July 19, 2017

Colorado Supreme Court: County Assessor Authorized to Retroactively Assess Property Taxes on Oil and Gas Leaseholds

The Colorado Supreme Court issued its opinion in Kinder Morgan CO2 Co., L.P. v. Montezuma County Board of Commissioners on Monday, June 19, 2017.

Oil and Gas—Property Taxation—Statutory Construction.

The supreme court reviewed the court of appeals’ conclusion that the Montezuma County Assessor had statutory authority to retroactively assess property taxes on oil and gas leaseholds operated by Kinder Morgan, after the assessor determined that Kinder Morgan had underreported the wellhead selling price of CO2 gas produced at the leaseholds. The court considered whether this assessment was authorized under the statute permitting retroactive property tax assessments when, pursuant to C.R.S. § 39-5-125(1), “taxable property has been omitted from the assessment roll.” Given Colorado’s self-reporting scheme for property taxation of oil and gas leaseholds and the legislature’s amendments to that scheme—which describe the “underreporting of the selling price or the quantity of oil and gas sold [from a leasehold]” as a form of omitted property, C.R.S. §§ 29-1-301(1) and 39-10-107(1)—the court concluded that the assessor had statutory authority to issue the assessment in this case. The court further concluded that the Board of Assessment Appeals did not err in determining that Kinder Morgan had underreported the wellhead selling price of CO2. The court therefore affirmed the judgment of the court of appeals.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Property Used as Vacation Home and Listed on VRBO Properly Classified as Residential

The Colorado Court of Appeals issued its opinion in O’Neil v. Conejos County Board of Commissioners on Thursday, March 9, 2017.

Real Property—Residential—Commercial—Ad Valorem Taxes—Burden of Proof.

James and Mary Ellen O’Neil purchased the subject property and built a log house on it for their use as a vacation home and as an inheritance for their sons. The house was initially classified for tax purposes as residential. After the O’Neils listed the property as available for short-term, overnight rental, the Conejos County Assessor (Assessor) reclassified the property, for ad valorem tax purposes, from residential to commercial. The O’Neils filed a petition for abatement with the Conejos County Board of Commissioners (County), which was denied, and then appealed to the Board of Assessment Appeals (Board), which overturned the Assessor’s action and returned the property’s classification to residential for the relevant years.

On appeal, the County contended that the Board improperly classified the O’Neils’ property as residential. The County asserted as a procedural error that that the Board failed to apply the presumption in favor of the Assessor’s property classification. The Board’s order demonstrated that it implicitly applied the presumption in favor of the County, and the O’Neils met their burden of proof to overcome that presumption. On the merits, the Board determined that the proper classification of the property was “residential” because its “predominant and actual use was as a second home.” The Board’s determination had a reasonable basis in law and was supported by substantial evidence in the record.

The order was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Lessee of Real Property Lacks Standing to Challenge Property Tax Determination

The Colorado Court of Appeals issued its opinion in Traer Creek-EXWMT LLC v. Eagle County Board of Equalization on Thursday, February 9, 2017.

Traer Creek-EXWMT (Traer) has been a lessee of property in Eagle County since 2002. Traer has reimbursed the property owner for property taxes each year since assuming the lease. On May 1, 2015, the Eagle County Assessor mailed a notice of valuation to the property owner. Traer initiated the statutory protest and adjustment process to challenge the 2015 valuation. The assessor declined to adjust the valuation, and Traer appealed to the Board, which also upheld the valuation. Traer appealed to district court.

The Board moved to dismiss under C.R.C.P. 12(b)(1) on the theory that a mere lessee does not have standing to challenge a property tax valuation of the sort issued by the assessor. The district court agreed and dismissed the case.

