Tax Assessments & Commercial Real Estate

What to Expect from Your Commercial Tax Assessment

As we wrap up IRS tax season, and move into annual property tax assessment season,  in Colorado we’re seeing record breaking increases in tax assessments. Commercial tax assessments outline the value the local government uses for property taxes. Being informed about how local governments determine tax value will go a long way in your ability to forecast your commercial property’s future performance.

City of Denver Tax Assessments

For the city of Denver, government officials send out tax assessments by the first of May. For commercial and industrial properties, the cost, market, and income approaches are commonly accepted valuation methods and standardized value data is based on the asset information submitted by business owners in the area.  

Under Colorado Law, all real property must be re-appraised every 2 years on odd numbered years, which 2019 fits with. Denver’s assessment division studies the sales that occurred over the last 24 months and develop new valuations based on the information submitted by taxpayers on personal property declarations.

Calculating Tax Assessments

To calculate taxes, the actual value of a commercial property is adjusted by the appropriate assessment rate to determine its assessed value. The assessment rate for commercial properties is 29%. Then the assessed value is expressed as a mill rate. A mill rate is the amount of tax payable per dollar of the assessed value of a property. Mill rates represent the amount per $1,000 of the assessed value of property, which is then used to calculate the amount of property tax.

Actual Value x Assessment Rate x Mill Rate (Tax Rate) = Taxes

Colorado assessors are required to only use the market approach to valuation to determine their property tax assessments. The market approach is a method of determining the appraised value of a property based on the sale of comparable properties in the area.  

Is there a correlation between a tax assessment and property value?

The caveat of tax assessments for commercial property owners is that commercial brokers do not use assessed values to price properties for sale, so they are not an accurate representation of value. The best resource for identifying the fair market value of commercial real estate, or the price a willing buyer would pay a willing seller on the open market, is a property appraisal or a broker price opinion from a commercial broker. A commercial broker understands the local market, and has access to comparable data.

Ready to learn the value of your commercial property? Contact a Transworld Commercial Real Estate broker today.

Phil Kubat is the Principal & Managing Broker of Transworld Commercial Real Estate, a Colorado commercial real estate firm. Transworld Commercial Real Estate will serve as a strategic partner to clients for commercial real estate acquisitions and dispositions. Phil’s services include real estate advisory, site selection, strategic planning, incentive negotiations, development consulting, and financial analysis. In his spare time Phil enjoys hiking, skiing, golfing, and living life to the fullest!

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