The committee of Colorado lawmakers tasked with proposing fixes to a financial knot caused by conflicting state constitutional amendments has abandoned a plan to quadruple property-tax rates for homes rented to visitors on the short-term market.
The Alternatives to the Gallagher Amendment Interim Study Committee on Wednesday punted a proposal to change the tax state of homes rented through online platforms such as Airbnb and VRBO from residential to commercial tax rates, an increase to about 29 percent from about 7 percent.
“It was a little bit beyond our scope to start reclassifying what is considered residential versus nonresidential,” said Rep. Daneya Esgar, a Democrat from Pueblo who chaired the committee. “But I don’t think the conversation is over.”
The six-lawmaker committee forwarded three possible fixes to the Gallagher Amendment to the General Assembly, which will consider the proposed legislation in January.
The 1982 amendment requires that no more than 45 percent of total property-tax collection comes from residential properties. As home values rise, especially along the Front Range, the balance has lowered property tax rates on homes — from more than 20 percent in the 1980s to 7 percent or lower today — leaving the state to cover more of the cost of education. Property taxes are so low in some parts of the state that counties and special districts are unable to support public services.
The committee has suggested that lawmakers ask voters to repeal the entire amendment. Another proposal would divide the state into regions with varying balances between residential and nonresidential property-tax rates instead of a 45 percent-55 percent split statewide. A third proposal would use the state’s general fund to support struggling libraries and fire districts.
The committee unanimously approved forwarding all three proposals.
At Wednesday’s committee meeting, many homeowners spoke out against the proposal to raise property-tax rates for homes they rent on the short-term market.
Municipalities across the state are grappling with regulation of short-term rentals, with some towns harvesting many millions of dollars in tax revenue from licensing and taxing the booming industry. The proposal to raise property taxes on those homes threatened the industry’s surging growth and popularity.
“The majority of people there were Denver homeowners who actually live in the homes versus mountain towns, where people who don’t own the home and don’t live in the town use the homes as a commercial property for income,” Esgar said. “This Airbnb issue looks different in different parts of the state. We heard from homeowners who were able to rent out a room in their home to help pay their mortgage. That’s versus California-based homeowners who rent their properties in Vail and never live there.”
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