On appeal, Traer argued that because it “owns” a leasehold interest in the subject property, it has standing to protest the valuation. The Colorado Court of Appeals disagreed, finding that the relevant statutes convey standing only to the property owner/taxpayer. The court similarly rejected Traer’s argument that C.R.S. §§ 39-1-102(16) and (14) could be read to grant authority to a lessee to challenge a property valuation. The court concluded that the county assessor did not value Traer’s “property” — i.e., its leasehold interest — instead, the assessor valued the fee interest in the property. Therefore, Traer was not a “person” whose “property has been valued too high.”

Traer also argued it had common law standing because it pays taxes on the property and because the owner had granted it agency authority to challenge the valuation. The court noted that Traer’s argument failed at the outset because when a statute limits standing, the court may not disregard the statute by employing common law notions.

The district court judgment was affirmed.

Colorado Court of Appeals: Property Need Not be Used Exclusively for Religious Purposes for Tax Exemption

The Colorado Court of Appeals issued its opinion in Grand County Board of Commissioners v. Colorado Property Tax Administrator on Thursday, January 14, 2016.

This appeal after remand concerned a religious exemption from property taxes. The YMCA owns properties in Grand County and Larimer County for which it applied for property tax exemptions based on religious purposes and charitable use. The state property tax administrator determined the properties were being used for religious purposes and granted an exemption. The Grand and Larimer County Boards of County Commissioners appealed, contending the YMCA’s use was not sufficiently religious to justify an exemption. The Board of Assessment Appeals held a hearing and found the properties were not used exclusively for religious purposes, reversing the property tax administrator’s determination. The YMCA appealed to the court of appeals and a division reversed the Board’s findings, concluding the Board failed to apply the proper legal standard and setting forth the statutory and constitutional framework for religious exemptions.

On remand, the Board found the YMCA properties qualified for the exemption because the properties furthered the YMCA’s stated religious mission and purposes and the properties were not being used for private gain or corporate profit. The counties appealed, arguing that because the use of the properties was not inherently religious, they should not qualify for the exemption. The court of appeals disagreed, finding the Board applied the correct legal framework on remand.

The court of appeals affirmed the Board’s decision to grant the YMCA properties tax exemptions.

Colorado Supreme Court: Airport Concessionaires’ Possessory Interests in Concession Spaces Taxable

The Colorado Supreme Court issued its opinion in Cantina Grill, JV v. City & County of Denver County Board of Equalization on Monday, March 16, 2015.

Taxable Possessory Interests—Significant Incidents of Private Ownership—Valuation of Taxable Possessory Interests in Tax-Exempt Properties.

The Supreme Court determined that the possessory interests in concession spaces held by several food and beverage concessionaires at Denver International Airport are taxable under Article X of the Colorado Constitution and Colorado’s property tax statutes because the concessionaires’ interests exhibit significant incidents of private ownership under the three-factor test established in Board of County Commissioners v. Vail Associates, Inc., 19 P.3d 1263 (Colo. 2001). Specifically, the Court held that: (1) the concessionaires’ interests are sufficiently exclusive to qualify as real property interests under the property tax statutes because the concessionaires have the right to exclude others from using their respective concession spaces; and (2) the concessionaires’ revenue-generating capability is sufficiently independent from the city that a tax on their possessory interests would not be effectively a tax on the government. The Court also held that the city’s valuation of the concessionaires’ interests is consistent with the valuation scheme set forth in CRS § 39-1-103(17), and is supported by the record. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Frederick Skillern: Real Estate Case Law — Property Taxation and Assessments

Editor’s note: This is Part 15 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Roaring Fork Club, LLC v. Pitkin County Board of Equalization
Colorado Court of Appeals, December 5, 2013
2013 COA 167

Valuation of a private golf club property.

The Pitkin County assessor determined the value of the Roaring Fork Club property for tax year 2011, and The Pitkin County Board of Equalization and the Board of Assessment Appeals agrees with the valuation. On appeal, the club asserts that the assessor should not have included the value of sold club memberships in the assessment of the club’s property. The Court of Appeals agrees and reverses.

