In the final days of the 2021 legislative session, the Colorado Legislature passed SB-293, intending to temporarily cut property taxes in a last-minute bipartisan attempt to address the anticipated increases in property taxes due to the 2020 repeal of the Gallagher Amendment. It was also intended to curb the impact of Proposition 120, a November property tax reduction ballot measure proposed by the group Colorado Rising Action. Republican support for SB-293 was primarily fueled by a desire to reduce taxes, while Democrats wanted to get ahead of Proposition 120, which could have resulted in a larger overall tax reduction. If Proposition 120 had passed prior to SB-293 being enacted, it would have permanently and uniformly reduced property taxes for all residential and commercial property (other than oil and gas and extracted minerals as discussed below). By passing SB-293 just before the end of the 2021 legislative session, the effects of Proposition 120 have been dramatically limited to only two subclasses of properties. This alert details how this interplay will appear on the ballot and your property tax bill.
How SB-293 and Proposition 120 Work Independently and Together
The following table compares the state’s property tax law (1) as proposed by Proposition 120 if SB-293 had not been enacted, (2) under SB-293 if Proposition 120 does not pass in November, and (3) under SB-293 if Proposition 120 passes in November:
(if SB-293 wasn’t passed)
(If Proposition 120 does NOT pass)
SB-293 and Proposition 120 together
(If Proposition 120 does pass)
All commercial – 29%→26.4%
All Residential – 7.15%→6.5%
Both in perpetuity, unless changed by a new law.
Agriculture and Renewable Energy Production Property – 29%→26.4%
All other commercial – stays at 29%
Multifamily – 7.15%→6.8%
Single-family – 7.15%→6.95%
All of these will only apply to the 2022 and 2023 tax years.
Agriculture & Renewable Energy Production Property – 29%→26.4%
Lodging – 29%→26.4%*
All other commercial – stays at 29%
Multifamily – 7.15%→6.5%**
Single-family – 7.15%→6.95%
*Lodging rate reduction would be in perpetuity.
**Multifamily rate reductions would be in perpetuity, unless it’s changed by a new law.
All others reductions will only apply to the 2022 and 2023 tax years.
If SB-293 had not passed and Proposition 120 had been approved by the voters as a stand-alone measure, the Proposition 120 would have reduced the valuation rate on all commercial property in Colorado from 29% to 26.4% of actual value (other than oil and gas and extracted minerals). As proposed, Proposition 120 would have also permanently reduced the tax valuation rate for all residential property, regardless of whether the property consists of single-family or multifamily units, from 7.15% to 6.5% of actual value.
SB-293, passed in the final days of the 2021 legislative session, preempts much of Proposition 120 and creates subclasses of commercial and residential property. Of these subclasses, SB-293 reduces the tax valuation rate of agricultural and renewable energy production properties from 29% to 26.4% of actual value, and all other commercial property remains at the 29% tax assessment rate. With respect to residential subclasses, SB-293 reduces the tax valuation rate of multifamily residential properties (defined as duplexes, triplexes and apartments with four or more units) from 7.15% to 6.8% of actual value, and all other residential properties will see a reduction in their tax valuation rate from 7.15% to 6.95%. These reductions in the tax valuation rate (both for residential and commercial) will only be effective for the 2022 and 2023 tax years, and thereafter shall revert to their original rates, unless further legislative action is taken. Note that property taxes in Colorado are paid in arrears, so while assessed in 2022 and 2023, these will be paid in 2023 and 2024.
SB-293 Undermines Proposition 120 in a Couple of Ways
First, the creation of subclasses of commercial and residential property overrides Proposition 120’s originally intended application to all residential and commercial property. It does this by amending the underlying Colorado Revised Statutes (C.R.S.) provisions that the language of Proposition 120 will now amend if passed. If Proposition 120 passes, the amendments to the C.R.S. created by SB-293 will limit the application of any additional tax reductions to only the specific subclasses of: (i) lodging (defined as hotels, motels, and bed and breakfasts) for the commercial property categories, and (ii) multifamily for the residential property categories. Standing alone, SB-293 will only reduce tax rates for agricultural and renewable energy production properties from 29% to 26.4%, and if Proposition 120 passes, lodging properties will be added to the 26.4% tax valuation rate as well; however, all other commercial classes will remain at 29%. Additionally, Proposition 120’s original intent of reducing all residential properties to a 6.5% tax valuation would only apply to multifamily properties if passed, and all other residential properties will only be reduced to 6.95%.
Second, as mentioned above, the reductions outlined in SB-293 are intended to be temporary, rather than permanent, and will expire after two years. SB-293’s restriction of the effects of Proposition 120 to only lodging and multifamily mean that only those two subclasses will remain in effect beyond two years. If passed, Proposition 120’s addition of lodging properties to the 26.4% tax valuation rate will be permanent, and its reduction to the 6.5% tax valuation rate for multifamily will be in effect until the general assembly acts again.
In short, in light of SB-293, the passage of Proposition 120 will be a small property tax reduction win for agricultural and renewal energy production, lodging, multifamily and residential generally.
Neither SB-293, nor the proposed Proposition 120, will include a reduction for producing mines, or lands or leaseholds producing oil or gas, and except as set forth elsewhere in the C.R.S., nonproducing severed mineral interests are to be assessed at 29% of actual value in the same manner as other commercial real properties that are not lodging, agricultural or renewable energy production properties.
Potential Additional Implications of SB-293
The effect of creating subclasses of commercial properties will have both short-term and potential long-term effects on property taxes. In the short-term, it removes most commercial categories of properties from receiving any tax valuation reduction, which would have been uniform and permanent under Proposition 120. In the long-term, there could be the potential that certain commercial property types will receive future reductions or increases (if approved by voters) in property tax valuation rates while the remainder of commercial property types are retained at the existing valuation rate of 29%. If Proposition 120 passes in November, Colorado Rising Action Executive Director Michael Fields has indicated that they will file a lawsuit seeking to invalidate SB-293. Mr. Fields said, “They can’t kneecap or adjust our ballot initiative when it’s already through the process. … It says in any case if the legislature doesn’t like something citizens do, they can just change the language in the law at the last second. It takes away the initiative process.” If the lawsuit is successful, courts would have to decide what rates would take effect.
The Colorado Division of Property Taxation’s office is in the process of holding internal meetings to discuss the new class codes that will need to be created in response to SB-293; however, they are awaiting the election results to see whether Proposition 120 passes before making any updates to the Assessor’s Resource Library (ARL) series, manuals, appraisal procedures and guidelines for local administrators. Their next Statutory Advisory Committee meeting will be held in December, and therefore, it is not anticipated that any ARL updates will come out until then. Property assessors will then receive training and directives on how to successfully implement the reductions. Regardless of whether the reduction amount is determined by SB-293, or SB-293 as amended in November by Proposition 120, if passed, no change to the property tax assessment rate is scheduled to occur before the 2022 and 2023 tax years. Since property taxes are paid in arrears, tax payers will first see the rate reductions on their tax bill received in 2023.
This document is intended to provide you with general information regarding Colorado property taxes. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.