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Colorado short-term rental owners may protest plan to quadruple their taxes

A survey showed that a majority would reduce their rental nights if Senate Bill 33 passes
Summit County local Tommy Jeffries walks on the patio of the Breckenridge home he bought in 2017, while cleaning for the next short term rental guest in early September 2023. Jeffries, who manages a ski shop, relies on short-term rental bookings in the spare bedrooms to keep up with the mortgage after years of bad experiences with irresponsible long-term renters. (Hugh Carey, The Colorado Sun)

The fight over a bill that would quadruple property taxes for Colorado vacation homes rented for more than 90 days a year is about to get noisy.

Next week, hundreds of property owners and small business owners – many from mountain towns – are planning to visit the state Capitol to voice opposition to Senate Bill 33 that nonpartisan legislative staffers estimate would increase property taxes for 24,100 short-term rental homes in Colorado.

The legislation – sponsored by state Sen. Chris Hansen, a Denver Democrat, and aimed in part at easing the high-country housing shortage – would classify homes that are rented short-term for more than 90 nights a year as commercial lodging properties, which in 2023 were taxed at 27.9% compared with the 6.7% residential property tax rate.

The advocates will be bringing the results of a new survey of short-term property owners who say if the legislation passes they will either sell their homes or avoid the intention of the new law by reducing their rental nights to meet the legislation’s 90-day threshold. The survey, commissioned by the short-term rental advocacy group Colorado Lodging and Resort Alliance, warns that reducing short-term rentals would cost the state $1.36 billion in annual tourist spending.

“There is a belief out there that people in the short-term rental ecosystem – property managers and owners and cleaners and landscapers – are making obscene profits and that does not match up,” said CJ Willey, a board member for the alliance who owns a short-term rental property in Steamboat Springs. “They play a critical role in mountain economies and they feel that perspective is not being heard in this debate.”

Proponents of taxing residential properties used as short-term rentals at the same rate as hotels, including Gov. Jared Polis, see it as a way to level the playing field and generate more money for schools and local districts, which are funded by property tax revenue. Some high-country hotels have converted into privately-owned short-term rentals in recent years, which proponents contend has reduced local government property tax revenues.

Similar proposals to shift short-term rentals over to commercial tax rates have fizzled at the Capitol in recent years under pressure from short-term rental owners.

When the 2024 legislation was first heard in October by the Legislative Oversight Committee, more than 80 speakers lined up to blast the plan.

The plan, which was changed little since that October hearing, has galvanized a growing number of property owners and short-term rental advocates. Namely, the 550-member alliance commissioned the survey of 2,500 short-term rental owners, conducted by Tennessee-based Laffer Associates, a consulting firm led by conservative economist Arthur Laffer, a national advocate for sweeping tax cuts.

The Laffer economists estimated this would reduce short-term rental bookings in Colorado by 56%.

The drop in tourism spending that would accompany the bill would threaten 8,148 tourism-related jobs in the state, according to the report.

“Raising STR property tax rates may increase property tax revenue in the short term, but probably not over time, and it will come at a cost to most other forms of taxation. It’s a game of Whac-A-Mole tax policy,” reads the report.

Nonpartisan legislative staffers estimate the bill would increase the assessed value of 24,100 short-term rental homes to $7.98 billion in 2026, up from $1.97 billion.

That would deliver $371.2 million in additional revenue to local taxing districts, including $78.2 million for schools. The staffers’ analysis assumed that every short-term rental property owner will continue to rent their homes for more than 90 days. The staff notes that their property tax revenue estimates may differ if owners choose to not rent for more than 90 days.

The state estimates that there are 24,100 short-term rentals in all of Colorado that rent more than 90 days a year and would be taxed as commercial property rates. If the state plans to generate $371.2 million from the increase in taxes, that would mean each of the 24,100 short-term rental homes would be paying an additional $15,402 a year, on average.

Hansen said the Laffer report is “not a survey. It’s a hack-a-thon.” He said he has met with hundreds of people about the bill since October and will be making “significant amendments based on those conversations.”

“The sky is not falling,” Hansen said. “I have talked with the advocates and heard them loud and clear and we are responding to them.”

At the first committee hearing planned for Feb. 20, Hansen plans to offer amendments that narrow the bill with less of a focus on people renting second homes and more attention paid to hotels that convert to privately owned units that are taxed as residential but still offer nightly rentals like a commercial property.

“These giant corporate properties that are being misclassified as residential but are being rented out as a hotel. That’s what we will focus on,” Hansen said. “But for the average owner doing 60, 90, 100 days a year, the final bill will have little to no impact on that.”

The Laffer survey shows very few owners will continue to rent like they always have should their property tax bill quadruple to an average of more than $15,400.

“We now have the data and analysis from a third party firm – it shows not only would this bill not be a significant driver of revenue to the state, it would be an overall tax loser for the state,” said Willey, who works as corporate counsel for the Evolve short-term rental property management company but was speaking as a board member for the 550-member Colorado Lodging and Resort Alliance. “There will be a massive change in behavior driven by this type of punitive property tax scheme.”

In the last week, the Colorado Chamber of Commerce, the Colorado Bankers Association, the Colorado Hotel and Lodging Association, the Aspen Chamber Resort Association, the Vail Valley Partnership and Colorado Ski Country have taken formal positions opposing Senate Bill 33.

“After reviewing the economic impact information released by the Colorado Resort and Lodging Alliance, it is evident that the passage of SB33 would have a significant negative impact on Aspen,” said Debbie Braun, the president of the Aspen Chamber Resort Alliance, in an email.

Many of those groups note that most communities in Colorado have crafted increased regulations with permits, taxes and fees on short-term rentals. Those regulations, on top of a quadrupling of property taxes on vacation rentals, could wipe out critical lodging for mountain towns.

“This isn’t rentals in neighborhoods; we’re talking about our visitor bed base – the bed base that drives our economy,” writes Chris Romer, the president of the Vail Valley Partnership, in a statement urging lawmakers to reject Senate Bill 33. “Increasing the property tax rate will drive a reduction in the bed base, resulting in fewer visitors, resulting in less sales tax, resulting in reduced funding for our local towns and communities to provide essential services.”

Some lawmakers – like Western Slope Democrats Sen. Dylan Robert and Rep. Meghan Lukens – have expressed opposition to Senate Bill 33 as it’s written.

Roberts is sponsoring legislation that would allow local governments to offer tax breaks to owners to convert short-term rentals into long-term rentals or workforce housing, creating an incentive program that mirrors tax breaks for owners who install solar panels. Many lodging groups have come out in support of Roberts’ Senate Bill 2.

“It is imperative that the state empower local governments to address specific local needs and concerns efficiently and effectively,” the preamble to Senate Bill 2 reads. “Acknowledging that local governments are best equipped to understand and respond to the distinctive localized challenges within their communities.”

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