Real Estate Law, 0521 COBJ, Vol. 50, No. 5 Pg. 52
| Author | BY PAUL SACHS |
| Position | Vol. 50, 5 [Page 52] |
Unraveling Mystery of "Residential Land"
BY PAUL SACHS
This article discusses recent Colorado appellate opinions on taxation of vacant land parcels that are adjacent to residential parcels.
Some landowners own adjacent parcels of land where one parcel contains their residence and the remaining parcels are vacant. Because vacant parcels are taxed at a much higher rate than residential parcels, these property owners often seek abatements and reclassification of the vacant parcels as residential property.
This article explores the recent spate of Colorado appellate opinions on the taxation of vacant parcels that are adjacent to residential parcels. An early Court of Appeals opinion on this issue was released in 1998, and another followed 14 years later in 2012. In 2018, the Court of Appeals issued five separate opinions with varying degrees of agreement among the panels. In 2020, perhaps as a result of the number of disparate opinions and consequent confusion, the Colorado Supreme Court issued opinions in four cases attempting to "unravel the mysteries of what constitutes 'residential land'" under CRS § 39-1-102(14.4)(a).1
Consistent with the cases, this article refers to the vacant parcel as the "subject parcel" and the parcel containing the residence as the "residential parcel."
The Framework
Under the Colorado Constitution, the term "residential real property," which includes "all residential dwelling units and the land, as defined by law, on which such units are located," is valued for assessment at a significantly lower rate than other taxable real property.2 In fact, it is almost one-third the tax rate for vacant land. Pursuant to its authority under Colo. Const, art. X, § 3, the General Assembly further refined the term "residential real property" to mean "residential land and residential improvements."3 "Residential land" is "a parcel or contiguous parcels of land under common ownership upon which residential improvements are located and that is used as a unit in conjunction with the residential improvements located thereon."4 "Residential improvements" is "a building, or that portion of a building, designed for use predominantly as a place of residency by a person, a family, or families" and includes "fixtures" and "amenities" that are "an integral part of the residential use."5
The Property Tax Administrator (PTA) is statutorily required to create manuals, appraisal procedures, and instructions concerning methods of appraising and valuing land and improvements.6 The PTA created the Assessor's Reference Library (ARL), which county assessors are required to follow.7 As relevant here, the ARL formerly interpreted CRS §39-1 -102(14.4) to mean that "[p]arcels of land, under common ownership, that are contiguous and used as an integral part of a residence, are classified as residential property."8 In determining whether a contiguous parcel is used in conjunction with a residential parcel, the ARL stated that an assessor should consider whether the parcels:
■ are under common ownership;
■ are considered an integral part of the residence;
■ are contiguous;
■ are used as a common unit with the residence;
■ would likely be conveyed with the residence as a unit; and
■ along with associated structures, are for the support, enjoyment, or other non-commercial activity of the residence's occupants.9 Some of this PTA direction was rejected by the Colorado Supreme Court,10 and the ARL has been updated to reflect the Court's guidance in the cases discussed below.11
Common Ownership
Sullivan v. Board of Equalization of Denver County[12] is the prototypical example of a taxpayer owning a parcel of land on which a residence is located and an adjacent vacant parcel. In Sullivan, the Denver Board of Equalization classified the subject parcel as nonresidential for tax year 1996. The taxpayer asserted that he used the subject parcel as part of his backyard. It was zoned for residential use and had a sprinkler system and landscaping. However, on the relevant assessment date for 1996, the subject parcel was titled solely in the name of the taxpayer's wife. The Board of Assessment Appeals (BAA) found the lack of "common ownership" between the subject and residential parcels to be dispositive. Because the parcels were separately owned, there was no basis for granting the lower assessment rate, and the BAA denied the taxpayer's challenge to the classification.
On appeal, the taxpayer conceded that there was no common ownership but argued that the vacant land nonetheless qualified for residential classification as a matter of law. The Court of Appeals rejected this argument, reasoning that a parcel of land may only qualify for residential classification independent of other parcels if it has are sidential dwelling unit on the property.13 And because there was no common ownership on the assessment date, which is a threshold requirement for applying the residential tax rate to vacant land, the Court affirmed the BAA's decision.
The Court of Appeals revisited the common ownership issue in 2018 in Kelly v. Board of County Commissioners of Summit County.14 In Kelly, the residential parcel, which had a home on it, and the subject parcel were held in the names of two different trusts. Kelly was the settlor, trustee, and beneficiary of both trusts. In 2016, Kelly sought to change the subject parcel's classification to residential under CRS § 39-1-102(14.4)(a), and she sought a tax abatement for years 2014 and 2015. Both the county and later the BAA found that because each trust was a separate and distinct legal entity, the record titleholders were different, and there was no common ownership.
Because neither the statute nor the PTA defined or offered guidance on what constitutes "common ownership," the Court focused on the term's plain meaning to find that "ownership goes beyond bare record title," and the inquiry should focus on "who has the power to possess, use, enjoy, and profit from the property."[15] Further, "[i]n property tax cases in particular, courts often look beyond record tide to determine ownership."16 The Court found that Kelly had all the power to possess, use, enjoy, and profit from the property. It thus concluded that the common ownership test was met and ordered the subject parcel to be reclassified as residential.
The
Colorado Supreme Court granted the Board of County
Commissioner's (BCC) and BAA's petitions for
certiorari review.
The fruits of this clarification were quickly reaped in Lannie v. Board of County Commissioners for Eagle County.19 Lannie and his wife owned two contiguous parcels of land in Eagle County. For tax years 2014 and 2015, Lannie held title to the subject parcel solely in his name, while he and his wife held title to the residential parcel as joint tenants. By the time o f the valuation for tax year 2016, Lannie had conveyed the subject parcel to himself and his wife as joint tenants.
The Lannies appealed the subject parcel's classification as vacant land for tax years 2014 and 2015 to the BCC of Eagle County and the classification for 2016 to the Board of Equalization of Eagle County (collectively, County). Both entities upheld the assessor's classification. The BAA upheld the County, finding that the subject parcel was not used as a unit in conjunction with the improvements on the residential parcel for any of the tax years in question, and for tax years 2014 and 2015, the parcels were notheld under common ownership. On appeal, a Court of Appeals division affirmed the BAA's orders, finding that the parcels were not used as a unit, but the division did not address the common ownership issue. The Colorado Supreme Court vacated and remanded for reconsideration in light of Mook v. Board of County Commissioners of Summit County (discussed below).20
A different Court of Appeals division then considered whether the parcels were under common ownership and used as a unit. The division followed Kelly and looked solely to the county records to determine common ownership. Because the two parcels did not have identical owners for tax years 2014 and 2015, the Court affirmed the BAA's decision denying reclassification for those years on that ground alone. As to 2016, it remanded to the BAA to reconsider under the "used as a unit" standard enunciated in Mook.
Contiguity
In 2018, the Court of Appeals considered a property tax appeal by the Bringle Family Trust (Bringle Trust) to a BAA order upholding the subject parcel's classification as vacant land.21 The Bringle Trust owned a residential parcel and a vacant parcel located across a public right-of-way.
The subject parcel was originally purchased in the 1950s, and a home and outhouse were built on it. In the 1960s, the residential parcel was purchased, and the house was moved from the subject parcel to the residential parcel (the outhouse remained on the subject parcel). In 2016, the Bringle Trust petitioned the BCC of Summit County for an abatement or refund of taxes pursuant to CRS § 39-10-114 for tax years 2013 to 2015. The county denied the request, and the BAA upheld the denial...
To continue reading
Request your trial