Property taxes are a liability imposed upon property owners in order to fund needed services for their community. Property taxes pay for things like schools, roads, bridges, parks, libraries, and other essential public services. It is helpful to know how your property taxes are calculated.
Property tax liabilities are based on property value so, the amount of property tax each homeowner is responsible for will differ. Establishing the taxable value of each property is the responsibility of the Assessor. Mill Levy is the second factor used to calculate property taxes and this number is determined by the Treasurer.
This article will use Colorado Springs and El Paso County in order to explain how tax liabilities are determined. Like most areas, property taxes in El Paso County are calculated using Assessed Value and Mill Levy but Colorado adds an additional twist to the tax calculation scenario.
Colorado property tax law functions under the “Gallagher Amendment”. This is a wide-ranging property tax bill that impacts the entire State. One of the most important aspects of the Gallagher Amendment states that commercial entities will pay 55% percent of the States tax burden while residential property taxes shall pay the remaining 45%.
This creates a situation where Colorado needs a way to establish what those percentages are. In order to do this Colorado uses something called the residential assessment rate.
Residential Assessment Rate
In order to comply with the Gallagher Amendment, the state of Colorado Department of Local Affairs Division of Property Taxation determines a statewide “residential assessment rate”. This number is provided to the local taxing authorities and is used in conjunction with the market value of your home in order to establish the assessed value of a property. This step needs to be taken prior to applying the local mill levy calculation.
Establishing Property Value
Residential properties are assessed in Colorado Springs in January every year for taxes payable the following year.
The Assessor must estimate market value for each residential property in their jurisdiction. This value is most likely not the same market value that you would use to sell your home. The Assessor’s valuation is based on the most recent comparable sales information in the area. The Assessor uses the most recent verified sales data available on things like size, amenities, improvements, etc…to determine the value of your property.
The process used by the Assessor is similar to the one used for a Residential Appraisal. The assessor is looking at recent sales of similar homes in the same area in order to establish value. The El Paso County Tax Assessor works in 24-month cycles or “data gathering periods.” Sales towards the end of this 24-month period are deemed more representative. The 2019 and 2020 data gathering period is July 1st of 2016 through June 30th of 2018.
The State of Colorado only uses the Market Approach in order to establish values, this is pursuant to Colorado Revised Statute 39-1-103(5)(a), which reads in part, “…The actual value of residential real property shall be determined solely by consideration of the market approach to appraisal.”
Assessed value is determined by multiplying the market value you receive from the Assessor by the current assessment rate which is established by the state. In order to estimate your tax liability, you will need to know your Mill Levy.
Calculating Your Assessed Value
$300,000 (Market Value)
x .0720 (Current Residential Assessment Rate)
= $21,600 (Assessed Value)
What is a Mill Levy?
In order to calculate your property taxes, you need to know what your mill levy is. This is really just your tax rate. Mill levy is established by determining how much total revenue your taxing jurisdiction will need for the next year. This number is then divided by the total value of the properties in that area in order to establish the mill levy.
A mill usually represents 0.001 of a dollar for each dollar of the evaluated value of your property. In simple terms, the mill levy on your property will represent a one-tenth of a cent. In numerical terms, for every $1,000 of the assessed property value for your home, one mill is equal to $1.
Here is an example of how the mill levy is used to calculate property taxes. Let’s say that the cumulative property value in an area is $1 billion. Roads and bridges need $400 million in revenue, the local schools need $200 million, the library district needs $200 million and parks needs $90 million. The tax levy for roads and bridges would be $400 million divided by $1 billion or 0.4. The tax levy for the school district would be 0.2 (200 million divided by 1 billion), tax levy for the library district would be 0.2 (200 million divided by 1 billion),and the tax levy for Parks would be 0.09 (90 million divided by 1 billion).
If you add up all of the tax levies, you get a mill levy of 0.89 or 890 mills (one mill = 0.001).
Estimating Taxes Due
In order to estimate your property tax obligation in Colorado, you will need to have first established your assessed value using the current residential assessment rate and market value of your home as determined by the Assessor.
Assessed value is then multiplied by you mill levy and this will give you a good estimation of what property taxes you will owe.
$21,600 (Assessed Value)
x 0.089 (Mill Rate)
= $1,922.40 (Estimated Taxes Due)
Paid By Lender
A common point of confusion about property taxes arises from how they get paid. For most people, property taxes are paid by your mortgage lender. If you remember your closing, there was an escrow account set up to pay taxes and hazard insurance. You continue to fund this escrow account every time you make a house payment. The lender uses these funds to pay your property taxes.
Unless you have more than 20% equity in your home, the lender will require that the lender pay the taxes. Many people choose to take care of their own property taxes once they reach a certain level of equity.
How to Contest Your Taxes
You will receive a bill for taxes and if your lender is responsible for paying them, this bill is simply for your records. As residential Realtors we often receive calls from our clients when they receive this tax bill sometimes it’s because they think they need to pay it, other times it’s because they feel like the valuation of their property is wrong.
If you feel like the valuation on your home is incorrect, you as a homeowner can certainly contest the valuation. We often help our clients find comparable sales data in order for them to put together a proposal to take to the assessor in order to get their property taxes lowered.
The Assessor only considers contested values for a certain period of time, usually May through June 1. It is important that you contact the Assessor’s office in order to verify what the true time frame is to contest your property value and possibly reduce your tax liability.
Property taxes are a reality of homeownership. They are most likely paid by your lender but funded by you. If you feel like they are too high, it may be based on an aggressive valuation of your property. You can contest this by assembling relevant sales data and presenting your findings to the Tax Assessor at the appropriate time and in the appropriate manner. If you need help finding comparable sales data, we at Springs Homes are happy to help, just give us a call at 719.388.4000.