Vail Valley Voices: Your property tax primer
Vail, CO, Colorado
This is is an updated reprint of an article printed before taxes were due one year ago.
Your property taxes have gone up a lot from two years ago. How can this be, with the 1992 Colorado Taxpayers Bill of Rights constitutional amendment in place? It’s complicated.
You need to understand three concepts:
– Individual tax components make up the total tax.
– Tax rates and TABOR.
Further, you need to pay attention to certain key words and phrases. This is probably the most complete, current explanation of property taxes, so the reader may want to save this article for further reference, study or notation of any reporting errors.
1. Components: Your total property tax bill equals the sum of taxes from various taxing entities. These include: (a) Eagle County School District, (b) Eagle County general, (c) municipalities and (d) special districts, generally metro and recreation.
2. Formulas: Your taxes are calculated by simple arithmetic of A x B = C for each taxing entity. The factors “A” and “B,” coupled with the result “C,” are defined below:
A = TR, tax rate or a mill levy (1.0 mill = $1 for every $1,000 of assessed value). Tax rate is unique to each taxing entity and typically was set by a vote initially.
B = AV, “assessed value,” not equal to your property’s market value (actual value) but a percent of this value. Uses 1982 Gallagher Amendment assessment ratios.
Multiply market value (actual value) by 7.96 percent (varies over time) for residential and 29 percent (fixed by statue) for commercial and vacant land.
Complicated? Just remember that as property market values go up or down, so does your assessed value (AV) in a direct proportion.
C = Tax for your property, the result of: “A” (tax rate) x “B” (assessed value) = “C” (tax).
Hence, your taxes can go up, go down or stay the same based on the tax rate (TR), which is changed or at least discussed annually, coupled with your property’s market value (actual value), which is revalued every two years by the county assessor.
3. Tax rates and TABOR: Here you have to think about taxes at the level of each taxing entity, but using the same TR x AV = tax formula. The assessed value (AV) is the sum of all assessed values, including residential, commercial and vacant land. The tax is the total of all property tax collected.
Colorado’s TABOR Amendment was designed to keep property taxes in line with the inflation rate, typically in the 3 percent to 4 percent range range. This is accomplished by adjusting the tax rate. The tax rate turns out to be the key driver for deliberations by elected leaders and misunderstandings by the public. For even more detail of all this, consider the next four bullets:
– Keeping taxes collected level. If the total of all assessed values (AV) goes up, the tax rate (TR) must go down accordingly; i.e. (TR: adjusted-down) x (AV: went up) = (Tax: equal to last year). Call this the “level tax base” as a starting point.
– Keeping taxes within TABOR. The level tax base is allowed to go up by the TABOR-mandated inflation percentage plus a derived percentage for “local growth” (additional tax collection for new and upgrade construction and student growth for school taxes) to become a TABOR-capped tax rate. This is further complicated by yet another cap, the “5.5 percent limit” put in place before TABOR.
– Taxes going up beyond TABOR via a vote. Some taxing entities, by a taxpayer vote, are allowed to collect taxes beyond the TABOR limitations ” known as “de-Brucing.” Douglas Bruce was the author of the TABOR constitutional amendment. Typically, the vote also removed the 5.5 percent limit.
Largely, these ballot questions were brought before the voters when the property values were not skyrocketing and the future implications were not well understood. (Note: TABOR allowed for public input solicitation leading to 500 word pro/con summaries to be distributed before voting day. In many cases, the con (opposing) views were not comprehensively written or taken advantage of.)
Removing tax collection caps or limits was accomplished by fixing the tax rate at a point in time, and therefore, the taxes go up as the assessed values go up in direct proportion. The difference between the taxes collected without a TABOR cap and the lower taxes that would have been collected with the TABOR cap in place is seldom made available to the public. Yet this beyond-TABOR “wedge” could provide a valuable metric for perspective and transparency regarding government revenue and expenditures.
Each taxing entity crafted TABOR-exempt ordinances its own way. For example, Aspen fixed its tax rate for five years, while Vail is open-ended. Going further, the question comes up: Can fixed tax rates be lowered to provide tax relief, especially with skyrocketing property values?
Again, each taxing authority goes its own way. Aspen has done this, while Vail has decided against this sort of move, citing uncertainty about being able to raise it again.
Things get even more complicated when you consider the obscure “abatement mill levy” that allows the fixed tax rate to be further raised based on the outcome of tax protests from the previous year. Here, each taxing authority has unquestioned flexibility to include or reject additional taxation. For perspective, Vail accepted this additional tax this year, increasing the tax rate by 6.2 percent.
– Taxes going up beyond TABOR without a taxpayer vote. This was done last year by fixing the tax rate for TABOR-bound schools (the largest component of your tax bill) by Colorado’s state government. This move increased the tax collections well beyond TABOR and is being challenged in the courts.
In summary, remember, your total property tax comes from a long list of individual taxing entities. Each takes the sum of the market values of all the properties (via the calculated “assessed value”) and multiplies it by its unique tax rate, equaling its slice of the property tax.
The same formula works for individual taxpayers using the market value for your property. There are 77 taxing entities in Eagle County. About half have been allowed by voter approval to keep their tax rates fixed. This “de-Brucing” means as property market values rise, so does the tax in direct proportion.
The tax rate would normally be required to be reduced in a rising market situation via the 1992 Colorado TABOR amendment.
The hope is that taxpayers are more informed given the above information. It might help them to get involved with the individual taxing entities to ask questions, to scrutinize, to suggest improvements or to applaud good use of taxpayer dollars.
Paul Rondeau is a resident of Vail.