Proper classification is necessary because the property valuation methodology may vary depending on the classification. Furthermore, there are several classes of property that are exempt from taxation by statute.
The first classification that the assessor must make is to determine whether the property being appraised is real or personal.
Real property is defined in § 39-1-102(14), C.R.S. The definition may be paraphrased as all lands or interests in lands, all mines, quarries, minerals in and under the land, all rights and privileges thereunto, and improvements.
Improvements are defined in § 39-1-102(6.3), C.R.S., as “all structures, buildings, fixtures, fences, and water rights erected on or affixed to land, whether or not title to such land has been acquired.”
Fixtures are defined in § 39-1-102(4), C.R.S. The definition may be paraphrased as those articles that were once movable chattels, but have become an accessory to or a part of real property by having been physically incorporated therein or annexed or affixed thereto. Fixtures include systems for the heating, air conditioning, ventilation, sanitation, lighting, and plumbing of a building. These systems will be collectively referred to as fixture systems. Fixture systems are generally classified as real property.
Fixtures do not include machinery, equipment, or other articles related to a commercial or industrial operation, which are affixed to the real property for proper utilization of such articles. In addition, for property tax purposes only, fixtures do not include security devices and systems affixed to any residential improvements including, but not limited to security doors, security bars, and alarm systems.
In Del Mesa Farms, et al. v. Montrose CBOE, 956 P.2d 661 (Colo. App. 1998), using the definition of fixtures as stated in § 39-1-102(4), C.R.S., the court reasoned that a distinction must be made for classification purposes for property that are related to the operation of the building and property that are related to the operation of a business in the building. The court noted, "Thus, in our view, regardless of whether a particular item is affixed to a building and may otherwise constitute a fixture system, the item constitutes personal property if its use is primarily tied to a business operation" (emphasis added).
Personal property is defined in § 39-1-102(11), C.R.S. The definition may be paraphrased as everything which is the subject of ownership and which is not included in the term real property. Personal property includes machinery, equipment, and other articles related to the business of a commercial or industrial operation rather than components of fixture systems that are required for the proper operation of the improvements.
Taxable Personal Property
According to § 39-1-102(16), C.R.S., “’Taxable property’ means all property, real and personal, not expressly exempted from taxation by law.” The assessor has the responsibility to determine if property is exempt from property taxation under Colorado law, except for property granted exemption by the Property Tax Administrator under §§ 39-3-106 through 39-3-113.5, and § 39-3-116, C.R.S. All personal property is taxable in Colorado unless specifically exempted by sections 3 to 6 of article X of the Colorado Constitution.
Exempt Personal Property
To be valid, the property tax exemption must be described in the Colorado Constitution. Several classes of personal property, both private and public, are listed in the Constitution as being exempt from property taxation. For more information on personal property exemptions, see the Exemptions section.