New homeowners who have migrated to Colorado from all over the country typically breathe a sigh of relief at their first property tax bill. Though the tax toll has been rising along the Front Range amid soaring real estate values, the rate itself at which residential real estate is taxed has been ranked third lowest in the country.

What many Colorado homeowners may not realize is that for the state’s businesses — our job creators — the property tax picture is very different. Colorado businesses are said to bear the highest property tax burden in the country. It can add a lot to the cost of doing business, including for businesses that must pick up the tab for property taxes by way of their leases. It also is believed to be a big barrier to attracting new employers to our state.

Two big factors drive business’ property tax bills ever higher. One is the state’s business personal property tax — on equipment and other capital — which is assessed at the same rate as the tax businesses pay on their real estate. The other factor is the assessment rate itself: set by the state constitution at a whopping 29% of actual property value.

That’s about four times the assessment rate on residential property, and it is an anomaly ensconced in the state constitution. It was in fact a provision of 1982’s voter-enacted Gallagher Amendment to the constitution, so named for then-state Sen. Dennis Gallagher of Denver, who had set the policy in motion. It goes a long way toward explaining why Colorado’s homeowners and business owners might as well be living in two different states when it comes to taxes.

Hence, Amendment B on this fall’s statewide ballot. It would repeal the Gallagher Amendment in a spirited attempt to shift the residential-business paradigm and ease some of the business community’s property tax pain.

Unfortunately, the well-intended proposal overcorrects. It risks channeling too much of that pain back to homeowners in the long run as it sooner or later will result in higher property tax bills for them. That’s why we have to urge a “no” vote on B — even as we appreciate how the amendment, placed on the ballot by the legislature last spring, addresses a very real and serious problem confronting all Coloradans.

It’s worth remembering that a greater tax burden on business eventually is passed on to all of us in higher costs and fewer jobs. For decades, Colorado businesses have chafed under Gallagher as homeowners have reveled in it. The measure’s purported intent at the time of its adoption was to keep homeowners from picking up the tab for property tax breaks to various industries.

It wound up going a lot further than that, shifting ever more of the state’s total property tax load onto businesses. That is because Gallagher also stipulated that Colorado residential property could make up no more than 45% of the total statewide property tax base, with nonresident property — notably business and agricultural — accounting for the balance.

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Because of the perennially superheated residential real estate market in Colorado’s most populous areas, its portion of total taxable real estate value statewide keeps rising relative to business property. So, the legislature has had to lower the assessment rate on residential property repeatedly over the years to its current 7.15% to offset appreciation — so that the total assessed value of residential property in the state doesn’t tip the scales past the 45%-55% split decreed by Gallagher.

Meanwhile, automatic mill levy increases enacted by many local governments — whose operations hinge on property taxes — took ever more of a toll on business property in order to offset the lost revenue from ever-lower assessment rates on residential property.

Clear enough? OK, it’s complicated, but the bottom line is that repealing Gallagher would fix residential assessment rates in place — allowing homeowners’ property tax bills to rise as market values for homes continue to soar. And that’s atop any increase in local mill levies for school bonds, municipal bonds and the like.

There has to be a better way to ease the burden on businesses than to pit them against Colorado’s homeowners.

For starters, why not consider cutting or eliminating Colorado’s business personal property tax? A dozen states don’t assess business personal property at all. Some other states have lower business personal property taxes than does Colorado.

Scrapping the tax altogether is a tall order politically. It has been proposed for years and ignored for as many, in large part for fear of the gaping hole it would leave in the state budget.

Yet, it wouldn’t be nearly as tall an order as repealing the Gallagher Amendment. The last time it was attempted, voters swatted it down overwhelmingly — and we suspect a similar fate awaits this effort. Let’s get back to the drawing board.

The Denver Gazette

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