Colorado property owners, especially marijuana-related property owners, should expect a bit of sticker shock when they receive their 2017 property tax assessments around May 1st of this year. Real property in Colorado is revalued every two years in the odd-number year. The county assessor will determine the actual value of property for the 2017-2018 tax cycle using economic data primarily from the period from January 1, 2015, through June 30, 2016. Anyone who lives in Colorado knows that this was a period of market appreciation. In addition to the general market appreciation, the state did not commercialize Retail (recreational) Marijuana until 2014, so county assessors have not previously had a chance to consider the complications added by the industry . . . until now.
The process and standards for determining the actual value of marijuana-related property is essentially the same as other property. It requires consideration of the three approaches to value: the market approach, the cost approach and the income approach. In lay terms, real property may be valued based upon: (1) what similar properties sold for; (2) what owners paid to acquire the land and build the improvements on the property; and (3) what the income generation capability is for the real property.
Each approach to value has the potential to raise special questions for marijuana-related property. For instance, under the market approach, what, if any, adjustments should an assessor make to a non-marijuana-related sale when comparing it to a marijuana-related property, where the latter use is potentially in violation of federal law and subject to the uncertainty of enforcement by the Trump Administration and Attorney General Jeff Sessions? Under the cost approach, what, if any, adjustments should be made in determining the fee simple interest value of a property that has been over-improved to meet the specific needs of the current owner/tenant? In other words, what is the value of a $1 million dollar light and HVAC installation in a marijuana-licensed building, when those same improvements would provide little or no value to nearly every other business? Finally, under the income approach to value, assessors will have to be careful not to apply a value-in-use or business value so that they properly determine the income generating capability of the real property and not the business located on the property.
Marijuana property owners should carefully review their Notice of Value when it arrives in early May. If an owner disagrees with the classification or value assigned to their property, they can file a protest with their county assessor’s office. The deadline for protesting the 2017 Notice of Value is June 1st. Once the June 1 deadline passes, the right to protest the 2017 Notice of Value is lost. Although there is a separate statutory procedure for seeking an abatement and refund of taxes after the expiration of the protest period, owners who take action during the initial protest period are often able to reduce the amount of their property tax burden before the tax payments are actually due. Accordingly, owners are encouraged to examine their mail for the 2017 Notice of Valuation and to review it and act quickly to preserve their protest rights.
This continues to be a fascinating new industry, and property taxes are just the latest legal issue of first impression. As a service to our clients who own commercial or industrial real property, Ireland Stapleton Pryor & Pascoe, PC, in conjunction with Downey & Associates, PC, will undertake property tax assessment appeal cases this year on a flexible fee basis. For questions, or to learn more about your individual assessment or protest options, please contact any of the authors listed below.
What is written here is intended as general information, and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.
About the authors: Thomas E. Downey, Jr. is a property tax and litigation attorney with Downey & Associates, P.C. in Centennial, Colorado he can be reached at tom@downeylawpc.com. Tom Downey is a regulatory attorney, with Ireland Stapleton Pryor & Pascoe, PC, representing state-legal marijuana companies; he can be reached at tdowney@irelandstapleton.com.