State Sen. Bob Gardner wanted to start a conversation. He’s incited a statewide uproar instead.
The Colorado Springs Republican introduced a bill at the Colorado Capitol that would change the property tax assessment category for short-term rentals to commercial from residential. That would increase the taxation rate more than four-fold from a projected 7.1% in 2022, when the bill would go into effect, to 29%.
But the thing is, the bill will likely never go into effect. Gardner said he never really intended for the measure, Senate Bill 109, to pass. The bill doesn’t even have a co-sponsor in the 100-member legislature and, barring unforeseen circumstances, it appears the legislation will meet a swift death when it gets its first hearing before the Senate Finance Committee on Tuesday.
(Update: Senate Bill 109 was rejected in a 6-0 vote Tuesday by the Senate Finance Committee.)
“I call this the ‘now that I have your attention’ bill,” Gardner said.
And he’s definitely got everyone’s attention. There are dozens of lobbyists and lobbying firms registered to work on the bill. A consortium of resort-area real estate brokers have rallied at the Capitol, hoping to change Gardner’s mind. Headlines have appeared in Colorado’s resort-town newspapers about anxieties surrounding the measure. Lawmakers say their email inboxes are filled with notes from opponents of the legislation.
And, on Thursday, short-term-rental giant Homeaway, a division of Expedia, sent an email to its thousands of short-term rental homeowners in Colorado, urging them to send feedback to Gardner and members of the Finance Committee. The email from Homeaway’s VRBO government affairs team also recommended that homeowners show up at the committee hearing.
Affordable housing advocates, meanwhile, see the bill as a way to discourage wealthy people from buying homes solely as rental investment properties. Some local governments are also excited about the prospect of up to $100 million more in annual tax revenue that the measure would bring in, according to legislative fiscal analysts.
The mass response has proved that short-term rentals remain an incredibly prickly subject in Colorado, stretching beyond small-town disputes and big-city policies, and that, when necessary, the might of companies like VRBO and Airbnb can be wielded quickly and effectively.
“In some ways, the bill has been highly successful already, because the purpose of introducing the bill is to cause everyone in this equation to take notice,” Gardner said. “I don’t really have a strong notion about how short-term rentals ought to be assessed. I just have a strong belief that we ought to do something that’s consistent and equitable. And that’s going to require a lot of thoughtful discussion.”
Gardner offered the bill after hearing from El Paso County Assessor Steve Schleiker that county assessors across the state were debating how to classify short-term rentals.
“Leaving it up to 64 assessors is not a good idea,” Gardner said, “and, frankly, for the state legislature not to have a good conversation about this and not decide what to do is not responsible.”
Schleiker agrees. He’s worried about the discrepancy between bed-and-breakfast operators and hotel and motel owners who pay commercial property tax rates while homeowners a few doors away who use VRBO and Airbnb pay significantly lower tax bills and are competing for the same customer base.
One reason the issue is so contentious in Colorado, as compared to other states, is because the state’s residential and commercial tax rates are so far apart, Schleiker said. When county assessors get together, they talk about inequity in taxes for lodging business and short-term rental homeowners.
And they offer ideas, like differentiating between short-term rental properties owned by residents who live in the homes and those owned by investors. Or, how about creating a tax structure for short-term rental property owners that falls somewhere between residential and commercial? Or lowering the property tax rate for bed-and-breakfast owners to residential from commercial?
“Bob said he wanted to start a conversation, and that’s exactly what he did,” Schleiker said. “I think local communities should be gathering real estate brokers, representatives from short-term rental groups and neighbors who are not fans of short-term rentals, and coming up with ideas to make the system more equitable for everyone involved. Local communities should be pushing the law to Denver, not Denver pushing laws out to local communities.”
This isn’t the first time Colorado lawmakers have proposed shifting short-term rental homes to commercial tax status. In 2018, the six members of a legislative committee studying Colorado’s property taxes floated the idea as a way to fund schools.
The idea failed quickly as homeowners and the multibillion-dollar short-term home rental industry united in opposition.
