Nobody likes taxes, but our Colorado property tax system is, in my opinion, among the fairest in the nation, so as we brace ourselves for the “Notice of Valuation” we’ll receive from our county assessor next month, I thought it useful to describe how it works and why I believe it to be relatively fair.
A 2022 post on the website Investopedia.com ranked Colorado as having the 5th “best” (i.e., lowest) property tax in the nation, behind Hawaii, Alabama, Louisiana and Wyoming. It calculated that the state’s “effective property tax rate” was 0.51% of a home’s valuation. Hawaii was lowest at 0.31% and New Jersey was highest at 2.31%.
However, that statewide average does not include the impact of metropolitan tax districts, which can nearly double the tax rate on a given home. (This is a huge scandal which is only recently beginning to get the attention of legislators, who could, if they wanted, rein in metro district abuses.)
Putting aside that scandal for a moment, let me describe how property taxes are calculated in Colorado, as mandated by Colorado’s constitution.
The essence of the system is to have the county assessor determine the fair market value — that is, what every property could have sold for based on what comparable homes sold for — on June 30th of every even numbered year. That means that the valuation you receive in the mail next month will be what the county assessor, guided by mass appraisal software, estimates your home might have sold for on June 30, 2022.
That’s an unfortunate date this time around, because June 2022 may well have marked the peak of the Covid-19 era run-up of home prices in Colorado and nationwide.
An important note: Although the valuation date is June 30th of last year, it applies to what your house looked like on January 1st of this tax year. That made a big difference for victims of the Marshall Fire, because their home was worth next to nothing on Jan. 1, 2022, so the tax bill they received this year which covered 2022 should have been based solely on land value, not a repeat of their 2021 tax bill. If the fire had not destroyed their home on Dec. 30, 2021, the valuation of it from June 30, 2020, would have applied to property taxes for both 2021 and 2022.
Getting back to the process, once the valuation on your home is finalized following any appeal you might make, your tax for this year and next will be determined by applying your home’s mill levy to the assessed valuation, which is now 6.765% of your home’s full valuation.
I’ll use an example a home with a full valuation of $1,000,000. First of all, that figure is reduced by $15,000 under a law passed last year, so the assessment rate is applied to $985,000. Applying the above assessment rate, it would have an assessed value of $66,635, so if your mill levy is 100, then your tax bill would be $6,663.50. (It’s called a mill levy from the Latin word for thousand, so the levy is applied to every thousand dollars of assessed value. Thus, 100 x 66.635 = $6,663.50.
Keep in mind when you appeal your valuation that every $10,000 in reduced full valuation is worth only $676.50 in reduced assessed valuation. At a mill levy of 100, a full value reduction of that amount reduces your tax bill by only $67.65. That may not be worth arguing for, but a reduction in full valuation of $100,000 would be worth $676.50. And if you’re in a metropolitan tax district with a high mill levy, it’s worth even more.
Expect more on this topic from me in the coming weeks.
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