Colorado lawmakers got an earful Tuesday from short-term rental owners on a proposal to classify many of their homes as commercial properties and impose a much higher tax rate.
The legislation would roughly quadruple property taxes for tens of thousands of short-term rental homes in Colorado. It drew fiery testimony from more than 80 speakers at Tuesday’s hearing of the Legislative Oversight Committee Concerning Tax Policy, which voted to advance the bill to the full legislature in January.
The measure would classify homes that are rented for more than 90 days a year on a short-term basis — defined as less than a month per booking — as commercial lodging properties. The property tax assessment rate for lodging properties is 27.9% compared with the 6.765% rate used this year for residential properties.
More than 75 of the speakers voiced ardent opposition to the proposed law, an indication of the political hurdles the measure faces. The change, endorsed recently by Gov. Jared Polis, is meant to place short-term properties on level ground with hotels and motels and generate more money for schools and local districts, which are funded by property tax revenue. 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.
But the bill comes as Colorado voters are casting ballots on Proposition HH, a 10-year property tax relief plan that taxes second and subsequent homes — many of which are used for short-term rentals — at a higher rate than people’s primary residences.
Proposition HH is seen as a precursor to the classification change proposed under the bill considered Tuesday by the Oversight Committee Concerning Tax Policy. And Polis’ recent support for the idea means it has a real chance of passing in 2024.
The six-lawmaker committee, which advanced the measure on a 4-2 vote, scheduled 45 minutes for public testimony on Tuesday, but the parade of owners opposing the bill took more than three hours to share their perspectives.
They came from Arvada, Breckenridge, Beulah, Colorado Springs, Copper Mountain, Denver, Fraser, Granby, Keystone, Westcliffe and Pueblo, as well as Larimer and Chaffee counties.
Many of the owners testified that revenue from short-term renting allowed them to afford property in Colorado.
“We need to have this home available to short-term rental guests to pass this legacy onto our kids,” said Eric Richards, who introduced his two kids, ages 10 and 12, to the committee.
Many noted that the overlap of local restrictions, fees and taxes on short-term rentals along with the proposed increase in property taxes would force them to sell their properties.
“We cannot live with all these types of restrictions … this will, in my humble opinion, kill the short-term rental economy in Colorado,” said Hillary Skye, who runs a property management company with homes in Arvada, Boulder and Breckenridge.
Many described already-skyrocketing property tax bills this year as home values soared.
CJ Willey, corporate counsel for Evolve, a property management company that employs 600 people in Denver, said 76.5% of all Colorado short-term rental properties are owned by Coloradans. His company estimates that imposing commercial tax rates on short-term rentals would cost the state’s tourism economy $500 million in direct visitor spending as properties stop being offered as rentals.
Local governments that rely on tax revenues from short-term rentals to support affordable housing will see declines in tourism taxes and support for housing, he warned, pointing to Steamboat Springs, where a 9% tax on vacation rentals is expected to generate $15 million a year for housing.
Willey urged the state lawmakers to allow local communities the ability to craft their own solutions for managing and taxing vacation homes.
A couple of the owners who testified Tuesday cited a 2015 Colorado Court of Appeals decision — one of the few court rulings in the state addressing short-term rentals — that ruled “mere temporary or short-term use of a residence [by vacation renters] does not preclude that use from being ‘residential’ … that receipt of income does not transform residential use of property into commercial use.”
One owner said she saw the legislation as “a taking of people’s income and properties” in Colorado. Others said the legislation would make it easier for large hotel and resort conglomerates to make gains in rural communities. One owner said the legislation could trigger a flood of homes hitting the market, sinking values and opening doors for private equity firms like Blackstone, which owns tens of thousands of single-family homes.
“There is a lot of passion in the room,” said state Rep. Mike Weissman, an Aurora Democrat who, as committee chair, limited public comment to one minute each.
Thomas Davidson, the executive director of the 21-county group Counties and Commissioners Acting Together, said his group supported the legislation.
Arapahoe, Chaffee, Grand, Ouray and Summit counties offered support for the legislation as well.
“These are commercial businesses running residential neighborhoods,” Summit County Commissioner Elizabeth Lawrence said.
“These are commercial lodging facilities … they have deep impacts in each of our communities,” Chaffee County Commissioner PT Wood said.
Amendment addresses assessor concerns
Several property owners said they don’t have the power to hire lobbyists to sway lawmakers like the hotel industry.
Todd Ruelle, who is leading 140 homeowners in a lawsuit against the Summit County commissioners over regulations limiting short-term rentals to 35 bookings a year, said taxing second homes at a higher rate than primary residents “is patently a form of discriminatory wealth taxation.”
Nonpartisan Legislative Council Staff estimates that if approved, the bill would increase local property tax revenues by $371.2 million starting in 2026. That estimate shows the assessed value of 24,100 short-term rentals properties in 47 market areas around the state would grow to $7.98 billion as commercial properties, up from $1.97 billion when assessed as residential properties.
The increase in property taxes would eliminate the need for $78.2 million in state aid for local school districts. Legislative staffers estimate the Department of Local Affairs would require a full-time employee to administer the new legislation and that local county assessors would need to hire more workers to accommodate the shift in valuation.
County assessors expressed frustration with the 2021 legislative iteration of the residential-to-commercial taxation proposal, saying the shifting valuation for homes could overburden assessor offices. Assessors and homeowners also protested a 2018 plan to raise taxes on short-term rentals. The new legislative proposal also would increase the workload for county assessors.
Assessors assign values to properties in two-year cycles. This legislation would require annual assessments as properties shift from renting for more than 90 days or less than 90 days.
Mark Chapin, the assessor for Eagle County, estimates about half of his county’s residential properties are second homes that could be offered as short-term rentals.
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The legislation requires property owners to self-report the number of days they rent homes to vacationers for stays of less than 30 days. Chapin wonders how assessors will be able to check the work of those self-reporting owners.
“We would be looking at having to track all these properties and which side of the 90-day threshold they fall on. What if they rent 300 days one year and only 80 the next year? We will have to go out and police that,” Chapin said. “Enforcement will be an issue.”
State Sen. Chris Hansen, a Denver Democrat and one of the lead proponents of the bill, on Tuesday proposed an amendment to the legislation aimed at addressing the assessors’ concerns.
Hansen’s amendment would create a statewide database of short-term rental owners that assessors would be able to access. Assessors could then notify owners about their possible shift from residential to commercial property tax rates and owners would have the opportunity to appeal that decision, much as how owners can appeal assessed valuations every two years.
“We are trying to make it as easy as possible for the county governments to administer this process,” said Hansen, whose amendment was approved by the committee.
Rep. Lisa Frizell, a Castle Rock Republican and the former Douglas County assessor, voted against advancing the legislation. She proposed an amendment that would have shifted homes to the commercial property tax rate if the properties were rented for 365 days a year, up from the proposed 90 days.
She said the 365-day threshold would assuage the concerns of homeowners who want to rent their property as a way to offset their costs. Sen. Larry Liston, a Colorado Springs Republican, said the 90-day limit would squeeze rentals into particularly busy periods.
“By limiting, we are really interfering with the market and arbitrarily saying we know best and after 90 days you can’t do what you want,” Liston said.
The amendment failed.
Rep. Bob Marshall, a Highlands Ranch Democrat, said he had received more feedback on the short-term rental legislation than when lawmakers debated bills banning assault weapons and regulating wolf reintroduction.
Colorado Sun reporter Jesse Paul contributed to this report