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States › Arizona › Tax Lien Certificates Laws


There are 15 counties in Arizona and it became the 48th state on February 14, 1912. The state motto is "God Enriches" and was adopted in 1939. Currently, the maximum interest rate set on all Arizona tax lien certificates is 16% per annum (Sec. 42-18053) subject to a 36 month right of redemption (Sec. 42-18152).

The process begins when home owners fail to pay their real estate property taxes (Sec. 42-1151). The income generated from real estate property taxes fund important government services like police protection, medical care, and schooling. Without this revenue cities and towns would go bankrupt.

To solve this problem local governments sell tax lien certificates (certificates of purchase or "CPs") at public tax sales.

Article 4 Liens and Priorities of Tax Claims

42-1151. Lien

A. If any tax, interest or penalty which the department is required to collect is not paid by a taxpayer when due, such unpaid amounts constitute a lien upon all property and rights to property, whether real or personal, belonging to the taxpayer or acquired by the taxpayer from the date the amounts are assessed or the date the return prescribing the liability is filed until the liability for the assessed amounts is satisfied except that the lien is extinguished if an action is not commenced within the period prescribed in section 42-1114.

B. The lien prescribed in this section is not valid against the following until the notice of the lien is filed as prescribed in section 42-1152:

1. A mechanic's lienholder who holds a lien pursuant to title 33, chapter 7, article 6. The lien exists on the later of the date the lien becomes valid against subsequent purchasers without actual notice or the date the lienholder begins to furnish the services, labor or materials.

2. A purchaser who, for adequate and full consideration in money or money's worth, acquires an interest in property, other than a lien or security interest, which is valid against subsequent purchasers without actual notice. Any of the following which is not a lien or security interest is an interest in property:

(a) A lease of property.

(b) A written executory contract to purchase or lease property.

(c) An option to purchase or lease property or any interest in property.

(d) An option to review or extend a lease of property.

3. A holder of a security interest in property acquired by contract to secure payment or performance of an obligation or to indemnify against loss or liability. A security interest exists:

(a) If the property exists and the interest has become protected against a subsequent judgment lien arising out of an unsecured obligation.

(b) To the extent that the holder has parted with money or money's worth.

4. A judgment lien creditor.

C. Although a notice of lien has been filed as prescribed by section 42-1152, the lien is not valid against:

1. Personal property purchased in casual sale as provided in section 6323 of the internal revenue code.

2. Residential property subject to a mechanic's lien for certain repairs and improvements as provided in section 6323 of the internal revenue code.

42-1152. Filing of lien; notice; recording

A. The notice prescribed in section 42-1151, subsection B may be filed by the department against the taxpayer's real property located in any county by recording a notice of lien in the form prescribed by subsection C of this section in the office of the county recorder.

B. The notice prescribed in section 42-1151, subsection B may be filed by the department against the taxpayer's personal property or rights to personal property located within this state by recording a notice of lien in the form prescribed by subsection C of this section in the office of the secretary of state.

C. A notice of lien recorded under this section shall specify the nature of the tax, the amount of tax, interest and penalty due, the taxable periods for which such amounts are due and the name and last known address of the taxpayer liable for such amounts.

42-1153. Release or subordination of lien

A. The department may, at any time, release all or any portion of the property subject to the lien from the lien or subordinate the lien to other liens if it determines that either:

1. The taxes are sufficiently secured by a lien on other property of the taxpayer.

2. The release or subordination of the lien will not endanger or jeopardize the collection of such taxes.

B. In its discretion and at any time, the department may withdraw a notice of lien that was recorded pursuant to this article if the department determines that any of the following conditions apply:

1. The department's interests are best served by withdrawing the notice.

2. Filing the lien was premature or otherwise in violation of the department's administrative procedures.

3. Withdrawing the notice will facilitate collecting the outstanding amount of taxes, interest and penalties.

4. The taxpayer has entered into an installment payment agreement, unless the agreement provides otherwise.

C. If any lien imposed by section 42-1151 has been satisfied and a notice of the lien had been recorded by the department pursuant to section 42-1152, the department shall issue a release of the lien to the person against whom the lien was claimed. The department shall record the lien release in any county where the original lien was recorded and in the office of the secretary of state if applicable.

