The Gallagher Amendment was approved by the voters in 1982 and divides the state’s total property tax burden between residential and nonresidential (commercial) property such that 45% of the total amount of state property tax collected must come from residential property and 55% must come from commercial property. The Amendment requires that the assessment rate for commercial property be fixed at 29%. Because the commercial property rate is fixed, the residential rate is annually adjusted to hold the 45/55 split constant — and requires that all property values be reassessed every two years by the County assessor.
Residential property values have significantly outpaced commercial values since 1982 and today account for about 75% of the state’s total property value — while being responsible for only 45% of the state’s total property tax burden. Conversely, commercial property, which now accounts for only about 25% of total property value in the state, is still responsible for 55% of the state’s total property tax burden. In order to maintain the 45/55 split, the residential property assessment rate has dropped from 21% in 1982 to the current level of 7.96%.
Here, we have a huge problem. Essentially, Colorado has been asking its small and large businesses to double their support of state government since 1982, while residents have watched their tax burden fall to about 40 percent (comparatively) of what they were paying in 1982.
This huge problem is made relatively insurmountable because residents overwhelmingly outnumber business owners, and will probably never approve an adjustment to the Gallagher Amendment if it raises residential property taxes. In other words, Dennis Gallagher and the other legislators who crafted the Gallagher Amendment in 1982 royally screwed up the Colorado tax system, and there is probably no way to fix it.
As long as the Gallagher Amendment remains part of the Colorado constitution, any increase in property taxes — to pay for schools, roads, airports, public safety or any other community need — is placed largely on the shoulders of business properties, presumably making Colorado less attractive to business investment. In a 50-state comparison (
Lincoln Institute of Land Policy, 2011) that documents which states ask commercial businesses to bear the largest tax burden, compared to residential rates, Colorado ranked 4th in the nation. We probably should consider ourselves lucky that any businesses whatsoever choose to locate in Colorado.
[Read More...]