Property Taxes in Colorado How are they determined and what can I do about it?

Colorado’s system of real property taxation can leave homeowners confused and frustrated. This may be especially true if a homeowner receives a Notice of Valuation reflecting an unexpected increase in the value of his or her home which results in an increase in taxes owed. This article will provide an overview of the process by which property values are determined for the purposes of taxation and the options for homeowners who believe their properties have been incorrectly valued.

Colorado has a two year cycle for valuing real property for the purposes of assessing property taxes. In odd years, properties are revalued; even years are considered “intervening years” and properties are generally considered to have the same value as in the prior year. In intervening years, notice of the value of property is often contained in a short form along with the property tax statement issued in January. However, in odd years assessors are required to mail a Notice of Valuation, or NOV, to taxpayers by May 1. The NOV must include the actual value of the property as determined by the assessor’s office and the assessment rate that applies to the property (explained in further detail below). It may also include an estimate of the taxes owed for the current tax year.

How does the county assessor determine the amount of property taxes owed?

The amount of taxes owed is determined by using a statutory formula. First, the assessor must determine the actual value of the property. To do this, the assessor estimates the market value as of the appraisal date, a date that is set by statute as June 30th of the prior year. The market value is determined by reviewing property sales taking place within the “study period” — generally the 2 year period prior to the appraisal date. For the 2015 tax year, for example, the study period is from July 1, 2012 through June 30, 2014, and no sales that took place outside this timeframe are considered in the valuation of the property.

Once the actual value is established, the following formula is used to determine the amount of taxes owed:

(Actual Value x Assessment Percentage) x Mill Levy = Taxes Owed

The assessment percentage is determined by how the property is classified — for residential property, the percentage is currently 7.96% and for commercial property it is 29%. For further explanation and some examples of this calculation, please see this useful link from Douglas County.

Errors may occur in any of the three numbers used to determine the taxes owed. For example, if there has been a change in use for a particular property, the assessor may use the 29% assessment percentage in calculating the value of property that is actually residential and should be assessed at the 7.96% rate. Less commonly, an incorrect mill levy may be used in the formula. However, it is most common for property owners to contest the actual value of the property as determined by the assessor.

What can I do if I think the valuation is incorrect?

There are two routes that taxpayers may take if they believe there was an error in determining the amount of taxes due. A taxpayer may follow the protest procedure or the abatement procedure, each of which is described in more detail below.

Protest Procedure. Under the protest procedure, a taxpayer who receives an NOV that he or she believes to be an error may file a protest with the assessor no later than June 1 of the year that the NOV was received. The assessor has until the last working day of June (or August if the county has opted for an extended appeal process) to issue a decision, called a Notice of Determination (NOD).

If the taxpayer disagrees with the NOD, he or she can then appeal to the County Board of Equalization (CBOE) by July 1 (or September 15 under extended appeal process). The CBOE usually consists of the County Commissioners for the county in which the property is located; however, some larger counties use hearing officers rather than the Commissioners for this process. An informal hearing, usually less than 30 minutes, is held and a decision is made by August 5 (November 1 for extended appeal process).

The taxpayer then has 3 options for appealing the CBOE decision. An appeal may be filed in district court, with the Board of Assessment Appeals (BAA), or through binding arbitration. About 90% of these appeals go to the BAA, and appeals to the BAA must be filed no later than 30 days after the CBOE decision was mailed to the taxpayer.

Abatement Process. In lieu of the protest procedure, a taxpayer can file an abatement petition with the Board of County Commissioners for a prior tax year. Generally speaking, a taxpayer has 2 years from the year in which the taxes were levied to file an abatement petition. (for the 2015 tax year, file no later than January 2, 2018). If the request is for an abatement of over $1,000, the Board of County Commissioners must hold a hearing and act on the petition within 6 months. If the petition is granted for over $1,000, the taxpayer will get an abatement (a reduction of taxes owed) or a refund of taxes already paid along with statutory interest (currently 12%). If the petition is denied, the taxpayer may appeal to the BAA within 30 days of the decision, but does not have the options of arbitration or an appeal to district court which are available under the protest process.

If the basis for the abatement is overvaluation, the taxpayer can NOT file an abatement petition if a protest was filed. It is important at the outset to carefully consider which process to follow; if a protest is filed and denied, a taxpayer will be unable to later file an abatement petition.

Which option is better — protest or abatement?

Each process has its own benefits and downsides which must be considered in making a decision about which route to follow. Generally speaking, the protest procedure is “forward-looking” in that it focuses on taxes that have not yet been paid but that will be due in the future. Under the protest process, taxpayers may choose among three different appeal options if the initial protest is denied, while there is only one process for appeal (BAA) under the abatement process. In addition, the protest process can allow for a quick resolution of issues before a tax bill is mailed, giving certainty and finality to the taxpayer before taxes are even due. Finally, if a taxpayer files a protest and it is denied, the taxpayer is precluded from later using the abatement process to recover overpayment of taxes with interest.

In contrast, the abatement process is “backward-looking” and deals with the abatement or refund of taxes already due and often already paid by the taxpayer. The abatement process gives taxpayers two years post-assessment for the abatement or refund of taxes, while a protest must be filed within a very short time of receiving an NOV. In addition, if the abatement process is used, taxpayers may have the added benefit of collecting statutory interest if taxes have already been paid and are refunded, and this can be a considerable amount of money in some circumstances.

Conclusion

There is no one-size-fits-all solution for all taxpayers regarding the best way to address a valuation that is considered incorrect. Taxpayers should consider their circumstances carefully in making a decision about which option would be best. The brief overview provided in this article is intended to provide general information only and does not constitute legal advice. In making these important decisions for yourself, it may be helpful to consult with a professional for advice. Please feel free to contact me for assistance in choosing a route for disputing an incorrect valuation or other issues related to your property taxes.

References:
Gunning, Robert R. Property Tax Litigation Before the Board of Assessment Appeals, 35-AUG Colo. Law. 87 (2006).

For questions regarding this article please contact Jon Goodman.

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