In the end, it was a victory for sheep and low taxes.

A luxury development on the mesas above Telluride prevailed in a tax fight against San Miguel County, winning the right to pay the same tax rates as farmers or ranchers. San Miguel County wanted homeowners in the Gray Head development to pay higher, residential tax rates, but county officials ceded their ground this week and settled the dispute.

How each side saw the settlement:

"It's a really bitter pill, for sure," said County Commissioner Joan May.

"All we got was what the law unequivocally said we were entitled to," said Joseph Coleman, lawyer for the Gray Head homeowners.

In Colorado and across the West, agricultural land is assessed and taxed at a fraction of residential, commercial or vacant land. And many homeowners and businesses have shrewdly taken advantage of this, occasionally grazing cows and sheep on their property to save hundreds of thousands on their tax bills.

In San Miguel County, developments like Gray Head, West Meadows or Sunnyside have capitalized on beneficial tax laws. They pay cheap agricultural rates for their land but full assessed values for their million-dollar homes.

Ranching advocates say the tax laws ensure that cows, sheep and livestock across the West will have mesas and meadows to graze, even as more and more meadows are transformed into subdivisions and Faberge ranches. Homeowners say they're simply taking advantage of what the law offers.

But in the Gray Head case, San Miguel officials tried to tax the 35-acre parcels as a mixed drink of residential and agricultural land. For example, a 5-acre envelope of land around one house would be deemed residential land and assessed at $150,000. The remaining 30 acres would be agricultural land, assessed at $150.

County officials said Gray Head wasn't a true working ranch or farm, and that homeowners on the mesa shouldn't be paying the same tax rates as struggling farmers if they allowed sheep to graze across their land for part of the year.

"We feel on principle that it's just wrong that you can have sheep grazing in one little part," May said. "We just had this fundamental issue about mansions and vacation homes being sold as low-tax areas."

Gray Head appealed the assessors' and county's decisions and then sued the county. San Miguel and Gray Head went into court-ordered mediation, and agreed to settle. And Gray Head walked away with a win.

Under the terms of the deal, the county recognizes that the sheep grazing at Gray Head represents legitimate agricultural use, and earns an agricultural assessment rate. Both parties agree that all land at Gray Head - even the dirt under each house - is agricultural land. And they agree that the higher valuations were "erroneous."

But Coleman, the homeowners' lawyer, wouldn't take a victory lap because he said the Gray Head homeowners will still have to pay higher tax rates for the buildings on their land, if not for the land itself.

"You can say we won, but the truth of it's going to be that the assessor will tax rather aggressively on the improvements," he said. "I wanted the case over because I felt my clients were wasting money and the county was wasting money. It just wasn't worth the fight."

Under the settlement, each side pays its own legal fees.

From early on, the county recognized that it didn't have the law on its side, May said.
Despite that, she said that San Miguel briefly considered pushing ahead on the lawsuit with support from other counties, with the aim of waging a battle they'd lose legally but perhaps win politically.

"We knew that the legislation supports what Gray Head's doing, and that if we pursued legal action we'd lose, but we thought we'd just bring some attention to the issue," May said. "We were just trying to make a statement."

But it wasn't to be. San Miguel couldn't gin up enough outrage or amicus support from other counties eager to be part of a losing lawsuit, so they decided to save Pickett's charge for another day.

If the county wants rich homeowners on agricultural land to pay higher taxes, they'll have to convince the state to change its laws. Minnesota is re-examining its tax system to address this question, but there's no sign a similar push is afoot in Colorado.

"If it's going to change, it's got to happen from a legislative level," May said. "The commissioners have to push for this."

Coleman offered a similar take: "If the assessors want to change the law, so be it. Until the law changes, the results are going to be the same."