
Colorado’s real estate sector has been grappling with soaring property values, and the consequent impact on property taxes has been a pressing concern. The state government has been actively exploring avenues to ease the burden on property owners while ensuring that local governments continue to receive the necessary revenue. A recent legislative session witnessed the passage of SB23-303 by the Colorado General Assembly, a ten-year property tax relief plan aimed at addressing this intricate issue. However, before it becomes law, it requires the consent of the voters in the form of Proposition HH, which will be on the November 7, 2023, ballot.
Backdrop: The Gallagher Amendment and Property Tax Relief
To appreciate the significance of SB23-303, it’s important to revisit 2020, when the Gallagher Amendment was repealed. This constitutional amendment played a pivotal role in determining property Colorado tax preparation rates. Its repeal signaled a potentially significant increase in property taxes, prompting the Colorado Legislature to pass SB21-293, which temporarily reduced property taxes until 2023.
Nonetheless, when Proposition 120 failed to pass in November 2021, SB21-293’s tax rate reductions were set to expire after 2023. In response to the looming property tax spikes, the Colorado legislature enacted SB22-238 in 2022, extending property tax help Colorado reductions into 2024.
Now, SB23-303 has emerged as a long-term solution to this challenge. It offers a comprehensive strategy that involves reducing assessed valuations for various real property categories, extending these reductions over a decade, allowing the state to compensate local governments for lost revenues through an increase in the cap on retained tax revenues, and allocating funds for rental assistance.
Proposition HH: Voter Endorsement
For SB23-303 to become law, it necessitates the approval of Colorado’s voters, which is expected to occur through Proposition HH on the November 7, 2023, ballot. The Taxpayer’s Bill of Rights (TABOR) mandates that the state seek voter consent for such property tax reductions. Should Proposition HH fail to secure voter support, SB23-303, along with its property tax reductions and the local government backfill cash fund, would be nullified, and the state would revert to the existing property tax laws outlined in SB22-238.
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Understanding the Property Tax Reductions
SB23-303 predominantly impacts property owners by further reducing assessed valuations compared to the preceding year. These reductions are slated to span a decade if Proposition HH garners the voters’ approval. For a clearer perspective, here’s a comparison between the current property tax rates under SB22-238 and the proposed rates under SB23-303:
- Lodging: Under SB22-238, the 2023 tax year rate is 27.9%, whereas under SB23-303, it’s 27.85% with a $30,000 reduction, and this rate varies in the subsequent years.
- Agriculture and Renewable Energy-Producing Land: These property categories experience reductions in their tax rates, with SB23-303 offering substantial advantages for Renewable Energy Agricultural Land.
- Improved Commercial Subclass: Rates fluctuate annually and depend on the classification under both SB22-238 and SB23-303.
- All Other Nonresidential: Similar to improved commercial properties, these rates also fluctuate yearly and are contingent on the classification.
- Multi-Family and Single Family: Both Multi-Family and Single Family properties undergo tax reductions over the years, with variations based on property type and year.
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Novel Subclasses of Real Property
SB23-303 introduces new subclasses of real property, including three subclasses of single-family residential properties, a Multi-Family Primary Residence subclass, and a Renewable Energy Agricultural Land subclass. These subclasses offer distinct assessed values and tax help Colorado rates based on the property’s classification.
Backfilling Lost Property Taxes to Local Governments
A pivotal aspect of SB23-303 is the mechanism for compensating local governments for the revenue losses stemming from reduced property valuations. It extends the backfill relief from 2024 through 2032. However, local governmental entities experiencing a 20% or greater increase in real property total valuation in future years will be ineligible for the backfill. This limitation has sparked debate, with certain counties and local governments deeming it arbitrary.
The state intends to fund this heightened backfill obligation by establishing a state public school fund and a local government backfill cash fund, with funding derived from reallocating a portion of the state TABOR surplus. If Proposition HH secures approval in November, the state will gain authorization to retain and utilize revenues up to a new cap determined by inflation and population changes. This adjustment is expected to curtail taxpayer refunds and help maintain essential funding for local governments.
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What Lies Ahead?
Should Proposition HH receive voter endorsement in November 2023, SB23-303 will be put into action, delivering property tax relief and reimbursing local governments. In the event that it fails to garner voter support, Colorado will continue to operate under the existing property tax legislation outlined in SB22-238.
The approval of SB23-303 and subsequent voter consent through Proposition HH would signify a significant stride in addressing Colorado’s persistent property tax challenges. It would offer respite to property owners while ensuring crucial revenues for local governments. Additionally, the proposal introduces several new property classifications, ushering in a more nuanced approach to property taxation.
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Sum Up
Property tax prepares Colorado relief plan, encompassing SB23-303 and Proposition HH, stands as a well-balanced endeavor to navigate the intricate landscape of property taxation in the state. As Colorado voters make their decision on November 7, 2023, the outcome will sculpt the property tax scenario for the future.
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