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When Colorado voters approved the Gallagher Amendment in 1982,
the goal was to protect homeowners from skyrocketing property
taxes.
However, a new
study finds there have also been some unintended consequences.
Gallagher has increased the tax burden on commercial and
industrial property owners and officials fear the situation may
get worse in the years to come.
How it Works
The Gallagher
Amendment divides the state’s total property tax burden between
residential and nonresidential property. It requires that 45% of
the total amount of state property tax come from residential
property and 55% come from commercial/industrial property.
Further, the
Amendment mandates that the assessment ratio for
commercial/industrial property be fixed at 29%. The residential
ratio, on the other hand, is adjusted annually to hold the 45/55
split constant.
Taxes Become More Lopsided
In 1982, the first
year of Gallagher, the residential property assessment ratio was
21% and the nonresidential property assessment ratio was 29%. The
rapid escalation in residential property values, combined with
the growth boom of the 1990’s, led to the 45% share of property
tax collected from residential properties being dispersed across
more and more residences that were worth more and more money.
In order to
maintain the 45/55 split, the residential property assessment
ratio has dropped to the current level of 7.96%. As a result, a
million dollars worth of commercial property has a 2010 assessed
value of $290,000 while a million dollars worth of residential
property has an assessed value of $79,600.
Bad for Business
The Everitt Real
Estate Center at Colorado State University released a discussion
paper in December that explores the ramifications of the
Gallagher Amendment on the state’s economy. The report entitled,
Gallagher Amendment Revisited: What’s Changed for Residential
and Commercial Real Estate and Why It’s Important, says
Colorado’s commercial property taxes are generally higher than
other states nearby based on several benchmarks.
The results
include:
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Colorado office property owners pay more tax
per square foot to asking rent ratio distributions than
owners in Arizona, Utah and New Mexico
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Office owners in Colorado also pay higher
property taxes as a percent of total income than their
counterparts in Arizona, Utah, Oregon, Washington and
California
The findings suggest that as property taxes
continue to shift more heavily onto office and other commercial
and industrial property, it’s creating a negative impact on
Colorado’s competitiveness with other Western states.
In addition, expected residential devaluations
for many heavily populated or second-home market counties
impacted by the housing crisis may place an even higher tax
burden on Colorado business properties in the years to come.
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