D. If a balance owed by a taxpayer has been abated pursuant to section 42-1004, subsection B, paragraph 1, subdivision (a), the department is not required to record a release of the lien under this section, but on the taxpayer's written request, the department shall provide a certificate of release to the taxpayer.

E. If a tax obligation has been extinguished pursuant to section 42-2066, the lien for the extinguished tax is also extinguished. The department is not required to record a release of the lien under this section, but on the taxpayer's written request, the department shall provide a certificate of release to the taxpayer.

F. A certificate by the department to the effect that any property has been released from the lien or that the lien has been subordinated to other liens is conclusive evidence that the property has been released or that the lien has been subordinated as provided in the certificate.

42-1154. Priority of tax claim

A. The amounts required to be collected by the department, with interest and penalties, shall be satisfied first in any of the following cases:

1. If the person is insolvent.

2. If the person makes a voluntary assignment of assets.

3. If the estate of the person in the hands of executors, administrators or heirs is insufficient to pay all debts due from the deceased.

4. If the estate and effects of an absconding, concealed or absent person required to pay any amount under this title are levied upon by process of law.

B. This section does not give this state a preference over any recorded lien which was recorded prior to the time the department recorded a notice of lien pursuant to section 42-1152.

42-1155. Voluntary liens on property; security for delinquent taxes

The department may accept voluntary liens on real or personal property pledged by any person as security for any tax which the department is required to collect which is not paid by a taxpayer when due. A voluntary lien shall be perfected and treated in all respects the same as any other lien under this article.

Article 5 Seizure of Property for Collection of Taxes

42-1201. Levy and distraint; definition

A. If a person liable to pay any tax neglects or refuses to pay the tax, the department may collect the tax, and such other sums as are sufficient to cover the expenses of the levy, by levy upon:

1. All property and rights to property, except property exempt under section 42-1204, belonging to the person or on which there is a lien as provided in article 4 of this chapter or section 42-17153 for the payment of the tax.

2. The accrued salary or wages of any officer, employee or elected official of this state or its political subdivisions, or any agency or instrumentality of this state or its political subdivisions, by serving a notice of levy on:

(a) The department of administration in the case of state wages or salaries.

(b) The chief disbursing officer of a political subdivision of the state in the case of wages or salaries paid by the political subdivision.

B. The levy shall not be made more than six years after the amount of tax determined to be due becomes final. The taxpayer and the department may extend the six year limitation prescribed by this subsection for any length of time by executing a written agreement before the expiration of the six year limitation. If enforced collection has been stayed by operation of federal or state law, the period of limitations shall be extended by the period of time that the department was stayed from engaging in enforced collections.

C. As used in this chapter, "levy" includes the power of distraint and seizure by any means. Except as otherwise provided in subsection E or F of this section, a levy extends only to property possessed and obligations existing at the time of the levy or within twenty-one days after the date of the levy. In any case in which the department may levy upon property or rights to property, it may seize and sell the property or rights to the property, whether real or personal, tangible or intangible.

D. If any property or right to property upon which a levy has been made under subsection A of this section is not sufficient to satisfy the claim of the department for which the levy is made, the department may as often as may be necessary proceed to levy in like manner upon any other property liable to levy of the person against whom such claim exists, until the amount due, together with all expenses, is fully paid.

E. The effect of a levy on salary or wages payable to or received by a taxpayer is continuous from the date the levy is first made until the liability out of which the levy arose is satisfied or becomes unenforceable.

F. With respect to a levy described in subsection E of this section, the department shall promptly release the levy when the liability out of which the levy arose is satisfied or becomes unenforceable and shall promptly notify the person upon whom the levy was made that the levy has been released.