The club’s property is open only to its members. Membership rights are retained for life unless sold or relinquished or revoked by the club. The club uses membership deposits to improve the property and maintain the improvements. The deposits are treated as a liability for accounting purposes because all or a part of them are refunded if members maintain their membership for at least thirty years or if they resign earlier and replacement members fill their spots.

The club’s amenities were completed in 1999 and the club had sold about 82% of the memberships by 2011. The club argues that the value of the sold memberships should not be considered in determining the actual value of the club’s property for property tax purposes because they are not interests in the real property. The BOE contends that the membership deposits are akin to prepaid rent on leasehold interests and they would escape taxation if not included in the property value.

On appeal, the club and the BOE agree that the income approach is the proper method to value the club’s property. However, the county argues that the memberships are an interest in land, like a leasehold, and should be included in the value under the “unit assessment rule.” The club contends that memberships are licenses, and are not an interest in land. The court agrees, and holds: (1) the membership agreement is not a lease; (2) memberships are not life estates; (3) the membership agreement does not give members any other taxable interest in the club’s property; (4) the membership agreement establishes that memberships are revocable licenses; (5) the unit assessment rule does not apply to these memberships; and (6) the sold memberships are not usufructuary interests. Accordingly, the Board’s order is reversed and the case is remanded to hold a hearing to determine the actual value of the club’s property without taking into account the value of the sold memberships.

 

Village at Treehouse, Inc. v. Property Tax Administrator
Colorado Court of Appeals, January 16, 2014
2014 COA 6.

Property tax; unit assessment rule.

Village paid more than $1 million to purchase certain development rights from the Treehouse Condominium Association (HOA). This supposedly gave Village the right to construct up to nineteen condominium units in the complex. The development rights were created by an amendment to the Treehouse declaration in 2006. The rights were assigned to Village in 2008 in a document entitled “Warranty and Assignment of Supplemental Development Rights”. The question is whether this property right is a taxable interest in real property. The Board of Assessment Appeals found that the right to build new condominium units constituted a taxable interest in real property for ad valorem tax purposes.

On appeal, the court of appeals affirms the BAA, and holds that the assignment, in effect, severed the development rights from the common elements owned by the HOA, creating a new taxable property interest. Because the Village acquired an interest in land, taxation of the development rights was required under C.R.S. § 39-1-102(16) and (14)(a).

Because the Assignment evinced the intent to sever title to the development rights from the common elements, taxing the development rights separately from the common elements did not contravene §§39-1-103(10) or 38-33.3-105. This taxation does not violate the unit assessment rule.

The Assignment created separate interests in real estate as between the interests of the individual unit owners in the common elements and those of the developer. The order was affirmed.

 

Premises Liability, Trespass and Nuisance

S.W. v. Towers Boat Club, Inc.
Colorado Supreme Court, December 23, 2013
2013 CO 72

Attractive nuisance; premises liability statute.

The Supreme Court considers whether, in the context of our premises liability statute, the attractive nuisance doctrine applies to both (a) trespassing children and (b) children who are licensees or invitees. The Court held that the doctrine permits all children, regardless of their classification, to bring a claim for attractive nuisance. C.R.S. § 13-21-115. The court therefore reverses the judgment of the court of appeals, which had found that the doctrine only protects trespassing children.

 

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

HB 14-1373: Extending State’s Homestead Exemption to Certain People Who Are Not Currently Eligible

On April 11, 2014, Reps. Steve Lebsock & Ray Scott and Sens. Larry Crowder & Rachel Zenzinger introduced HB 14-1373 – Concerning Individuals who May Claim the Property Tax Exemption for Qualifying Seniors and Disabled Veterans. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

A senior who is 65 years old or older and has owned and occupied the same primary residence for at least 10 years or the surviving spouse of such a senior may claim a property tax exemption (exemption) for the primary residence in an amount equal to 50% of the first $200,000 of actual value. In addition, a disabled veteran who has a service-connected disability that the United States department of veterans affairs has rated as 100% permanent and total disability, but not the surviving spouse of such a veteran, may claim the exemption.

