What Can We Expect From The 2023 Property Tax Reassessments?
The past six years have brought tremendously high commercial sale transaction volume along the Colorado Front Range. As a result, property valuations and thus property taxes have increased to historically high amounts. This begs the question – what can we expect from the 2023 property tax reassessments?
In Colorado, property values used to determine real estate taxes for commercial properties are reassessed every odd year using comparable sales from the previous two years. For example, the current value of a commercial property (for Tax Years 2021 and 2022) was determined using comparable commercial sales between July 1, 2018 and June 30, 2020. If we look at commercial sales across four product types (office, industrial, retail, and multi-family) during this period along the Colorado Front Range (Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, El Paso, Elbert, Jefferson, Larimer, Pueblo, and Weld counties), sales volume was around $27.3 Billion. Here is a breakdown by product type:
Despite decreased sale volume in the first and second quarters of 2020 due to the COVID-19 pandemic, Colorado Front Range sales between 7/1/2018 – 6/30/2020 narrowly surpassed the previous evaluation period’s (7/1/2016 – 6/30/2018 for tax years 2019 and 2020) sale volume of $27.1 Billion across the same product types:
Here is where it gets interesting – check out the sales volume for the same four product types, across the Colorado Front Range, during the 7/1/2020 through 6/30/2022 period:
That’s correct, sales volume exceeded $41.2 Billion! An increase of over 50% compared to the previous evaluation period! These are the comparable sales that will be used in determining the valuation of commercial properties among these product types for the 2023 and 2024 tax years. And you thought your taxes were high now? If the same practice used in previous reassessments is used again this year… buckle up.
Luckily, given the already high property taxes and the realization of historical sales volume in the reevaluation period, the State of Colorado signed Senate Bill 22-238 into effect on May 16th, 2022, in an attempt to provide real estate owners with (some) property tax relief. Assessed values are used to determine the amount of property taxes are currently determined by taking 29% of the established property value. For the 2023 tax year, the assessed values will be determined by taking 27.9% of the property value, a decrease of nearly 4%. For example, if we took an industrial building with a $1,000,000 valuation, this change would decrease the assessed value from $290,000 to $279,000, which ultimately decreases the tax bill from $20,300 to $19,530 (assuming a constant tax rate/mill levy of 7.00%).
I think we can all agree that any tax relief is better than nothing – but a nearly 4% decrease in a commercial property’s assessed value does not offset the increase in valuation caused by the historical sales volume during the 7/1/2020 – 6/30/2022 evaluation period. The 50% increase previously mentioned is based on the combination of all four product types though, here is a breakdown of percent increase by product type:
Long story short, if the same practices used to determine past property values are used for the 2023 reassessment, commercial property taxes are going up.
What does this mean for you and your commercial property?
We can reasonably assume that property taxes are going to go up regardless of the property type you own. Given the impact Covid-19 has had on commercial office buildings though, officials could assess office buildings less than what the data provided here would predict. In any scenario, if you own commercial real estate in Colorado, you should anticipate and plan for an increase in property taxes for the next couple of years. If your property has tenants that reimburse for property taxes, I recommend being transparent and upfront with them regarding the anticipated or actual increase once the formal notices are sent out. If you were planning on making some upgrades to your building in the next year or two, you may consider pushing those plans until you have a plan in place to handle a potential property tax increase. You also have the right to timely appeal the value given to your property, but make sure if you plan to file an appeal that it is done so by the deadlines provided by the county in which your commercial property is located.
*These are merely opinions, predictions, and assumptions for the upcoming property tax reassessment. Property owners should consult property tax attorneys or consultants for property tax advice and with any questions.
Written by Collin Tedesco