42-1202. Surrender of property subject to levy; definition

A. Except as otherwise provided in subsection B of this section, any person in possession of, or obligated with respect to, property or rights to property subject to levy upon which a levy has been made shall, upon demand of the department, surrender such property or rights to property or discharge such obligation to the department, except such part of the property or rights to property as is, at the time of such demand, subject to an attachment or execution under any judicial process.

B. A levy on an organization with respect to a life insurance or endowment contract issued by such organization, without necessity for the surrender of the contract document, constitutes a demand by the department for payment of the amount described in this subsection and the exercise of the right of the person against whom the tax is assessed to the advance of such amount. Such organization shall pay over the amount within ninety days after service of notice of levy. The notice shall include a certification by the department that a copy of the notice has been mailed to the person against whom the tax is assessed at the person's last known address. The levy is deemed to be satisfied if such organization pays over to the department the amount which the person against whom the tax is assessed could have received from the organization on the date prescribed in this subsection for the satisfaction of the levy, increased by the amount of any advance, including contractual interest, made to such person on or after the date the organization had actual notice or knowledge of the existence of the lien with respect to which the levy is made, other than an advance, including contractual interest, made automatically to maintain the contract in force under an agreement entered into before the organization has such notice or knowledge. The satisfaction of a levy under this subsection is without prejudice to any civil action for the enforcement of any lien imposed by this chapter with respect to the contract.

C. A person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the department, is liable in person and estate to this state in a sum equal to the value of the property or rights to property not so surrendered, but not exceeding the amount of taxes for the collection of which such levy has been made, with costs and interest on such sum at the rate determined pursuant to section 42-1123 from the date of such levy, or, in the case of a levy described in section 42-1201, subsection E or F, from the date such person would otherwise have been obligated to pay such amounts to the taxpayer. Any amount, other than costs, recovered under this subsection shall be credited against the tax liability for the collection of which the levy was made.

D. A person in possession of or obligated with respect to property or rights to property subject to levy upon which a levy has been made who, upon demand by the department, surrenders the property or rights to property, or discharges the obligation, to the department or who pays a liability under subsection C of this section is discharged from any obligation or liability to the delinquent taxpayer with respect to such property or rights to property arising from the surrender or payment. In the case of a levy which is satisfied pursuant to subsection B of this section, the organization is also discharged from any obligation or liability to any beneficiary arising from such surrender or payment.

E. As used in this section, "person" includes an officer or employee of a corporation, an officer, employee or elected official of this state or its political subdivisions, or any agency or instrumentality of this state or its political subdivisions, or a member or employee of a partnership, who as such officer, employee, elected official or member is under a duty to surrender the property or rights to property, or to discharge the obligation.

42-1203. Production of books

If a levy has been made or is about to be made on any property, or right to property, any person having custody or control of any books or records containing evidence or statements relating to the property or right to property subject to levy shall, upon demand of the department, exhibit such books or records to the department.

42-1204. Property exempt from levy

A. The following property is exempt from levy:

1. Wearing apparel and school books as are necessary for the taxpayer or members of his family.

2. So much of the fuel, provisions, furniture, personal effects, arms for personal use, livestock and poultry as provided for in section 6334 of the internal revenue code.

3. The books and tools necessary for the trade, business or profession of the taxpayer as provided for in section 6334 of the internal revenue code.

4. Mail, addressed to any person, which has not been delivered to the addressee.

5. If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages or other income as is necessary to comply with such judgment.

6. Any amount payable to or received by an individual as wages or salary for personal services, or as income derived from other sources, during any period, to the extent that the total of such amounts payable to or received by him during such period does not exceed the applicable exempt amount determined under subsection D of this section.

B. The officer seizing property of the type described in subsection A of this section shall appraise and set aside to the owner the amount of such property declared to be exempt. If the taxpayer objects at the time of the seizure to the valuation fixed by the officer making the seizure, the department shall summon three disinterested individuals who shall make the valuation.

