With much fanfare, CO legislators met in a special session to focus on…
Wow! You can always hand it to the politicians to take a simple property tax measure and fill it to the brim so in the end it costs more than it actually saves you. In a last-ditch effort, the Colorado legislature approved: SB23-303 Reduce taxes and voter approved revenue change/eliminate government revenue collection caps, and allow local governments to receive 20 times the rate of inflation. This bill is linked to another measure (HB 1311) to redistribute tax refunds to all taxpayers regardless of how much they pay in taxes (lower filers would get substantially higher refunds). Ironically, the new property tax reduction bill will lead to one of the largest tax increases in Colorado. What is in the bill we will vote on in November and what will it really cost you?
What is in the new property tax and revenue bill?
First, this bill is huge, with so many changes that have very little to do with the simple problem of property taxes. Below I will outline the changes in residential rates and commercial rates while at the same time highlighting how these items will be paid for as the cap for revenue collection/spending is lifted which ultimately will eliminate the taxpayer bill of rights (TABOR) caps over time (more on this topic below). Ultimately as taxpayers we are paying more for the small property tax reduction than we are saving due to increases in taxes due to Tabor elimination. The new tax bill merely increases taxes under the cover of property tax relief.
For residential properties
- The residential assessment rate would be reduced to 6.7% from 6.765% in 2023, for taxes owed in 2024, and to 6.7% from 6.976% for taxes owed in 2025. The 6.7% rate would remain unchanged through the 2032 tax year, for taxes owed in 2033.
- In addition to the assessment rate cuts, residential property owners would get to exempt the first $50,000 of their home’s value from taxation for the 2023 tax year, a $10,000 increase made through an amendment adopted Monday. Residential property owners would then get to exempt $40,000 of their homes’ values from taxation for the 2024 tax year. The break would persist until the 2032 tax year, except for people’s second or subsequent single-family homes, like rental or vacation properties, which would stop being subject to that benefit in the 2025 tax year.
- For commercial properties, the assessment rate would be reduced to 27.85% through 2026, down from 29%. The state would be required to evaluate economic conditions to determine if the rate reduction should continue. If the rate reductions persist, the commercial assessment rate would be reduced to 27.65% in 2027, 26.9% in 2029 and 25.9% starting in 2031.
- For agricultural properties and properties used for renewable energy, the assessment rate would be reduced to 26.4% from 29% through the 2032 tax year. For properties that fall under both classifications, such as those used for agrivoltaics, the rate would be cut to 21.9%.
The above is the simple part of the bill. The bill also makes substantial changes to the Taxpayers bill of rights(Tabor) allowing the state to keep substantially more money. To account for the cuts, the legislature is planning to spend $200 million to repay local governments, including schools, for the revenue they would have collected. Additionally, the plan calls for using about $250 million of the $2.7 billion Colorado is projected to collect in the current fiscal year, which ends June 30, above Taxpayer’s Bill or Rights cap on government growth and spending, to further account for local districts’ revenue reduction.
Additionally, property tax reduction is contingent on an increase the TABOR cap, which is calculated by annual growth in population and inflation, by an extra 1%. (Any money collected over the cap has to be refunded.)
New bill makes flat tabor refunds going forward:
As if this initiative were not complicated enough, it redistributes the state of Colorado tax refunds under TABOR to a flat number for each household. So, the more you make the more refund you lose. This would cut a high-income earners tax refund by 60% as the currently used 6 brackets are eliminated. These same high income taxpayers are the ones getting hit hardest with property taxes skyrocketing as their properties are more valuable.
New Bill would ultimately eliminate the Taxpayer Bill of Rights
You are going to pay substantially more in taxes overall under the new proposal
Here is the analysis from the non- partisan congressional analysis:
TABOR refunds for FY 2023-24 through FY 2031-32. If voters approve the ballot measure, the bill
allows the state to retain revenue that would otherwise be refunded to taxpayers for these fiscal years.
Based on the March 2023 LCS forecast, the estimated amounts to be retained are:
· $166.6 million for FY 2023-24;
· $358.6 million for FY 2024-25; and
· larger amounts in subsequent fiscal years through at least FY 2031-32.
Growth in the Proposition HH cap is cumulative, such that each annual 1 percent increase adds to the
prior year’s cap and allows a greater amount to be retained. Because the cap is estimated to approach
$19.5 billion in FY 2024-25, the bill is expected to allow the state to retain about $200 million more each year than in the prior year, provided that state revenue meets or exceeds the cap.
Coloradans can expect approximately a 23% decrease in their TABOR refunds in 2025 if voters approve the November ballot initiative.
The new tax proposal is a loaded canon
To incentivize lower income voters to approve the ballot initiative, the legislature created another house bill (1311) that will provide a $600 TABOR refund to anyone if they vote for the ballot initiative. The reason for this refund is that ultimately the state of Colorado will gain substantially more revenue due to higher taxes and the ultimate elimination of TABOR. Over time, there will be no TABOR refunds as the state has the ability to keep spending.
Taxes are increased substantially under the guise of property tax relief
The new tax bill merely increases taxes under the cover of property tax relief. The bill backfills any foregone local revenues with funds from taxpayer refunds allowing local governments to reap a windfall of almost 20 times inflation (assuming inflation falls to 3 percent as the fed predicts and my taxes in the mountains are increasing 60%).
The proposed Ballot initiative is the typical bait and switch with a 600 dollar carrot to entice voters to approve it. A simple property tax bill now substantially increases the amount of taxes you pay. It will ultimately cost any property owner substantially more than they could ever save on property taxes by the elimination of TABOR. Furthermore, property owners would be harmed with the redistribution of tabor refunds ultimately costing them even more money. Even for the small savings in property taxes, voters should absolutely vote no as this initiative will have long ranging impacts on taxes and ultimately cost them even more money.
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Written by Glen Weinberg, Owner Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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