Combo puts local business against the wall
By Mark Reaman
This is the time of year local property owners are receiving their 2017 commercial property tax bills and many are feeling some sticker shock. That shock could eventually translate to adjustments in stores and restaurants that could include things like higher prices or fewer employee benefits.
Based on higher valuations made last year, commercial property owners in Crested Butte saw a big increase in the amount of tax they must pay and many have appealed the most recent property valuations in the hope their tax bill will eventually be reduced. While it’s too late to appeal the 2017 value or the tax bill they just received, property owners can appeal their 2018 value in the hope that their 2018 tax bill will be reduced next year. Property owners can file an appeal through June 1, 2018.
According to Gunnison County assessor Kristy McFarland, more than 16 percent of the commercial property owners in Crested Butte filed an appeal with the county last year. That is because business property in the town saw an average increase of 19 percent with the 2017 re-evaluation of property values. Valuations are based on sales of similar properties.
“It was definitely a big hit this year. It was exceptional,” said long-time Crested Butte businessman Eric Roemer of the Wooden Nickel. “The taxes on the building went up 30 percent over last year. As a business owner in a fixed resort environment there are only a couple of choices to deal with that. You either cut expenses or raise prices.”
Travis Underwood of Chopwood Mercantile agrees. “Our landlord was hit with a big increase and he is appealing the assessment,” Underwood explained. “But we expect a direct hit to our unit and a major increase in the cost of maintaining the common space in the building.
“We are moving toward a scenario where it’s starting to not make sense to own a business in Crested Butte,” Underwood continued. “In a good year we net 3 percent to 5 percent profit. Outdoor retail traditionally is in the 2 percent to 7 percent range. Independents just can’t survive if taxes go dramatically high. I have looked at buying commercial real estate and it just doesn’t line out here in Crested Butte. And landlords aren’t getting rich either unless they have owned the building for a long time.”
McFarland said the valuations change regularly and that is why properties are reviewed every two years. “Commercial values were highest between 2007 and 2010. From 2011 through 2016, commercial values declined slightly. In 2017, commercial properties have regained value,” she explained.
Gunnison commercial property values also went up in 2017. McFarland said that rise was about 8 percent. Residential property values went up more in each community. In Gunnison, it was 8.6 percent while residential values in Crested Butte rose 21.4 percent. In the rest of the north end of the valley, Mt. Crested Butte and unincorporated Gunnison County, commercial property went up 11 percent while residential was up 12.5 percent.
It all works in conjunction across the state to collect taxes. And under the state’s Gallagher amendment, commercial property is taxed at roughly four times the rate of residential property. So a commercial property worth $1 million pays four times as much in state and local taxes as a house worth $1 million.
While 16 percent of commercial property owners in Crested Butte appealed the valuations, only 6.5 percent of residential property owners appealed their valuations. In Gunnison, the rate was 8 percent of commercial properties filing an appeal compared to just 1.2 percent of residential property. In the rest of the northern valley including Mt. Crested Butte, 10 percent of the commercial property owners filed an appeal while just under 4 percent of residential property owners did so.
“Comparing the appeal rate versus increases in value, it is clear that commercial property owners were more likely to appeal than residential owners for any given rate of increase. This is probably because of the higher assessment rate (29 percent commercial versus 7.2 percent residential),” McFarland explained in an email. “Also, note that the Crested Butte Fire Protection mill levy increase meant that mill levies in the north end of the valley increased by about 5 percent, whereas other parts of the county saw mill levies increase by only about 0.4 percent.”
Adding to the business pain is that after last winter’s epic snowfall, this winter has been off as far as business. For example, according to Crested Butte finance director Rob Zillioux, town sales tax revenue was off 7 percent in January this year compared to last. He expects another drop in February; early March projections are not looking like it will make it up with spring break.
Crested Butte Mountain Resort vice president Erica Mueller confirmed that skier visits are down this season compared to the previous two. “This year compared to 2015-16 and 2016-17 we are just over 10 percent down to each year in skier visit numbers through February,” she stated in an email. “When comparing this year to the 2014-15 season we are about 5 percent down in skier visits to date.”
Underwood said even last summer was not a banner season and that all goes to the bottom line. “Typically landlords directly pass through the taxes to the tenant, so we could be talking $1,000 or more per month in increases,” he said. “What this does for any business is to eat into the bottom line, meaning they have to cut from payroll, marketing, or employee benefits. Last summer we saw a decline in business and I feel the valley won’t be increasing in business revenue to match real estate prices. So the conversations about housing costs will now be applicable for businesses as well.”
Roemer is in the same boat. “Winter sales have been off. It’s just not a good combo to see a decrease in business with an increase in property taxes,” he said. “I understand it is part of the deal. We are snow farmers and we rely on weather and the ski resort in a winter resort town. But I didn’t expect to see a 30 percent increase.
“You run up against a wall eventually,” Roemer concluded. “How much can a business raise its prices? Then you lose a few customers and that results in losing some staff. There is a limit. And these types of external fixed costs play a big role in local business.”
On the good news front, McFarland said that property valuations mostly stay the same in even numbered years unless there is a change to the use of the property or major upgrades. Thus, most 2018 values will be the same as the 2017 values.