City, SUSD to refund $36 million in taxes

Jun. 19—Eight words sent a shudder down the spines of city and school district officials across Maricopa County:

"We are not persuaded by the County's argument."

That line cemented an appeals court's decision to uphold the Arizona Tax Court order in favor of a case with massive implications.

Named after one of the Scottsdale homeowners on the plaintiff list, the 2016 lawsuit successfully argued the county overcharged thousands of properties after faulty home value recalculations.

Forced to "do the math" after correcting classifications, the Maricopa County Assessor recently released a document showing a whopping $330 million in overcharges since 2015.

Hundreds of county taxing districts — including nearly every city and school district — are now on the clock for repayments.

Two of the biggest tax collectors ordered to send money back are the city of Scottsdale, coming in just under $10 million in refunds, and Scottsdale Unified School District, which must pay back $27 million.

Scottsdale's $9.7 million total was only about 28% less than the $13.3 million the city of Phoenix must refund — though Phoenix is seven times larger than Scottsdale.

Chandler and Gilbert, each at least 15% larger than Scottsdale, have modest repayments of $2 million and $1.4 million.

Mesa, home to twice as many people as Scottsdale, must repay $2 million — one-fifth of what Scottsdale is on the hook for.

And the meter is running.

The county recently released a 33-page "Taxing Districts Estimated Financial Impact Report." Each city and school district has a total that "includes refund and interest through February 2024 and interest continues to accrue at 8% annually (current rate) until paid."

According to an Arizona Tax Court summary of Qasimyar, et al. v. Maricopa County, "The lawsuit alleges that Maricopa County improperly and erroneously assessed and collected real property taxes ... The lawsuit seeks refunds of those real property taxes.

"The Arizona Tax Court ruled in favor of all taxpayers who qualify as class members, except for those who exclude themselves from the class."

The lawsuit is nearly eight years old, with a judgment favoring the plaintiffs coming in 2019 followed by the failed county appeal in 2021.

Yet the city of Scottsdale and SUSD have barely discussed the potential hits to their bank accounts publicly — including at budget and local property tax levy study sessions and public meetings over the past two months.

Meanwhile, Scottsdale and SUSD — like cities and school districts around the county — have been spending the money received in overcharges.

According to a June 10 presentation at the Maricopa County Board of Supervisors, in four years, property taxes collected by Maricopa County have increased from $688 million to $777 million.

Cities and school districts receive cuts of those tax collections — and now must pony up to repay.

Officials are now scrambling to figure out repayment options.

SUSD's huge hit

"We are still weighing our options as we continue to learn more," Kristine Harrington, a district spokeswoman, said of SUSD's repayment plan — or lack of one.

"State lawmakers are also looking for solutions and we are interested to see what legislative solution might be considered," she added.

Noting "nearly every district in Maricopa County is affected by the (Qasimyar) judgment," Arizona Superintendent Steve Watson sent a June 3 letter to school officials, "to inform districts of the option to request state aid recalculation."

But that does not help SUSD.

"We are not a state aaid school district, so recalculation is not an option for us," Harrington said.

At the June 11 board meeting, SUSD Chief Financial Officer Shannon Crosier briefly touched to the Qasimyar case.

"Unless something changes," Crosier told the board, "we've got $27 million we're going to have to come up with in cash."

City, county refunds

At City Hall, Scottsdale officials are "awaiting final figures from Maricopa County and evaluating what recommended resolution to bring forward for City Council discussion," said Kelly Corsette, a Scottsdale spokesman.

Corsette confirmed there was "no specific mention" of the lawsuit's ramifications during budget and property tax presentations.

But he noted a "Change in Secondary Property Tax" slide in a June 4 presentation. At the end of the "reduction as needed" line, there is an asterisk denoting a footnote:

"Includes reduced debt requirements for FY24/25 offset by refunds for Qasimyar vs Maricopa County judgment."

Corsette explained "the estimated impact of the judgment for next fiscal year will be covered through the secondary property tax rate."

Yet there is no refund plan for previous years.

Though they are among the hardest hit taxing districts, Scottsdale and SUSD are hardly alone.

A spokeswoman for Maricopa County Community College District — Scottsdale Community College is one of its 10 schools — did not return a request for comment on how its $44.7 million refund will be handled.

The district Governing Board last month voted to increase its primary property tax rate by .96%, raising the levy to 1.0486. It said that means the annual tax on a $100,000 assessed valuation will rise from $103.86 to $104.86 a year, but made no mention of the refund decree.

However, it noted that the district's combined primary and secondary rate will actually decline by 3% to $110.47 a year for a home assessed at $100,000 in the coming fiscal year because of lower payments on a 2004 bond issue.

Maricopa County's general fund must repay nearly $60 million,

At its June 10 meeting, the Maricopa County Board of Supervisors met privately to receive legal advice.