For property tax years commencing on or after January 1, 2015, the bill specifies that:

  • A senior who has received an exemption for his or her former primary residence but moved to a new primary residence after January 1, 2014, may continue to claim an exemption for his or her new primary residence if a natural disaster forced the move by destroying the former primary residence or otherwise rendering it uninhabitable. The surviving spouse of a deceased senior may also claim the exemption for his or her new primary residence if the deceased senior:
    1. Previously qualified for a property tax exemption for the new primary residence; or
    2. Would have qualified for a property tax exemption for the new primary residence if he or she had not died before the surviving spouse moved to the new primary residence.
  • The surviving spouse of a deceased disabled veteran who had received an exemption before his or her death may claim the exemption.

The bill was approved by the House on April 21. The Senate Finance and Appropriations Committees approved the bill on May 29 and 30 and was adopted on 2nd Reading by the full Senate on May 2.

Since this summary, the bill passed 3rd Reading in the Senate with no amendments and is on its way to the governor for action.

HB 14-1349: Broadening Criteria for Businesses to Obtain Property Tax Exemptions

On March 31, 2014, Rep. Dickey Lee Hullinghorst and Sen. Rollie Heath introduced HB 14-1439 – Concerning the Creation of an Exemption from Property Taxes for Qualifying Business Entities Controlled by Nonprofit Organizations that are Formed for the Purpose of Qualifying for Federal Tax CreditsThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

For property tax years beginning on or after January 1, 2014, the bill exempts real and personal property from the levy and collection of property tax if:

  • The property tax is owed by a qualified business entity; and
  • The property is used for charitable, religious, or educational purposes in accordance with existing property tax exemptions.

The bill also defines “qualified business entity” to mean a limited partnership or a limited liability company:

  • That is formed for the purpose of obtaining federal tax credits and that does obtain such credits; and
  • The general partner or managing member of which is an entity that would qualify for an existing property tax exemption for charitable, religious, or educational purposes.

The bill repeal statutory provisions that had required an entity formed to obtain the federal new markets tax credits or federal rehabilitation tax credits and that claims a property tax exemption to pay annually to the applicable county a payment in lieu of property taxes.

On April 14, the bill passed out of the House on 3rd Reading. The bill is assigned to the Finance Committee in the Senate.

Since this summary, the Senate Finance Committee referred the bill, unamended, to the Senate Committee of the Whole for Second Reading.

HB 14-1279: Creating Tax Credit for Businesses for Business Personal Property Tax Paid in Colorado

On February 13, 2014, Reps. Dianne Primavera & Dave Young and Sens. Rollie Heath and Mark Scheffel introduced HB 14-1279 – Concerning the Creation of a State Income Tax Credit to Reimburse a Business for Personal Property Taxes Paid in the State. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

For five income tax years beginning on January 1, 2014, as introduced, the bill creates an income tax credit to reimburse a qualifying taxpayer for personal property taxes paid in Colorado for which the taxpayer does not already receive a state or federal income tax benefit. This is accomplished by allowing a tax credit that is equal to the taxpayer’s personal property taxes paid multiplied by a percentage equal to 100% minus the sum of the taxpayer’s federal marginal income tax rate for the year and 4.63%.

To qualify for a tax credit, a taxpayer must have $25,000 or less worth of personal property on which property taxes are paid in Colorado during an income tax year commencing in 2014, or have less than an inflation-adjusted amount for each income tax year thereafter. The amount of the credit that exceeds a taxpayer’s income taxes is refunded to the taxpayer.

The bill has been approved by the Business, Labor, Economic, & Workforce Development and Finance Committees; the bill is scheduled next to go before the Appropriations Committee.

