Annual Property Tax Appeal Best Practices: Successful Property Tax Appeal Requires Careful Navigation
In May of every odd year (2017, 2019, 2021), property owners across Colorado receive their updated notices of value from the county assessor. Emotions will range widely. Some owners will accept their value as fair; however, if the value doesn’t match expectations, the likely reaction will be surprise, shock, and perhaps dismay.
If you fall into the latter category, we offer three important “pillars” for a successful property tax appeal.
Know the Rules
Colorado’s property tax rules are unique. Owners are frustrated when they appeal their assessment because of the labyrinth of rules they must navigate. There are deadlines to meet and restrictions on the data that can be used.
The basic rules are: for 2013, the assessor considers information from January 1, 2011 through June 30, 2012, also known as the “base period”. The value date of the 2013 and 2014 tax assessment is June 30, 2012. The assessor can consider all three valuation approaches (Cost, Sales Comparison, and Income) for commercial property, but only the Sales Comparison Approach for residential properties.
The first level of appeal is directly to the assessor’s office, due June 1st. (Denver county is an exception because they are trying a pilot program with different deadlines this year.) Later deadlines are stated in the responses sent out by the county after each level of appeal.
The second level of appeal is to the County Board of Equalization At this level, your case is heard by a hearings officer. You have three options for the third level of appeal: The Board of Assessment Appeals, Arbitration, and County Court.
Knowing the rules is essential. I once sat in a hearing at the County Board of Equalization where each side is allotted 5 minutes to present their case. The entire time was spent explaining that all of the taxpayer’s data was outside the “base period” and could not be considered. No time was left for presentation of any evidence that the assessment was not accurate.
Do Your Research
The assessor’s staff spends the majority of their time collecting information about sales and leases in the county. Most of the information they receive is from surveys returned by taxpayers. From that data the assessor creates a statistical model to value all properties in the county. While the assessor’s office has a lot of information, they don’t have everything.
Successful appeals often start with information the assessor doesn’t already have. Was your property vacant? Does it have deferred maintenance? Do you have a relevant rent study? Was your property listed for sale or lease? Did you get any offers that support a lower value?
For all properties, gather all of the comparable sales of similar properties you can find. Include any information you have about those properties since the assessor may not have a complete picture of the sales. Specifically, do you have information about the condition of the sales. Did you visit the sales as an open house? Do you know if the property needed repairs after the sale?
For commercial properties, gather information about competitive rental rates, operating expenses, and capitalization rates. Are your expenses higher than market for some reason? Are your rents lower? You may be in a niche market that the assessor’s statistical model missed.
Another avenue to explore is the condition of your property. It is impossible to for the assessor to visit every property, every year. Providing photos of the property, including any defects, go a long way toward supporting a value reduction.
In one appeal, we found that the property was being assessed as a 100% commercial property. The owner converted half of the property to residential apartments, entitling the owner to a lower tax rate on that portion.
Have A Reason
In preparation for this article, I read several pieces in the mainstream press advising taxpayers to appeal “all of their properties, every year.” This may be appropriate advice in some states with different rules. In Colorado, it is bad advice.
A successful appeal must indicate the reasons why your property’s assessment is too high. Simply stating “My taxes are too high” will not convince the assessor to lower your assessment. Perhaps your taxes are high, but that might be due to a high mill levy which can only be changed through the political process.
Sales that support a lower value, income that shows an under-performing asset, and unaccounted for defects in the property are the major reasons for appeal.
If you’re shocked by the assessor’s valuation in May, take some time to research the rules, gather information, and provide the assessor with a reason to reduce your assessment. It will be worth your while. There are also property tax professionals who can assist you in this process if this seems time consuming.
Article originally appeared in the Colorado Real Estate Journal in May of 2013.