"The board is responsible for a portion of the repayment from the general fund due to the judgment. They have not finalized a date for a vote," said Fields Moseley, a county spokesman.

STRs to blame?

Some point to a likely reason for Scottsdale and SUSD having such large portions of the total refunds: the predominance of short-term rentals in Scottsdale.

"It's the popularity of people choosing to rent out their residences," said an insider to the case who did not want to be named.

"I can't say definitively it was short- vs long-term," he added.

Even so, he illustrated the most likely scenario that was repeated thousands of times:

"You start using your home as an Airbnb. They you go to the (county) assessor and say, 'I'm not taking owner benefits anymore — I'm renting the house out.'"

As the county assessor notes in its summary of the lawsuit, "the legal issue was whether a change in classification between Class 3 (owner-occupied residential home) and Class 4 (rental home, non-primary residence, or a non-primary residence leased to lodgers) is a 'change in use.'

"The Tax Court ruled that reclassifying a property from Class 3 to Class 4 or vice versa is a change in use and required recalculation of the property's LPV (limited property value)."

Attorneys for the owners successfully argued "the assessor should have classified them as class three, not class four" and thus was taxing owners too much — since 2016.

While the initial ruling against the county and the county's subsequent failed appeal are going on three years old, the insider noted the table breaking down refunds by district and year "is months old, not years."

Scottsdale nexus

It can be said that this lawsuit began in Scottsdale — and ends in Scottsdale.

While Scottsdale-based attorneys ultimately created a "class" of anyone impacted, the original named plaintiffs who claimed they were wronged eight years ago live in Scottsdale.

What might become a famous case is named after Dr. Ahmad Qasimyar and his wife, Ossai, who live in Scottsdale and have a medical office in Glendale.

Dr. Robert Koch, a Scottsdale dentist, and his wife Virginia are also named in the 2016 lawsuit.

Other plaintiffs who are Scottsdale residents include Randall Harmsen, CFO of Preferred Medical Claim Solutions; real estate agent Walter Kabat; former pro baseball player Michael Napoli; and financial planner David Parker.

The Progress attempted to contact the various plaintiffs.

"I'm involved in many things — you would have to contact my attorney about the details," said Kabat.

Others did not return calls.

Five of the seven properties listed as owned by the plaintiffs in the lawsuit are in Scottsdale. Four of these are in the 85262 ZIP code in North Scottsdale, with one in the 85259 ZIP code anchored by Shea Boulevard.

The other two properties listed in the lawsuit are just west of Scottsdale's border in Paradise Valley.

Refunds due thousands of subsequent class action property owners around the Valley are linked to Scottsdale, both indirectly and directly.

According to Qasimyar-related letters sent by the Arizona Tax Court, homeowners who receive the notice and have questions can contact Scottsdale attorneys Paul Moore and Bart Wilhoit Mooney.

The phone number of the firm Wright, Moore and Wilhoit is 480-615-7500. The attorneys can also be contacted via email at pmoore@mwmwlaw.com or bwilhoit@mwmwlaw.com

"You will not be charged for contacting these lawyers," the notice states."

Impacted homeowners also can hire their own attorneys "at your own expense."

Those who receive the notice as part of the class action lawsuit victory are not required to contact the attorneys to receive refunds, which will happen automatically — except for "opt out" cases.

"If you do not want a payment from the class action or you want to preserve whatever rights may or may not exist to sue (the county) about the issues in this case, then you must take steps to get out of the settlement," the notice directs.

According to a website created by the county assessor, "On Friday, May 24, we sent (notices of proposed corrections) to correct increases in limited property values as a result of the Qasimyar V. Maricopa County class action lawsuit."

The Progress asked Devero Bogart, a spokeswoman for the assessor's office, if all impacted homeowners have received notices.

"The Tax Court ruling was applicable to only certain properties during tax years 2015-2021 as those property owners were eligible to be part of the class action lawsuit. We are still in progress of recalculating those properties' new value," Bogart said.

"Because of the ruling and its implications, we were then required to recalculate the value for properties for tax year 2022 that changed between a primary and non-primary residence," Bogart added. "All of this group of property owners have received a notice of proposed correction from our office."

Noting the lawsuit aftermath "is a very complex, confusing, unprecedented issue," Bogart noted the county has a website that answers questions and provides more information:

mcassessor.maricopa.gov/page/home/qasimyar.

For those who have received notices and have questions, the website has a link to "register for a virtual public education session."

Meanwhile, cities and school districts are figuring out how to come up with repayments as they await "final figures."

Jordan Dale, chief of staff of the Maricopa County Treasurer's Office, noted the "All-Taxing Districts Estimated Financial Impact" was released April 5.

Asked if there are deadlines on when cities, school districts and other taxing districts must make repayments, Dale answered, "The Treasurer's Office generates refund checks when the correction is processed. A reverse apportionment is applied to the applicable taxing districts at the time each refund check is generated."