these properties would have been an unnecessary administrative burden and could have led to inconsistencies in tax revenue collection.

The court did not accept Maricopa County's defense. The court sided with the property owners, ruling that the properties should have been reassessed based on their changed use, which would have resulted in lower tax bills for the property owners. This decision led to the requirement for the county to refund the overpaid taxes, a significant financial repercussion for the school districts and other taxing entities involved.