Property Tax Assessments: How they are determined
Property Tax Assessments: How they are determined
The information in this technical bulletin is used with permission from the Jefferson County Assessor’s office. For more information, contact your local assessor’s office.
Your property taxes are determined by multiplying the tax rate (set by local government taxing entities) by the assessed or taxable value of your property.
Assessed value is calculated by multiplying the actual value by 29% for all property, except residential. The residential assessment percentage is currently 7.96%; however, it is subject to change by the Colorado Legislature. By constitutional mandate, the change in percentage maintains the present balance of the tax burden between residential and all other taxpayers.
Example of an Assessed Value Calculation: The actual value of Mr. Smith’s home is $250,000. The current residential assessment is 7.96%.
Actual Value X Assessment Percentage = Assessed Value
$250,000 X 7.96% = $19,900
Local government budget process
Each year county commissioners, city councils, school boards and special districts, hold budget hearings to determine how many dollars will be needed for the following year’s operations. These hearings are usually held in September or October, but may happen earlier. Check your local newspaper for the hearing dates.
At the conclusion of these budget hearings, the assessor sets the mill levy to be applied to the total assessed values so that it will generate the appropriate amount of property tax revenues to fund operations.
Limitations on revenue
Colorado law prohibits taxing entities from increasing revenues greater than the amount of local growth, plus inflation unless an election is held and voters approve such an increase, in advance. Local growth is determined by either a percentage change in student enrollment for school districts or based on a new construction formula for all other districts. Inflation is defined as the percentage change in the United States Bureau of Labor Statistics Consumer Price Index for Denver and Boulder. Revenue increases are limited to a maximum 5.5%, even if inflation exceeds this percentage.
Example of setting the tax rate (or mill levy) for a single taxing entity. Assume the total assessed value for the county, as determined by the assessor, is $100,000,000. The county commissioners determine the budgeted property tax revenues need to be $2,434,600.
$2,434,600/$100,000,000 = .024346 or 2.4346%, or 24.346 mills Therefore, the county tax rate is $24.35 in revenue for each $1,000 of assessed value.
Determination of tax rates
After each taxing entity has set its mill levy, the taxing entity mill levy is combined with the mill levy for all other taxing entities for the property to create the overall mill levy for that property. Where you live within the county determines the taxing entities to which you will pay your taxes
Example: Mr. Smith’s home is provided services by four taxing entities. His total assessed value is determined to be
$19,900.County Mill Levy …………………………………….24.3460
School District Mill Levy……………………………………….49.0530
City Mill Levy…………………………………………………………..4.7110
Urban Drainage Flood District Mill Levy……………..5320
Urban Drainage South Platte Mill Levy……………….0650
Fire Protection District Mill Levy…………………………14.4580
Total Mill Levy……………………………………………………….90.1650
Each mill is 1/1,000 of a dollar, so the mill levy per dollar of assessed value is: 90.1650/1000=.090165.
This means Mr. Smith’s tax bill is calculated as follows:
Actual Value x Assessment Percentage x Tax Rate = Property Taxes
$250,000 x 7.96% x .090165 = $1,794.28
Assessment process overview
The assessment process involves setting standards for fair and equitable values, discovering and listing information about properties and determining property values. It also involves analyzing the values to ensure they meet the standards of fair assessment and certifying the assessment roll to the appropriate taxing authorities.
To ensure equalization, the assessor must determine residential property values by using only appropriate market information. Values for most other properties are determined from relevant cost, market and income data.
The first step in the assessment process is to gather information on ownership, location, use, sales, building measurements, construction costs, rental income and other pertinent information.
Primary sources for this information are real property deeds and declarations, subdivision maps, building permits and local building contractors. Other primary sources are declarations filed by owners of taxable personal property and appraisers who conduct on-site inspections to gather land and building characteristics.
The assessor stores this information, which is updated and maintained for current and future use in the assessment process.
Appraisal – estimating value
An estimate of market value is accomplished by an appraisal. Market value is the most probable monetary price a property would bring if placed for sale in the open market in a transaction between a willing seller and willing buyer. The assessor is required to equitably value all property in the county according to the current Colorado statutes.
Real property is reappraised by the assessor’s office every odd-numbered year. The value determined by the assessor for the year of reappraisal is generally used again in the intervening year. The actual value of real property is based on its value on the appraisal date, which is June 30 of the year prior to the reappraisal year; however, the property is valued in the condition it was in, and for the use of the property, on January 1 of the current year.
The three approaches for appraising property are the market approach, the cost approach and the income approach. To appraise property, the assessor and his/her staff must review information gathered on individual properties, know what similar properties are selling for and how much it would cost for replacement.
All the information used must be from the two-year period preceding the appraisal date.
The market approach is the most direct method of appraisal using sales of like properties to determine actual value. The Colorado Constitution requires the assessor to sue this approach for residential property and not the cost or income approach even if the residential property is income-producing.
The cost approach estimates the material and labor costs to replace a building with a similar one. If the building is not new, the appraiser must consider its age and how much it has depreciated over time.
The income approach may be considered for income-producing properties such as stores, office buildings and warehouses. This method considers the landlord’s income and operating expenses and the financial return most people would expect from a given type of investment property.
Uniformity and assessment level requirements
After properties have been appraised, the values are analyzed to ensure accurate and equitable assessments.
Colorado law requires all assessors to value property using market conditions as of the specified appraisal date and within certain uniformity standards. This provides equity in distribution of state school funding, local tax burden and assessments that cross county lines. To ensure uniform standards are being followed by the assessor, an independent auditor, contracted by Legislative Council, conducts an annual study of all property in each county. Findings of the annual study are reported to the State Board of Equalization each year.