In a unique move within the United States, Colorado residents are currently deliberating on whether to redirect a state tax refund to aid homeowners in counterbalancing escalating property taxes, a consequence of years of surging home prices.
The proposition, set for a vote on Tuesday, aims to mitigate property tax increases for homeowners over the forthcoming decade. This would be achieved by reducing a state tax refund known as the Taxpayer Bill of Rights (TABOR). TABOR, a distinctive feature of Colorado's tax system, limits the state's tax revenue and mandates that any surplus be returned to taxpayers. In the previous year, TABOR provided each taxpayer with a $750 refund.
The proposed measure ensures that property taxes will not fall below their current levels. However, it will moderate the anticipated future increases in these bills. Legislative analysts estimate that the owner of a $500,000 home could pay between $186 and $276 less in property taxes this year if the ballot measure is approved, depending on local tax rates.
However, this relief comes with a trade-off. After an initial surge in the taxpayer refund for all this year, the refund checks will begin to dwindle and may even vanish for individuals across all income brackets over the next decade. This will depend on the state's revenue collection, according to legislative analysts. Renters, on the other hand, will receive smaller taxpayer refunds without any direct relief that homeowners receive.
The measure will permit the state to retain an additional 1% of revenue each year than what is currently allowed under TABOR. This money will be allocated to compensate local governments for some of the revenue they will lose due to property tax bills not increasing as much as they typically would. It will also be used to fund schools. A portion of the extra money, up to $20 million, will be reserved for rental assistance.
Supporters of Proposition HH argue that it is the most effective strategy to prevent crippling property tax bill increases and is aimed at assisting older residents and working families. Critics, including Republican state lawmakers and conservative groups, contend that the measure could ultimately cost taxpayers more than they save on property tax bills.
The measure will provide greater reductions for owners of primary residences compared to owners of second homes and rental properties. The complex measure will also enable residents aged 65 and over to transfer an existing property tax break if they choose to downsize to a different home. At present, they only receive this benefit if they have resided in a home for a decade.
This year, taxpayers are projected to receive an estimated $898 $148 more than last year in a flat taxpayer refund. However, starting in 2024, the refund will revert to the traditional method of being determined by income and will begin to decline.
The property tax measure, introduced by the Democratic-led Legislature, slows the growth of property tax bills over the next decade in two ways. Proposition HH reduces the statewide assessment rate used to calculate payments to local governments based on home values. It also exempts a portion of a home's value from taxation.
The measure slightly lowers the statewide assessment rate from 6.765% to 6.7%. The rate is scheduled to rise to 7.15% in 2025 but would remain at 6.7% under the measure. It also exempts $50,000 of a home's value from taxation in 2023 and $40,000 in 2024. It would also limit the increase in property tax revenue for local governments.
Supporters of the measure claim that the owner of a $723,000 home, the median sale price for the last assessment period, would save an average of $685 annually in property taxes over the next decade while the measure is in effect.
In the most recent tax assessments this year, residential property values rose by between 35% and 45% in the Denver area and up to 60% in parts of the mountains. Therefore, homeowners will still receive larger property tax bills for this year compared to last year, but they will be lower than they would have been without the measure.
In addition to this, voters are also considering a second tax measure that would allow millions more dollars from a tobacco tax to be allocated to the state's new universal preschool program. This measure pertains to taxes on cigarettes and tobacco products approved by voters in 2020. Analysts underestimated the revenue it would generate, so under the Taxpayer's Bill of Rights, voters must decide whether the state can retain the extra $23.65 million the taxes brought in in the first year, including interest, or whether it should be refunded.
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