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Colorado Study Proposes Lower Residential Assessment Ratio

by Joe Monzon, Denver, February 2017

 

Change may be coming for Colorado's Residential Assessment Ratio. A new study indicates the residential assessment ratio may fall from the current 7.96%, to as low as 6.56% for 2017/2018. This change will balance the statewide property tax burden as required by the Gallagher Amendment.

 

Changes Triggered by the Gallagher Amendment

 

The Gallagher Amendment to the Colorado constitution states that roughly 55% of all ad valorem taxes statewide must be borne by properties with commercial classification, and roughly 45% by properties with residential classification.

 

Residential classification is limited to the following real estate categories:

 

  • Single family homes

  • Apartments

  • Townhomes

  • Manufactured housing communities

  • Condominiums

  • Nursing homes

  • Assisted living facilities

  • Extended stay hotels where the stay exceeds 30 days

Commercially classed properties are basically everything else.

 

To maintain the 55/45 balance, Colorado uses a system of differing assessment ratios. The commercial assessment ratio is fixed at 29% of assigned assessor market value. The residential assessment ratio floats to maintain the 55/45 balance. For the past few assessment cycles, the residential ratio has been 7.96% of assigned assessor market value.

 

When residential values appreciate, or significant new residential construction occurs, the resulting threat of residential value exceeding 45% of the statewide total forces the residential ratio down.

 

Similarly, when commercial market downturns occur, falling commercial values threaten to push the commercial share of the pie below 55%, which also has a downward effect on the residential ratio. The lowering of the residential ratio pushes the commercial total upward and the 55/45 balance is retained.

 

Residential Ratio Keeps Falling

 

When the Gallagher Amendment went into effect in 1983, the ratios were set at 29% commercial, 21% residential. Because residential values have generally appreciated more reliably than commercial values, and since significant residential construction has taken place in Colorado since 1983, the residential assessment ratio has consistently trended downward. It went from 21% in 1983 to the current 7.96%.

 

The Colorado ratio study has indicated a basis for increasing the residential assessment ratio several times in the last ten years. This amounts to a tax increase on residential property owners, and may not be enacted without a statewide vote approving the increased assessment ratio, according to the Taxpayer’s Bill of Rights (TABOR). It is generally believed that such a proposal to Colorado voters would not be successful. The residential assessment ratio has remained at 7.96% since 2003.

 

Another Reduction Anticipated

 

The new ratio study completed by the Colorado Department of Local Affairs, Division of Property Taxation, indicates that another residential ratio reduction is in order. A bill will be introduced in the Colorado legislature in the 2017 session, proposing a reduction to a level perhaps as low as 6.56%, for 2017 and 2018.

 

To read the preliminary recommendations, click here.

 

Assessment Ratios Ensure Lower Residential Property Taxes

 

The following example shows how properties with the same market value and different classifications have very different assessments:

 

Commercial Property

$1 Million

Market Value

x

0.29

Assessment Ratio

=

$290,000

Assessed Value

 

Residential Property

$1 Million

Market value

x

0.0796

Assessment ratio

=

$79,600

Assessed Value

 

Assessed value is multiplied by the local mill levy to calculate real estate taxes. The mill levies are the same for all classes of property in a given district.