C. Notwithstanding any other law of this state, no property or rights to property shall be exempt from the levy provided in this article other than the property specifically made exempt by subsection A of this section.

D. The following wages, salary and other income payable to or received by an individual are exempt from levy under subsection A, paragraph 6 of this section:

1. In the case of an individual who is paid or receives all wages, salary and other income on a weekly basis, the amount of such compensation received during any week which is exempt from levy is the amount determined pursuant to section 6334(d) of the internal revenue code and which is verified in such manner as set forth in section 6334.

2. In the case of any individual not described in paragraph 1 of this subsection, the amount of the wages, salary and other income payable to or received during any applicable pay period or other fiscal period, as determined under rules prescribed by the department, which is exempt from levy under subsection A, paragraph 6 of this section is an amount, determined under such rules, which as nearly as possible will result in the same total exemption from levy for such individual over a period of time as the individual would have under paragraph 1 of this subsection if, during such period of time, the individual were paid or received such wages, salary and other income on a regular weekly basis.

42-1205. Notice and sale of seized property

A. Except as otherwise provided in this section, the notice of sale and sale of property seized by the department under this article shall be conducted in the manner and the time provided in title 12, chapter 9, article 7, relating to the sale of property under execution.

B. Real property may be redeemed in the manner provided by title 12, chapter 8, article 11.

C. The department shall notify the taxpayer of the date, time and location of the sale of his property or right to property with a description of the property or right to property to be sold. The notice shall be given in person, left at the dwelling or usual place of business of such taxpayer or shall be sent by first class mail to such taxpayer's last known address, not less than ten days before the day of the sale. If the property or right to property is perishable, the department shall give notice of the sale to the taxpayer in the manner and within the time limits as are reasonable considering the character and condition of the property.

42-1206. Authority to release levy and return property

A. The department may under prescribed rules release the levy upon all or part of the property or rights to property levied upon if the department determines that such action will facilitate the collection of the liability. Such release shall not operate to prevent any subsequent levy.

B. If the department determines that property has been wrongfully levied upon, the department may return:

1. The specific property levied upon.

2. An amount of money equal to the amount of money levied upon.

3. An amount of money equal to the amount of money received by this state from a sale of such property.

C. Property may be returned at any time. An amount equal to the amount of money levied upon or received from such sale may be returned at any time before the expiration of nine months from the date of such levy.

D. In its discretion and at any time, the department may release a levy or return property levied on if the department determines that any of the following conditions applies:

1. The levy was premature or otherwise in violation of the department's administrative procedures.

2. The taxpayer has entered into an installment payment agreement, unless the agreement provides otherwise.

3. The department's interests are best served by the release or return.

Article 6 Tax Appeals

42-1251. Appeal to the department; hearing

A. Except in the case of individual income taxes, a person from whom an amount is determined to be due under article 3 of this chapter may apply to the department by a petition in writing within forty-five days after the notice of a proposed assessment made pursuant to section 42-1109, subsection B or the notice required by section 42-1108, subsection B is received, or within such additional time as the department may allow, for a hearing, correction or redetermination of the action taken by the department. In the case of individual income taxes the period is ninety days from the date the notice is mailed. The petition shall set forth the reasons why the hearing, correction or redetermination should be granted and the amount in which any tax, interest and penalties should be reduced. If only a portion of the deficiency assessment is protested, all unprotested amounts of tax, interest and penalties must be paid at the time the protest is filed. The department shall consider the petition and grant a hearing, if requested. To represent the taxpayer at the hearing or to appear on the taxpayer's behalf is deemed not to be the practice of law.

B. If the taxpayer does not file a petition for hearing, correction or redetermination within the period provided by this section, the amount determined to be due becomes final at the expiration of the period. The taxpayer is deemed to have waived and abandoned the right to question the amount determined to be due, unless the taxpayer pays the total deficiency assessment, including interest and penalties. The taxpayer may then file a claim for refund pursuant to section 42-1118 within six months of payment of the deficiency assessment or within the time limits prescribed by section 42-1106, whichever period expires later.

