People who own a second home in Colorado, including those who use them for short-term rentals, could be treated differently when it comes to their property taxes for the first time if a controversial ballot measure being considered by voters this November is approved. 

Proposition HH, which is designed as a way to dampen the state’s soaring property taxes, would, in part, create a new state-level distinction for people who own homes in Colorado but don’t live in them.

While the concept is only a small part of the wide-ranging ballot measure, it may indicate a shift in the way state lawmakers think about property taxes for those properties. 

“I think because it came forward in this bill, there’s a greater number of people who see there’s an equity problem there,” said Rep. Chris deGruy Kennedy, a Lakewood Democrat and one of the sponsors of the bill that created Proposition HH. 

Approved for the November ballot through Senate Bill 303 in the final days of the 2023 legislative session, Proposition HH would make complex changes to the state’s property tax mechanism. 

If approved by voters, it would decrease Coloradans property taxes, but it would also reduce the dollars available for annual refunds through the Taxpayer’s Bill of Rights by using that money to backfill local services impacted by the cut — namely schools. The changes would be in place until 2032, when the legislature could decide whether to extend the policy.

Singling out second homes

Another element of Proposition HH would change how second-home owners are treated. 

Beyond the adjustment to the property tax rate, homeowners would also be able to exempt the first $50,000 of their home value from taxation in the 2023 tax year. Then from 2024 to 2032, they could exempt $40,000. But non-owner-occupied houses — like investment properties and second-home owners — would only be eligible for that benefit through the 2024 tax year. Beginning in the 2025 tax year, for taxes owed in 2026, the value exemption would be eliminated for those homeowners. 

An initial version of the bill would have also given second-home owners a higher rate to calculate their property taxes, but after the Colorado Association of Realtors strongly opposed the idea, that element was removed, deGruy Kennedy said.

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The Realtors group still opposes Proposition HH, in part because of the creation of a new residential class for second-home owners, said Brian Tanner, the vice president of public policy for the group. 

“This is something that could potentially penalize Coloradans who do have a second home somewhere else in the state,” Tanner said, “We don’t believe it’s good for real estate. We don’t believe it’s good for property owners.”

Many counties don’t have an up-to-date record of how many of the homes in their community are owner-occupied, making it difficult to track second homes. In an analysis of mountain resort communities, Bell Policy Center, a liberal-leaning political nonprofit in Colorado, found that as much as half of the housing stock in those areas are second homes or investment properties.  

Proposition HH would also require primary homeowners to submit applications to their assessor’s offices. Lying about one’s primary residence would be considered second-degree perjury, a misdemeanor punishable by up to 120 days in jail and/or a fine of up to $750. 

Several other states have property tax exemptions for primary homeowners, including Utah and Florida.

An issue that’s here to stay

The concept may be expanded on in future legislation, deGruy Kennedy said.

“If it passes, it’s a new property subclass. It exists in law and I’m sure it will be a part of future conversations,” he said. 

But polling of the ballot measure shows it may be on shaky ground as voting enters its final stretch. Even if the controversial measure fails, the concept of taxing second-home owners differently could come back in future legislation. 

Scott Wasserman, president of Bell Policy Center, said he believes the issue of non-owner occupied housing is here to stay, regardless of whether Proposition HH passes.

“I think it’s great to have a little foothold in the law, where we’re starting to draw this distinction, but this is something legislators have a lot more work to do on,” Wasserman said. 

While there are local policies that deal with second-home ownership, Wasserman said he believes there’s an appetite for a statewide approach. Wasserman added that he thinks there needs to be a distinction so that people providing long-term rentals with their second homes wouldn’t be penalized. 

Rep. Lisa Frizell, a Castle Rock Republican who served as the county assessor for Douglas County, said she’s open to the state using a different tax rate for second homes but thinks short-term rentals need to be included in that conversation. 

“It’s helpful to communities where they have vacation homes, and we’ve heard a lot from rural resort communities about the lack of affordable housing and other issues that are created by them being such an attractive, amazing place for people to travel to,” she said. 

Rachel Richards, who was a longtime elected official in Pitkin County and Aspen, is opposed to Proposition HH. She said she would like to see the state more directly deal with the impacts of second-home ownership.

“All this residential property that is a second home, maybe it’s vacant, maybe it’s rented out — it’s an income producing property — they’re all charged residential property tax rates that are the exact same as a working resident making $40,000 a year. And that’s skewed the whole system,” she said. 

Colorado House Speaker Julie McCluskie, D-Dillon, said while she understands the value of short-term rentals in resort communities, she believes they should be treated as a business rather than a residence. 

“There are certainly impacts to local government services and for that reason, in taxation, thinking about short-term rentals in a different way I think is appropriate,” she said. 

Election day is Nov. 7.