Since this summary, the bill was amended in the Appropriations Committee and referred to the House Committee of the Whole for Second Reading.

Bills Regarding Mineral Estates, Parent-Child Relationships, Property Valuation, and More Signed by Governor

On Tuesday, March 25, and Thursday, March 27, 2014, Governor Hickenlooper signed 31 more bills into law. Some of these are summarized here.

  • SB 14-009 – Concerning a Disclosure of Possible Separate Ownership of the Mineral Estate in the Sale of Real Property, by Sen. Mary Hodge and Rep. Dominick Moreno. The bill requires the disclosure of possible separate ownership of mineral estates in the sale of real property.
  • SB 14-062 – Concerning Reinstatement of the Parent-Child Legal Relationship, by Sens. Lucia Guzman & Ellen Roberts and Reps. Mike Foote & Bob Gardner. The bill allows parents whose parental rights have been terminated to have those rights reinstated in certain circumstances.
  • SB 14-080 – Concerning the Elimination of the List of Certain Additional Qualifications that Apply to Property Valuation Appeal Arbitrators, by Sen. Kevin Grantham and Rep. Rhonda Fields. The bill simplifies qualifications for arbitrators in property valuation appeals by mandating only that the arbitrator be experienced in property taxation and hold a Colorado real estate appraiser license.
  • SB 14-102 – Concerning the Addition of Employment Positions Held at Financial Institutions to the Circumstances Under Which an Employer May Use Consumer Credit Information for Employment Purposes, by Sen. Jessie Ulibarri and Reps. Bob Gardner and Paul Rosenthal. The bill allows bank to use consumer credit information during or before employment for employment purposes.
  • HB 14-1060 – Concerning the Authority of a Municipality to Compensate Members of a Municipal Planning Commission, by Rep. Diane Mitsch Bush and Sen. Gail Schwartz. The bill allows municipalities to compensate members of planning commissions.
  • HB 14-1079 – Concerning an Increase in the Monetary Amount Allowed for the Limited Offering Registration Procedure Under the “Colorado Securities Act,” by Rep. Pete Lee and Sen. Rachel Zenzinger. The bill increases the limited offering cap for small public offerings from $1 million to $5 million per year.
  • HB 14-1082 – Concerning a Requirement for Written Notice of Cancellation of Individual Life Insurance Policies, and, in Connection Therewith, Requiring Written Notice Prior to the Lapse of Individual Life Insurance Policies, by Rep. Pete Lee and Sen. Lois Tochtrop. The bill clarifies that life insurance policies can only be cancelled for reasons specified by statute, and written notice must be sent to the last known address of the insured prior to cancellation.
  • HB 14-1125 – Concerning the Circumstances Under which a Unit Owners’ Association May Disclose Contact Information for Members and Residents Under the “Colorado Common Interest Ownership Act,” by Rep. Diane Mitsch Bush and Sen. David Balmer. The bill allows owners’ associations to publish contact information for consenting members.
  • HB 14-1171 – Concerning Rules on Forensic Medical Evidence in Sexual Assault Cases, by Rep. Frank McNulty and Sen. Ellen Roberts. The bill eliminates the need for further rule-making regarding sexual assault examination consent forms.
  • HB 14-1183 – Concerning the Reinstatement of the Authority for Active Military Personnel to Practice Professionally, by Rep. Rhonda Fields and Sen. Matt Jones. The bill exempts active military personnel from automatic expiration of professional licenses.
  • HB 14-1223 – Concerning the Reclassification of Dolores County for the Purpose of Statutory Provisions Fixing the Salaries of County Officers, by Rep. Don Coram and Sen. Ellen Roberts. The bill reclassifies Dolores County as a Category V county.

To date, the governor has signed 113 bills into law. Click here for a list of the governor’s 2014 legislative decisions.

