Short-term rental tax bill makes Colorado Senate finance agenda but is not expected to pass
FRISCO — On Tuesday, Feb. 11, Sen. Bob Gardner, R-Colorado Springs, is hosting a session for Senate Bill 20-109. The bill, which seeks to classify short-term rental properties as commercial properties for tax purposes, is listed as an action item in Tuesday’s Senate finance agenda, but Gardner said he does not expect the bill to pass and that passing the bill was not his intention in bringing it forward.
“My purpose of bringing the bill was not to raise taxes or to raise tax revenues. … I did not expect the regime that is in my bill to pass nor do I really want it to pass,” Gardner said. “I want to focus a lot of attention on this issue of short-term rentals, how they’re assessed, equity in the assessment. What does it mean for communities in terms of tax revenues? What does it mean in terms of fairness for other short-term rental business models, hotels and motels?”
Gardner said he first learned about the short-term rental tax issue from the El Paso County tax assessor and from the annual tax assessor meeting.
“What I heard from my own assessor was that … tax assessors right now are somewhat on their own deciding what to do,” Gardner said. “None of them have kicked over the rock and said, ‘Short-term rentals, when you have a lot of them and they are operating as commercial enterprise, that’s commercial property.’ They’re under a fair amount of pressure to do so.”
Summit County Assessor Frank Celico, explained that property classifications date back to the passing of the Gallagher Amendment, which was adopted into the Colorado Constitution in 1982 and differentiates residential and nonresidential properties for tax purposes.
Nonresidential property is taxed at 29% while the property tax rate for residential property in Colorado is 7.96%.
Celico said that after a residential property is assessed as residential, it’s not typically part of his job as an assessor to monitor the property for occupancy or use.
He explained that while the short-term rental market significantly impacts the county and something must be done about the availability of housing for locals, the bill as written might not be practical for assessors.
“It would be extremely burdensome to have to monitor properties for use because ultimately what it comes down to is the owner’s word versus an assessor’s word,” Celico said.
The bill includes a 30-day caveat for homeowners, meaning if the owner lives in the home for 30 days or more, they are free to rent out the home on other days of the year and not be subject to the nonresidential property tax. However, if an owner stays in the home less than 30 days per year, the property would be designated as a short-term rental and be taxed the 29% rate. This is intended to be a way to distinguish properties that are used in a commercial fashion from second-home owners who occasionally rent out their homes, but Celico said it would be very difficult to enforce.
“That is the biggest sticking point from the assessor’s standpoint, is how could we possibly confirm that one way or another?” Celico said. “I’m not sure how many people I’d need to have in my office or what technology is available for us to determine when an owner is occupying one of the 28,000 residential properties in Summit County.”
Celico is testifying during the Tuesday session, and he said that while it is his understanding that the bill likely will not pass, his goal is to explain how short-term rentals impact the county. He referred to the number of Airbnb visits in Summit County that were reported this fall — which put Summit County second after Denver County for bringing in the most summer guests via the rental site — and plans to explain how the growing short-term rental market has affected housing prices and availability.
“That’s the problem we’re ultimately trying to address,” Celico said. “We’re not trying to undermine people’s business. It’s to make sure there’s a fair playing field.”
Celico said he also plans to discuss the implementation issues he sees from an assessor’s perspective.
Both Gardner and Celico brought up leveling the playing field specifically for the rest of the hospitality industry. Gardner said he has been contacted by the owners of small hotels and bed and breakfast oppositions that say they are in direct competition with short-term rental properties but pay more than three times the assessment rate in property taxes.
“It seems like it is not fair to people in the hotel business, and also I believe wasn’t the intention of people who voted for the Gallagher Amendment,” Celico said. “This was not a foreseeable circumstance with the short-term rental property exploding.”
Alpine Inn owner Bernadeta Matys said the difference in taxes that her inn must pay compared with a short-term rental property significantly affects her business.
“We do get a lot of comments from guests that short-term rentals are less expensive, condos are less expensive than staying at a hotel room,” Matys said. “So am I for taxes for the short-term rentals? Yes, I am because then we’ll all be even.”
Matys said that aside from guests, she also loses valuable employees like housekeepers to short-term rentals because they’re often paid in cash.
“If you want to buy a property and rent it, then great,” Matys said. “But go by the same rules and pay the same taxes.”
Gardner said that while this particular bill might not be successful, he has plans to continue the conversation about short-term rentals.
“I thought initially that maybe we’d turn that bill into an interim committee or tax force discussion,” Gardner said. “I’ve found out that the sensitivities about having this discussion are so raw that I think we’re going to have to do those discussions informally.”
Gardner said that after meeting with several real estate professionals, including those from Summit County on Jan. 30, he found that groups of stakeholders were strongly against the bill. He said legislative stakeholder meetings are common at the Capitol and will hopefully breed some solutions.
“Investors in short-term rentals need to recognize that there’s no good, solid statutory guarantee that the treatment they’re receiving is going to stay the same. We can’t keep having 64 different assessors with 64 different ideas. The reality is there’s not really a policy,” Gardner said about the assessment of short-term rentals. “It’s not a policy; it’s a blind eye.”
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