Property taxes are a fraught and complex topic in Colorado, but they’re critical to so much of our infrastructure and have a big impact on our daily lives, from buying everyday products and services to sending our kids to school. It isn’t the most fun topic for most people, but the outsized importance of its role in our lives merits our attention from time to time.
Of course, everyone who owns a home is well-acquainted with property tax bills, but even those who rent are impacted by the prices paid by commercial owners, as these bills are generally passed onto the consumer, in the form of rent or prices for goods and services. Public schools in Colorado are funded by property taxes, making the revenues the state takes in consequential for millions of families.
This year, and every odd-numbered year, assessors for every county in Colorado release the results of their bi-annual reassessment of properties in the state. This means that every property owner will soon receive a letter informing them of the assessed value of their property, which in turn dictates how much property tax they must pay for the next two years. These assessments can be protested if the property owner feels that they’re incorrect, but overall the process is standardized and well-established.
But, like so many other things, the arrival of COVID-19 in mid 2020 threw a curveball for property owners and county assessors right in the middle of their work for the 2021 reassessment, since the values are based on a preceding 18-month period outlined by state statute, in this case Jan. 1, 2019 through June 30, 2020. Because roughly four months of the pandemic were included in the reassessment, overall commercial property values in metro Denver declined for the first time in a decade.
When broken down by property type, the impact of the pandemic on values varies widely, with general commercial value changes ranging from 10% declines to 25% increases. In general, hospitality and retail properties fared worse, office values remained roughly flat and industrial facilities saw their values increase. These changes correspond with the relative market health of the categories through the pandemic.
One of several factors that is considered in valuing properties is sales comparables – or sales of like properties that have taken place recently, and assessors are required to perform what is called “time trending,” in which they adjust all sales that have occurred in the study period to account for appreciating or depreciating markets up to the last day of the study period, June 30.
For commercial property, the income a property draws can also be considered. Of course, COVID-19 and its economic fallout heavily impacted both sales comparables and income for nearly every commercial property in metro Denver, but the lack of sales is what really concerned assessors statewide.
Assessors from the Front Range and northern and western Colorado embarked on an unprecedented effort, joining together to study the effects of the pandemic on commercial property valuation, outlining recommendations for each of six commercial property types: office, retail, warehouse, apartments, commercial condos and lodging. They also worked with a team of appraisers to identify which submarkets would require additional research, and developed methodologies aimed at helping county-level officials make their final determinations.
Read more about the results of that study.
Further, changes are coming to the way we pay property taxes in Colorado. Commercial property owners are taxed at 29% of their property’s value, while residential owners must pay 7.15% of their property’s value. This difference is a result of a 1982 law called the Gallagher Amendment which was effectively repealed by a ballot initiative in 2020. The full impact of this repeal is unknown until the state Legislature determines how to rebalance these tax rates.
Additionally, a group called Colorado Rising State Action is pushing for a 2021 ballot measure that would cut the property tax rate in the state.
With these potential and pending changes, it’s more important than ever to understand this critical piece of Colorado’s tax and property ownership structure.
Learn more about Denver County’s reassessment process.