Property taxes in Colorado

Your taxes may not go up as much as your new valuation

By Toni Todd

Take a quick glance at property for sale in local newspapers and it’s obvious: prices are up. Even so, if you own property in Gunnison County, you may have been surprised to learn this past spring just how much your home’s value has risen. That’s good if you’re looking to resell, but not so good when you consider that your property tax bill may increase.

Or will it? Flip to the B side—the governor recently signed a bill lowering residential property tax rates in Colorado. This should temper the impact of rising home values here. Of course, it’s not so simple as calculating a rise or fall in the state rate, or a dip or spike in property values. There’s no way to know for sure right now whether, or by how much, your individual property taxes will increase next year.

“Use your current taxes as a guide,” suggests Gunnison County assessor Kristy McFarland.

The state rate, McFarland says, was lowered to 7.2 percent, down from 7.96 percent. According to the Gunnison County Assessor’s report, “The proposed lower tax rate means a 10 percent reduction in residential tax collection” across the state. Gunnison County, says the report, “similar to other ski area counties… has had an increase in property value approximately proportional to the projected decreased tax rate, and effects of the lower rate are expected to be minimal.”

In other words, as state rates go down and local values go up, the net effect, at least for now, is a wash.

The reduction statewide is necessary, says McFarland, to keep Colorado copasetic with its constitution, most notably, the 1982 Gallagher Amendment.

As residential property values have risen, oil and gas prices, and the value of non-residential property owned by the fossil fuel industry, has declined. Oil and gas, McFarland says, make up the majority of non-residential property in Colorado. The Gallagher Amendment defines how home values are appraised; more important, it limits the property tax burden borne by residential property owners to 45 percent of the total statewide, with non-residential property owners picking up the tab for the remaining 55 percent. Owners of commercial and business property could feel the hit.

As residential property values rise and non-residential values decline, the rate of taxation on homeowners must be adjusted downward to maintain that 45/55 ratio. But a reduction in the state rate sometimes sparks changes in local district mill levies that support such services as the school district and fire protection. A community’s relationship with Colorado’s Taxpayer Bill of Rights (TABOR) matters, too. Some have voted to de-Bruce, as they call it, which allows them to raise their mill levies beyond the limits imposed by TABOR. McFarland cites Skyland as a local example. The Skyland Community Association opted to de-Bruce in 2008. (The term de-Bruce comes from Douglas Bruce, the founder of TABOR.)

McFarland says it’s important to note that the county re-assesses property values every two years. So, if it seems your home’s assessed value has risen sharply, that rise is based on two-years’ market value increase, not just one. The value you recently received in the mail was the assessment for 2016. According to the assessor’s report, “Real estate values are influenced by numerous external economic, social, governmental, and physical factors. As property values change in the marketplace, those changes must be reflected on the assessment roll.”

It’s not necessarily a given that your taxes will rise even if the value of your home has risen. McFarland says the tax you ultimately pay is the result of your assessed value plus local district mill levies. Mill levies are determined at the end of the calendar year, so, says McFarland, we won’t have all the pieces to the formula that will determine how much you’ll pay in 2018 until December 2017.

While the rise and fall of taxes impacts property owners’ wallets, it also can have positive or negative impact on services. Communities where property values are stagnant or falling will feel the pain of reduced tax revenues when the state rate goes down. Those funds, said McFarland, are crucial to supporting schools, hospitals, and other vital community programs. Those communities, she added, often have more difficulty passing mill levies to make up for those shortfalls, whether they have de-Bruced or not.

The two-year assessment cycle aside, prices are up this year compared to last year, especially in Crested Butte. “We’ve seen four years of steady price increases,” said Crested Butte real estate agent Chris Kopf. “We’re seeing prices rising in every category, with interested, active buyers.”

McFarland confirmed this. “The median increase over the prior year (excluding properties that had new construction) in Crested Butte was 26 percent,” she said. So, a home that sold last summer for $1 million would sell for $1,260,000 this summer. While not all real estate markets in the county are as hot as Crested Butte, prices are up countywide, both in 2016 assessed values and in year-to-year values. “Very few areas saw a drop in value,” McFarland said, “although Arrowhead was slightly down.”

McFarland cautions that spikes on the graphs measuring values can be misleading. “The problem with the Crested Butte market is that it’s so tiny,” she says. The sale of a few high-end homes, she explained, can skew the data and make the graphs look more dramatic than the reality on the ground.

Kopf agreed. “The greatest increases are seen in the luxury home market, so the sale of a few high-end properties can impact the overall price picture,” he said, but suggested an additional influence based on what he’s seeing this year: the rapidly changing makeup of the Crested Butte market. “Our inventory of homes under a million dollars is evaporating, which makes the increasing prices seem more dramatic than they are when comparing [median prices] last year-to-date with this year-to-date,” he said.

Kopf’s market report for month-end May shows 134 single family homes for sale in the Crested Butte area. Only 36 of those, he said, had an asking price of less than a $1 million. If you look at the listings, many of the homes selling for less than $1 million aren’t selling for much less.

That’s not to say the few, lower-end properties being sold aren’t a part of the overall upward trend. The median price of a condo in the Crested Butte area was $297,000 in May 2016. That price rose to $321,000 in May 2017.

Gunnison County is divided into four economic areas: 1, 2, 6 and 8. Area 1 is the City of Gunnison and the area immediately surrounding it. Area 2 is restricted to the town of Crested Butte city limits only. The town’s National Historic District designation makes this a unique market, distinct from all others in the county. Area 6 is everything north of Jack’s Cabin, excluding Crested Butte, but including Skyland, Trappers’ Crossing, Mt. Crested Butte and Crested Butte South. Everything else is Area 8, rural Gunnison County, taking in everything from Marble and Somerset to Almont, Parlin, Pitkin, Tin Cup and Powderhorn.

“Looking at the graphs, you can see that Gunnison [Economic Area 1] has been relatively stable over the years,” said McFarland. By contrast, the Crested Butte graph [Economic Area 2] shows a spike in 2011, and one again from 2015 to 2016. However, if you look at the bar below the line, which indicates volume, or number of homes sold, you’ll see that the number was low in 2011, the heart of the Great Recession. So, that spike was likely caused by the sale of only a few higher-end properties. The same phenomenon can be seen on the Rural Gunnison County graph [Economic Area 8] in 2009, the onset of the economic downturn, showing the lowest sales volume of the decade.

Some have an opportunity to reduce their property taxes

If you’re a senior, you may qualify for a discount on your property taxes. While the deadline to apply for that has passed for eligibility in 2018, it’s something to look into next year.

There’s a discount available for disabled veterans too; information is available on the Gunnison County assessor’s website.

According to the Lincoln Institute of Land Policy’s 50 State Comparison Study for Taxes Paid in 2016, “Alabama, Colorado, Hawaii, West Virginia, and Wyoming are the five states where effective tax rates on median-valued homes are among the ten lowest [in the country] in both urban and rural settings—suggesting that these states are most likely to have the lowest homestead property taxes.” The report also states, “Property tax has key strengths as a revenue instrument for local government: it is the most stable tax source; it is more progressive than alternative revenue options, and it promotes local autonomy.”