About the Gallagher Amendment:
a. There are many classifications of real and personal property, but for this discussion we will include property that people live in as “residential” and all other property, to include personal property, as “non-residential.”
b. Just prior to the enactment of what is referred to as the Gallagher Amendment to the Colorado Constitution, both residential and non-residential properties were assessed at 30 percent of their actual values (or in the case of agricultural land, it’s productivity value).
c. Immediately after Gallagher was passed, residential property was assessed at 21 percent of its actual value while non-residential property (there is a commercial classification, but there is no specific business classification) was assessed at 29 percent.
c. The impact of TABOR on the residential assessed rates since the Gallagher Amendment was enacted in 1983 has been minimal: It has typically been less than 1 percentage point or 2 at the most.
The current residential and non-residential assessed value rates, 7.96 and 29 percent of actual values, results in non-residential property owners paying over 3.6 times more in property taxes based upon the actual value of property than residential property owners do. To illustrate the impact of this, if the actual values of two properties, one residential and the other non-residential, were both $100,000 and the property taxes on the residential property happened to be, say, $1,000, the non-residential property owner would pay 3.6 times more in property taxes than the residential property owner, or $3,600 even though their actual values were the same. Once the new residential rate of 6.56 percent comes into effect in 2018, the non-residential property owner would pay 4.42 times more in property taxes than the residential property owner and that $3,600 in the example would increase to $4,420!
All vacant land, which typically receives little or no benefit from the taxing entities its property owner pays into, is considered non-residential — so the property owners of vacant land pay a tax rate of 29 percent of their actual value. It is no wonder that owners of vacant land, land that is or can be zoned residential, want to put a home or apartment building on that land at the soonest. In some cases, by doing so, they will actually reduce their tax liabilities! Using the example above, if the vacant land had an actual value of $100,000 and if the improvements to the vacant land did not exceed $264,321 (land and improvement combined did not exceed $364,321), then the property owner would end up paying the same amount of property taxes (or less) than he did for the vacant property alone! This inequity is due to the Gallagher Amendment.
I believe the greatest problem with the Gallagher Amendment, especially now with the great disparity between residential and non-residential assessed value rates, is the possibility of some governmental entity or district, more than likely a school district, proposing a large increase in their mill levy to the voters. The proponents typically say to the voters that the property tax increase will only amount to a few hundred dollars a year on your homes, or maybe even more, to obtain some tremendous benefit to the governmental entity or district. The impact on the non-residential property owners and to commercial tenants who typically pay the full amount of taxes in the Common Area Maintenance (CAM) fees could bankrupt the property owners or put the tenants out of business. Never does a proponent of property tax increase explain the unintended financial consequences that the seemingly mild bump in property taxes for residential property owners will surely have on non-residential property owners and their tenants.
To solve this problem, we should have assessed rates that are equal for all categories of properties or some permanent split like that one originally proposed: 21 percent for residential and 29 percent for non-residential properties. The current requirement for residential properties to only support 45 percent of the property tax burden and non-residential to support 55 percent should be eliminated.
However, as a first step towards the above solution, I would propose that our Colorado General Assembly consider implementing a “split roll” property tax system. How this would work would be that all residential property would be contained on one tax roll while the other roll would contain all the remaining property types. The property taxes for all residential property, to include any increases or decreases, would remain under the control of the voters. The impact of the Gallagher Amendment could also remain in effect for residential property owners (thus retaining the current 7.96 percent and the new 6.56 percent rate that will soon go into effect). The assessed rates (and mill levies) for all other properties would then come under the purview of the General Assembly.
If this were to happen, the General Assembly should review the rate imposed on vacant land and consider adjusting it downward to some reasonable level — maybe to the same rate as residential property. It will take some time for the property tax rates to come back to some type of equilibrium. The other way is to get the voters to agree to a significant tax hike — which, as the article indicated, is unlikely.
— Vince Rusinak