State flag of Colorado

In a recent victory for local governments and special districts throughout the state, Colorado voted to repeal the state’s 1982 Gallagher Amendment (“Gallagher”), opting to freeze the existing residential and non-residential property tax rates at their current levels.

Previously, Gallagher imposed a strict 45%-55% fixed ratio between residential and non-residential property tax revenues, which resulted in floating, ever-changing mill rates (i.e., property tax rates) that fluctuated with real estate values. As home values increased, however, Gallagher created an unanticipated trend in which tax rates for residential properties began to steadily decline each year, while at the same time tax rates for non-residential properties continued to increase, to compensate for decreased revenue collected from residential property taxes.

Now that this requirement has been removed, many owners of non-residential property in Colorado may expect to experience some level of relief from projected future tax increases for non-residential properties. Indeed, the repeal of Gallagher will effectively prevent the worst of what many expected would be a steep increase in non-residential property tax rates, as a result of recent changes in the relative values of residential and non-residential real estate in Colorado.

Unfortunately, owners of non-residential property should expect that their property taxes may still increase in the coming year. The reasons for this are twofold. First, Amendment B did nothing to decrease existing tax rates, and instead merely froze them at existing levels. This means the applicable tax rate will stay the same, and in that regard tax rates for 2021 and 2022 will look very similar to 2019 and 2020. As a reminder, the tax rate is multiplied by each property’s “assessed value” to determine the total amount of property taxes that are owed in any given year.

Second, Colorado’s upcoming “reassessment cycle” – the period when county assessors determine each property’s “assessed value” that will be used to calculate property taxes for the next two years – is set to begin on January 1, 2021. This means that the market data that county assessors will use to calculate the next two years’ property tax bills will be limited to data collected during “the one-and-one-half-year period immediately prior to July 1 immediately preceding the assessment date,” which in this case is the period running January 1, 2019 until June 30, 2020. As a result, property owners should expect that their property tax bills for 2021 and 2022 will be calculated using property values from 2019 and early 2020.

Ordinarily, this staggered approach that uses previous years’ property values to calculate current-year tax bills does not create many problems, since property values only change so rapidly. As everyone knows, however, this year has been unique. Although the full impact is yet to be seen, many expect that property values at the end of 2020 will be different – for better or worse – than they were at the beginning of the year. Property owners should therefore expect some amount of discrepancy between current-year values that the pre-pandemic property values that will be used as the primary input for calculating next year’s tax bill.

Fortunately, the relevant period for data collection includes at least the first three months that COVID-19 has been present in Colorado (the state’s two first cases were confirmed on March 5, 2020). This means that county assessors will need to consider at least the initial impact that the pandemic had on property values. Indeed, at least some assessors appear to have already taken this into consideration and have mailed valuation questionnaires to property owners that explicitly asked about the impacts the pandemic had on their businesses and operations. To the extent you have still not returned your questionnaire, make sure to accurately state the full impact that the pandemic had on your business beginning in March 2020. The information you provide in your questionnaire will affect the assessed value of your property, which directly affects your property tax liability.

For those who did not provide such information in their questionnaire, there is still recourse for challenging the assessed value of your property. On May 1, 2020, county assessors will notify taxpayers of the assessed value of their property in a document typically labeled “Notice of Value.” When you receive your Notice of Value, you should immediately open and review it. If you disagree with it, you should consult an Ireland Stapleton attorney to determine whether you would like to submit a “protest” to challenge the assessed value. All protests will be due June 1, 2020, so time is of the essence. If you fail to meet the June 1 deadline, your only recourse will be to pay the taxes and then submit a petition for abatement (i.e., refund) of taxes, which must be submitted by December 31, 2023.

Fortunately, for many reasons this upcoming reassessment cycle is unique. There is some chance that taxpayers may be able to challenge the assessed value used to calculate their 2022 property taxes, to the extent they can show that the pandemic or the state’s measures designed to contain it may constitute an “unusual condition” that could justify an “intervening year” protest filed after the June 1, 2020 deadline has passed. The success of such an approach is uncertain, however, so the best way to protest your property’s valuation is still to file a protest during the ordinary timeframe set forth above.

The information provided herein is intended as general information and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.