C. All orders or decisions made on the filing of a petition for a hearing, correction or redetermination become final thirty days after notice has been received by the petitioner, unless the petitioner appeals the order or decision to the state board of tax appeals.

42-1252. State board of tax appeals

A. The state board of tax appeals is established as an independent agency which shall not in any way be subject to the supervision or control of the department of revenue. The board shall have full power to hear and decide all appeals from decisions of the department of revenue.

B. The state board shall consist of three members appointed by the governor pursuant to section 38-211. Members shall be residents of this state.

C. Members shall be selected on the basis of their knowledge of and experience in taxation. Not more than two members may be primarily engaged in the same occupation or profession. The board shall handle all matters entrusted by law to it dealing with income taxation, estate taxation, transaction privilege, use and luxury taxation and any other taxation assigned to it by law and shall hear and decide appeals from the department of revenue on such matters.

D. Not more than two members of the board shall be members of the same political party. No member of the board shall hold any other public office under the laws of this state or any of its political subdivisions. No member shall be a candidate for an elective office under the laws of this state, nor of any other state. No member of the board shall hold any position of trust nor provide or engage in any occupation or business which would corruptly conflict with the duties of a member of the board, nor take part directly or indirectly in any election campaign in the interest of any political party or other organization or any candidate or measure to be voted on by the people. This subsection does not prohibit a person from properly and lawfully engaging in a business or profession.

E. The term of board members is six years. The member of the board having the shortest term remaining shall act as chairperson if that member has served on the board at least two years. If the member having the shortest term remaining does not qualify to act as chairperson or if two or more members have an equal right by virtue of their remaining terms to serve as chairperson, the board shall elect a chairperson. A member may not be appointed for more than two terms.

F. Each member of the board shall receive:

1. One hundred fifty dollars per day for time spent in the performance of official duties.

2. Such travel and other expenses as provided by law for other state officers.

G. The governor may remove any member for cause.

H. The board shall appoint a clerk, hearing officers and such other employees as it deems necessary to carry out its duties. The hearing officer qualifications shall be the same as the selection criteria for the members as prescribed by this section. Notwithstanding section 41-192, subsection E, upon request of the board, the attorney general shall designate, for such time and purposes as the board requires, an attorney, acceptable to the board, whose compensation shall be fixed and paid by the board.

I. The board shall hold hearings and meetings at the call of the chairperson or a majority of the board and otherwise as may be prescribed by the rules of the board as required to carry out its duties. The principal office of the board shall be at the capitol, but the board may sit or hold hearings at any other place within the state. A majority of the board constitutes a quorum for making orders and decisions or transacting other official business, and the board may act even though one position on the board is vacant. The board shall keep a record of its proceedings.

J. In conducting the business of the board:

1. The board may not act if more than one position is vacant.

2. One or more members or a hearing officer of the board may hold hearings and take testimony to be reported for action by the board when authorized by rule or order of the board.

42-1253. Appeal to state board of tax appeals; definition

A. Except as provided in section 42-1254, subsection C, a person aggrieved by a final decision or order of the department under section 42-1251, article 3 of this chapter or section 42-2065, 42-2068, 42-2069, 42-2074, 42-2201 or 42-2202 may appeal to the state board of tax appeals by filing a notice of appeal in writing within thirty days after the decision or order from which the appeal is taken has become final.

B. The board shall take testimony and examine documentary evidence as necessary to determine the appeal, all pursuant to administrative rules to govern such appeals.

C. On determining the appeal the board shall issue a decision consistent with its determination. The board's decision is final on the expiration of thirty days from the date when notice of its action is received by the taxpayer, unless either the department or the taxpayer brings an action in tax court as provided in section 42-1254.

D. If the amount in any single dispute before the board is less than twenty-five thousand dollars, a taxpayer may be represented in that dispute before the board by:

1. A certified public accountant.

2. A person who is enrolled to practice before the United States internal revenue service and is recognized as an enrolled agent.

