A lawsuit filed in Summit County District Court this month argues that a short-term rental fee in Breckenridge violates Colorado’s Taxpayer Bill of Rights, or TABOR, because it claims the charge is not really a fee, but a tax.

Alexander Dorotik, the founding attorney of the Denver-based Ingenuity Law Colorado and the owner of a short-term rental property in Breckenridge, filed the lawsuit in Summit County District Court on Monday, Sept. 9, according to court documents.

TABOR prohibits tax increases without voter approval. The lawsuit argues that a short-term rental fee the Breckenridge Town Council approved in 2021 does not qualify as a fee under TABOR, but rather as a tax that would have to be approved by voters.

Breckenridge officials declined to comment on the pending litigation.

The Colorado Supreme Court has held that if the primary purpose of a charge is to raise revenue for the general expenses of the government, then a charge is a tax. But a charge is not a tax if the primary purpose of a charge is to defray the reasonable direct and indirect costs of providing a service or regulating an activity.

When the Breckenridge Town Council passed the ordinance establishing the $756 fee per studio or bedroom, it justified it by pointing to a study it had commissioned that stated it found “a reasonable relationship between guest spending from (short-term rentals) in the town and the demand of housing affordable” for incomes at 150% of the area median income or less.

“Guests staying in (short-term rentals) spend money in the local economy, mainly in the retail, food and beverage, and recreation industries which supports jobs that do not pay enough for employees to afford market rate housing in the town,” the study continued. “The basis of the fee is therefore the gap between what the employee-households can afford and the cost to purchase a home in the Town of Breckenridge.”

The ordinance states that the funds collected through the fee will be used to “defray the reasonable direct and indirect costs” of town housing programs, like buy downs, leasing to locals, acquisition of deed-restricted units and construction of new units. The ordinance also outlines that funds will defray costs related to the “secondary impacts” of the short-term rental industry, including limited parking, loud noise and increased trash.

But Dorotik argues in the lawsuit that the study “completely omits the sales and lodging tax benefits” of short-term rentals, which he said exceed the costs Breckenridge cited in the study. Because of the sales and lodging tax benefits of short-term rentals, the Dorotik claims, “there is no cost to Breckenridge for short term rentals as they are actually quite revenue generating.” With no costs to defray, the lawsuit claims that $756-per-bedroom short-term rental charge cannot be considered a fee and must therefore be “an unconstitutional tax.”