Tuesday, May 16, 2017

Tax Comparison: Oil and Gas versus Residential

Colorado and specifically Mesa County has become more dependent on oil and gas as a result of Gallagher and TABOR.  To replace the “tax revenue” from oil and gas collected in 2016, it would take +/- $1.85 billion in residential new construction annually (over 8,400 new median-priced houses).  

Gallagher was a constitutional amendment passed in 1982 that requires residential assessments to comprise approximately 45 percent of the total assessed value statewide. All other (non-residential) property shoulders 55 percent. 

Property Tax is calculated by multiplying the actual value of the property times the assessment rate times the mill levy. Therefore, a residential assessment rate of 7.2 percent (residential)  is over 4 times the non-residential rate of 29 percent (non-residential), 4 times the tax.  Furthermore, comparing the residential 7.2 percent with the oil & gas assessment rate of 87.5 percent results in 12 times the tax.  

Back in 1982 when voters passed Gallagher, the non-residential rate was 29 percent, and the residential rate was 21 percent.  With an average Mesa County mill levy of 63 mills expressed as .063, this resulted in a non-residential tax of about $18.27 per $1,000 of actual value and a residential tax of $13.23. Over the past 35 years, the residential rate dropped from 21 percent to 7.2 percent, so that a residential property today has a tax of $4.54 per $1,000 of actual value. Last year it was $5.01 per $1,000 of actual value. 

Oil & Gas
$1,000
87.5%
0.063
$55.13
Non-Residential (Commercial)
$1,000
29.0%
0.063
$18.27
Residential
$1,000
7.2%
0.063
$4.54

This assessment rate reduction simply evaporates property tax revenue used to fund county activities as well as the school system, fire districts, etc.  Several times in the past few years the residential rate should have increased to maintain the 45/55 relationship, however, due to TABOR it only lowers making the disparity between residential and non-residential rates more pronounced:

Oil and Gas production is 87.5 percent
Non-Residential (Commercial, Vacant) rate is 29 percent
Residential rate is 7.2 percent


Actual
Assessment Rate
2016 Assessed
Oil & Gas Real Property
 $             31,758,034
87.5%
 $         27,788,280
Oil & Gas Personal Property
 $            363,746,966
29.0%
 $       105,486,620
Total
 $            395,505,000

 $       133,274,900




Oil & Gas Assessed Value


 $       133,274,900

 Residential Rate
7.20%

Annual Residential New Construction Needed to Replace  Oil & Gas


 $    1,851,040,278
 Median House

 $         220,000

Required New Houses Per Year
                            8,414


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