3. Any other person who is authorized by the taxpayer under a properly executed power of attorney and who was previously or is currently retained by the taxpayer for purposes other than representation in a hearing before the board.

E. If a practitioner who represents a taxpayer before the board pursuant to subsection D of this section fails to comply with an order or rule of the board, the board may impose sanctions including one or both of the following:

1. Order that the stipulation of the facts proposed by the department of revenue be accepted.

2. Suspend the practitioner from further practice before the board either for a specific period of time or until the board removes the suspension.

F. For the purposes of this section, "practitioner" means a person, other than a party, who files documents with or appears before the board in connection with a matter before the board.

42-1254. Appeal to tax court

A. The department or a taxpayer aggrieved by a decision of the state board of tax appeals may bring an action in tax court.

B. If the department is aggrieved by a decision of the board and the amount in dispute is less than five thousand dollars, the department may not bring an action in tax court unless the department determines that the decision of the board involves an issue of substantial significance to the state. A taxpayer aggrieved by a determination of the department that an issue is of substantial significance to the state may file a motion with the tax court to dismiss the action brought by the department on the grounds that the determination constitutes an abuse of discretion.

C. Except in the case of individual income tax cases in which the amount in dispute is less than five thousand dollars, a person who is aggrieved by a final decision or order of the department under section 42-1251 or article 3 of this chapter may, in lieu of appealing to the state board of tax appeals under section 42-1253, bring an action in tax court by filing a notice of appeal in writing within thirty days after the decision or order from which the appeal is taken has become final.

D. Any appeal that is taken to tax court pursuant to this section is subject to the following provisions:

1. No injunction, writ of mandamus or other legal or equitable process may issue in an action in any court in this state against an officer of this state to prevent or enjoin the collection of any tax, penalty or interest.

2. The action shall not begin more than thirty days after the order or decision of the board or department becomes final. Failure to bring the action within thirty days after the order or decision of the board or department becomes final constitutes a waiver of the protest and a waiver of all claims against this state arising from or based on the illegality in the tax, penalties and interest at issue, except that within the time limits set forth in section 42-1106, a taxpayer who fails to bring an action within thirty days may pay the tax under protest stating the grounds of objection to the legality of the tax and then file a claim for refund of the taxes paid. The refund claim shall then be governed by section 42-1119 and this section.

3. The tax court shall hear and determine the appeal as a trial de novo.

4. Either party to such action may appeal to the court of appeals or supreme court as provided by law.

5. If a final judgment is rendered in favor of the taxpayer in the action, the amount or such portion of the judgment as may be necessary shall first be credited to any taxes, penalties and interest due from the plaintiff taxpayer, and the amount of the balance remaining due the taxpayer shall be certified by the department of revenue to the department of administration, with a certified copy of the final judgment and a claim for refund authenticated by the department of revenue. On receipt, the department of administration shall draw a warrant payable to the taxpayer in an amount equal to the amount of the tax found by the judgment to be illegal, less the amount of any taxes, penalties and interest due from the taxpayer. The department of administration shall draw a separate warrant payable to the taxpayer in an amount equal to the interest and other costs recovered against the department of revenue by the judgment, which shall be paid from the appropriate tax account.

42-1255. Burden of proof

The department has the burden of proof by a preponderance of the evidence in any administrative or judicial proceeding regarding any factual issue that is relevant to ascertaining the tax liability of a taxpayer. This section does not abrogate any provision of this title or title 43 that requires a taxpayer to substantiate an item of income or expense. This section applies to a factual issue if a preponderance of the evidence demonstrates that:

1. The taxpayer asserts a reasonable dispute regarding the issue.

2. The taxpayer has fully cooperated with the department regarding the issue including providing, within a reasonable period of time, access to and inspection of all witnesses, information and documents within the taxpayer's control, as reasonably requested by the department.

3. The taxpayer has kept and maintained records as required by this title, by title 43 or by the department.

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