By Steve Letman, CRE, MAI , ASA and Jason Letman, MAI
In a weakening economy, it is more important than ever to control expenses. One of the largest expenses faced by property owners each year is property taxes. This expense usually appears on operating statements under the heading “Fixed Expenses”, but property owners should understand taxes are rarely fixed. This article will review frequently asked questions (FAQ) about property tax laws in Colorado (they vary from state to state) and examine ways of appealing property taxes as well as some of the potential pitfalls. Most of the article is focused on real estate taxes, but many of the same guidelines apply to business personal property.
How is my property value determined?
The Assessor must consider a variety of market-based information in appraising different kinds of property. These include cost and depreciation data (the cost approach), sales of similar properties (the market approach), and earning capacity (the income approach). All three approaches are used to value vacant land and commercial property. The assessor is limited to using the market approach and gross rent multipliers when valuing residential property – condominiums, houses, and apartments.
When is my property assessed?
Real estate is re-appraised every two years in the odd-numbered year. (Personal property is re-valued each year). The Assessor’s office is restricted to considering data from the 18-month period ending on June 30 of the year prior to the reappraisal. New 2011 values will be based on data from the period between January 1, 2009, and June 30, 2010.
The Assessor must consider the property condition as of January 1 of the revaluation year, but the date of value is June 30 of the prior year. The assessment generally remains stable for two years, unless there are changes in the property during the year.
What is the difference between “actual” value and “assessed” value?
The Assessor determines the “Total Actual Value” (market value) of real property. A percentage is applied in order to derive the “assessed” value.
Commercial property is assessed at 29% and residential at 7.96% of “Total Actual Value”. Due to this difference taxes on a $1,000,000 warehouse or office building will be more than 3 times as much as taxes on a $1,000,000 home.
The assessed value is multiplied by the mill levy to determine the annual tax bill.
Who sets the mill levy?
Mill levies are based on the budgets of each taxing authority such as school, county, city, fire, water and sanitation, and recreation districts. These districts provide services to you and are listed on the last tax notice. The TABOR amendment places limits on how much these taxing authorities can raise taxes in a given year.
When am I notified of the new value?
Notices of Value are mailed on May 1 each year. The notice states “This Is Not A Tax Bill”, however, the tax bill you receive in January is based on the value established by the Assessor.
What is the procedure for protesting my valuation?
Instructions for appealing your property’s valuation are printed on the Notice of Valuation. Appeals must be filed no later than June 1. You can appeal in person at the Assessor’s office or by mail. (The mail-in deadline is May 27; appeals may be delivered in person up to June 1.)
Most county assessors must respond by July 1. If you wish to appeal further, you should file a protest with the County Board of Equalization (BOE). Further appeals can be filed with the Colorado State Board of Assessment Appeals (BAA), district court, or with County arbitration boards.
Does the TABOR (Taxpayer Bill of Rights) Amendment of 1992 prevent my taxes from rising?
No. The TABOR Amendment controls the amount that the State and local governments can collect and spend. It does not limit tax increases on individual properties.
Should I hire a tax agent?
You can appeal property taxes on your own behalf, but unless you are up to speed on the current tax laws it can be difficult to know if you are being treated fairly. Numerous property tax consultants are available to help with the appeal. You must exercise care when hiring a tax consultant. Ask for references and check their qualifications. A good agent will be aware of the intricacies of valuation as well as the details of property tax laws. Exercise the same caution you would in hiring a lawyer or an accountant. Remember, the tax agent you hire represents your firm. A well-qualified tax consultant can guarantee you pay no more than your fair share of property taxes.
Since property taxes are one of the largest real estate expenses, you should do everything to insure that you pay no more than your share. Ask yourself whether property taxes are “fixed expenses” or if there is something you can do about them.