But this is the first time that an actual bill that would shift residential properties into commercial tax status has been submitted in a U.S. statehouse, said Matthew Kiessling with the Travel Technology Association, which represents the heavyweights of the short-term rental world, including HomeAway, Airbnb, Tripadvisor and Booking.com.
“There is quite a bit of opposition to this and that’s for good reason,” Kiessling said. “I don’t think people have really thought through this fiscal ramifications of a move like this.”
Airbnb and Homeaway could see their entire business model collapse in Colorado if the state starts spiking property taxes on short-term rental homes. But as the industry settles into millions of homes in thousands of communities across the world, the impact of people pulling their homes off the short-term market would ripple well beyond the bottom line of huge corporations.
And Kiessling’s job, as vice president of short-term rental policy for Travel Tech, is to describe those impacts. His take goes like this: A person with a home near a Colorado destination knows they can rent to enough visitors to cover their roughly 8% residential property tax bill. They don’t know if they can cover a 29% tax bill.
So if their home is taxed as a commercial property, Kiessling said, “many people will back out of the short-term rental market.”
And then the local community loses lodging tax revenue if those rentals go away.
In Denver and Breckenridge — which are Airbnb’s top two short-term rental markets in Colorado, with visitors spending $51 million in Denver and $16.5 million in Breckenridge in 2017 according to the company’s most recent Colorado report — that means several million dollars in lost tax money. Then the decline in visitors hits the local sales tax revenue stream as fewer vacationers wine, dine and shop. Then the tourism economy shrinks and workers lose jobs.
“All the jobs, all the visitors go right out the window and I think that piece of this just hasn’t been thought through. What you are doing is dis-incentivizing people from offering their homes and what will happen is local economies will retract as people head to other states where there are more homes available,” said Kiessling, who is submitting testimony to the Senate Finance Committee. He also expects testimony to include opposition to Gardner’s bill from real estate brokers and homeowners.
Don’t forget that Airbnb and Homeaway have fought before when threatened, scrapping with the largest cities in the country.
Airbnb in 2016 sued San Francisco over the city’s demand that property owners register before offering their homes as short-term rentals. In 2018, Homeaway’s parent, Expedia, joined Airbnb in suing New York City over the city’s demand that the websites share the names and addresses of homeowners who use the online marketplace. Those lawsuits were settled, with the short-term rental platforms reaching deals for streamlined registration for homeowners and access to some details so New York City could identify scofflaws avoiding local taxes.
(In Colorado, Airbnb has deals with 23 communities to collect and remit lodging taxes and VRBO does the same in six communities.)
“The first group that gets impacted, and the ones that make the most noise right off the bat, will be the homeowners,” Kiessling said.
On the other side of the argument are resort communities struggling with limited affordable housing. State Sen. Kerry Donovan, a Vail Democrat who represents a wide swath of the Western Slope, said people are finding it hard to find homes in places like Crested Butte and Salida as properties are snatched up to become short-term rental investments.
“In some communities, the availability of affordable housing isn’t there because so many properties have been transferred to Airbnb,” she said, meaning lower-wage workers can’t find a place to live. And there are consequences, she said, citing the example of a business that recently closed in Buena Vista after nearly 20 years “because they could not find employees.”
Lawmakers realize there’s a need for some legislative action. While they don’t know what exactly that is, they all — including Gardner — agree that Senate Bill 109 is definitely not the right or most well thought-out approach.
“There’s a real issue there, for sure,” said Senate Majority Leader Steve Fenberg, a Boulder Democrat.
Gardner, a conservative Republican who said he’s been “getting feedback every hour” on the bill, wants three things to be clear:
- He doesn’t want to increase people’s taxes
- He doesn’t want to damage people’s real estate investments, especially homeowners, like an elderly person or single parent, who rely on short-term rentals to pay for their properties
- He doesn’t want property assessments to be used to carry out affordable housing policy, though he recognizes that short-term rentals likely contribute to Colorado’s affordable housing problems
Gardner said he just worries that the assessment discrepancy has created an unlevel playing field for bed and breakfasts and hotels and motels. “That seems to me inequitable.”
On the off chance his bill does pass, Gardner thinks that it will likely only create a task force to study the issue to be addressed down the road.
One thing is for sure, Gardner said, “I grasped the nettle.”