Bills Regarding Water Law, Elections, County Assessor Reports, and More Signed by Governor

On Tuesday, February 18, and Wednesday, February 19, 2014, Governor Hickenlooper signed six bills into law. He has, to date, signed seven bills.

  • HB 14-1164 – Concerning Nonpartisan Elections Not Coordinated by a County Clerk and Recorder, and, in Connection Therewith, Creating the “Colorado Local Government Election Code” for the Conduct of Such Elections by Special Districts, Harmonizing Residency Requirements for Voter Registration, Modifying the “Colorado Municipal Election Code of 1965,” and Clarifying When Elections are Coordinated by County Clerk and Recorders, by Rep. Dickey Lee Hullinghorst and Sen. Jessie Ulibarri. The bill creates the Colorado Local Government Election Code to govern the conduct of nonpartisan elections by special districts that are not coordinated by a county clerk. Signed by Governor Hickenlooper on February 18, 2014.
  • HB 14-1053 – Concerning the Authority of the Commissioner of Insurance to Adopt Rules to Ensure Consistent Requirements for Pediatric Dental Benefits in Health Benefit Plans Offered in Colorado Regardless of the Method by Which a Plan is Purchased, by Rep. Beth McCann and Sen. Irene Aguilar. The bill allows the Commissioner of Insurance to promulgate rules in order to ensure that pediatric dental benefits are consistent regardless of whether the insurance is purchased inside or outside the Colorado Health Benefit Exchange. Signed by Governor Hickenlooper on February 19, 2014.
  • HB 14-1027 – Concerning the Clarification of the Definition of a Plug-In Electric Motor Vehicle, by Rep. Randy Fischer and Sen. Matt Jones. The bill clarifies that plug-in electric vehicles are those that can be recharged by an external source. The clarification is intended to assist county clerks and recorders in collecting a $50 fee for plug-in electric motor vehicles. Signed by Governor Hickenlooper on February 19, 2014.
  • HB 14-1020 – Concerning the Consolidation of Two Reports on Taxable Property that County Assessors Submit to their Boards of Equalization, by Rep. Steve Lebsock and Sens. David Balmer and Jeanne Nicholson. The bill requires that county assessors combine annual reports on taxable real property and taxable personal property, and also specifies that the reports must be submitted on or before July 15 each year. Signed by Governor Hickenlooper on February 19, 2014.
  • SB 14-026 – Concerning the Removal of Certain Statutory Printing Requirements for Information Provided by the Division of Water Resources, by Sen. Mary Hodge and Rep. Edward Vigil. The bill eliminates printing requirements for certain reports, which allows these reports to be submitted electronically. It also allows the Division of Water Resources to respond electronically to requests from the public. Signed by Governor Hickenlooper on February 19, 2014.
  • SB 14-007 – Concerning Authority for a Board of County Commissioners to Transfer County General Fund Moneys to its County Road and Bridge Fund After a Declared Disaster Emergency in the County, by Sens. Kevin Lundberg and Matt Jones and Reps. Mike Foote and Brian DelGrosso. The bill allows a board of county commissioners to transfer money from the general fund to disaster response, particularly repair of roads and bridges, when an emergency disaster is declared in a county. Signed by Governor Hickenlooper on February 19, 2014.

For a complete list of Governor Hickenlooper’s 2014 legislative decisions, click here.

HB 14-1020: Clarifying Specifications Regarding County Assessors’ Reports

On January 8, 2014, Rep. Steve Lebsock and Sen. David Balmer introduced HB 14-1020 – Concerning the Consolidation of Two Reports on Taxable Property that County Assessors Submit to Their Boards of Equalization. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

County assessors annually submit two separate reports (one regarding taxable real property and the other regarding taxable personal property), on different dates, to their county boards of equalization. The bill requires both reports to be submitted simultaneously and specifies that the submission must occur on or before each July 15 or, for counties that have elected to use an alternate protest and appeal procedure, on or before each Sept. 15. Assigned to the Finance Committee.