A proposed property tax hike on Colorado short-term rental owners would only kick in for people with three or more homes under new legislation proposed as a gentler alternative to a further-reaching measure also being debated at the state Capitol this year.
State Rep. Shannon Bird, a Democrat from Westminster, hopes her House Bill 1299 will work as a compromise to slow the growth of short-term rentals that is pinching the housing supply, especially for local workers.
Her legislation would impose the state’s much higher commercial property tax rate on properties offered as short-term rentals when they belong to a person or business that owns at least two other homes.
Colorado’s residential property tax assessment rate in 2023 was 6.7%, compared with 27.9% for commercial properties. Under Bird’s bill, people would still be charged the residential property tax assessment rate on their first and second homes, even if they are rented out as short-term rentals.
The plan arrives as lawmakers are simultaneously considering Senate Bill 33, which proposes taxing short-term rentals properties at the commercial rate if they are rented to vacationers for more than 90 days a year — regardless of whether they are someone’s primary or secondary home.
The Senate Finance Committee was scheduled to hear Senate Bill 33 on Tuesday, but the hearing was postponed as groups lined up to oppose the legislation. Sen. Chris Hansen, a Denver Democrat, last month said he planned to amend Senate Bill 33 to focus the measure on large hotels that are converted from commercial to residential properties, reducing local tax revenue. He has blamed the delay on his work to change the bill.
Senate Bill 33 would generate an estimated $50 million to $80 million in new property taxes each year for schools, and more than $100 million annually for local governments. A fiscal analysis for the new proposal is forthcoming.
Bird argues her measure, which hasn’t been scheduled for its first hearing yet, is simpler.
“Conceptually, this legislation makes more sense to a lot of people and it is less complicated than the alternative,” Bird said.
That’s not how everyone views it.
House Bill 1299 would ask as many as 50,000 Colorado property owners to file signed affidavits every November with county assessors, said CJ Willey with the Colorado Lodging and Resort Alliance. Lying on an affidavit would amount to second-degree perjury under the measure, a Class 2 misdemeanor punishable by up to 120 days in jail.
The alliance also is fighting Senate Bill 33.
Constitutional problems identified
Hansen sees House Bill 1299 as problematic — and potentially unconstitutional — for a variety of reasons.
For starters, it doesn’t clarify whether someone must own multiple properties in Colorado to trigger the higher tax rate, or whether they can own two homes in, say, Texas and a third in Colorado and skirt the higher taxes. He also worries there aren’t protections in the bill against people who live in the same household claiming that they each own multiple properties as a way to avoid paying higher property taxes.
Hansen said there may be ways to meld his measure with House Bill 1229.
“Unfortunately, the proponents of 1299 have basically decided to go their own direction,” he said. “And that’s fine. That’s their prerogative. But they have not been engaged in the discussion around the short-term rental (property taxes), which has been going on for two years.”
It’s unclear whether House Bill 1299 has enough support at the Capitol to advance. Bird is joined by only Democratic Sen. Kyle Mullica of Thornton on the measure, which has no cosponsors.
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Senate Bill 33, by comparison, came out of the Legislative Oversight Committee Concerning Tax Policy, an interim panel that has been working on the proposal for months.
The Colorado Assessors’ Association is watching the new legislation and Senate Bill 33. The association has not taken a formal position on either bill, but is in contact with Bird, the group’s executive director, Corbin Sakdol, said.
Excluding first and second homes from commercial tax rates “would limit some of the intensive work required by assessors,” Sakdol said. Bird’s bill also allows a change from commercial to residential when a short-term rental property is sold to a buyer who will use the home as a primary residence. Rules allowing the change in status of homes when they sell “has been a concern of the assessors,” Sakdol said.
Eagle County Assessor Mark Chapin, who serves on the state assessors association board, said the new legislation will present “some difficulty in administration and enforcement of the affidavits, particularly in the mountain resort counties.”
Mountain communities have seen large increases in short-term rentals properties in the past decade, which has pinched the supply of housing for local workers.
Advocates for taxing short-term rentals at the same rate as hotels include Gov. Jared Polis. They see it as a way to generate more money for schools and local districts, which are funded by property taxes. Some high-country hotels around ski resorts have converted into privately-owned facilities offering short-term rentals to vacationers, which proponents contend has reduced property tax revenues that support schools, fire districts and libraries.
At the same time, most Colorado communities are generating tax revenue from short-term rentals to help pay for affordable housing.
Bird said she is working with county assessors and treasurers and “we are in a collaborative space. I have not heard concerns expressed from them.”
“We want this to be something that can be administered. That is crucial,” she said. “Property owners are more of a mixed bag. I think they are in a more wait-and-see posture.”
Many mountain towns are already regulating — and taxing — short-term rentals
Willey, who owns a short-term rental in Steamboat Springs, said asking owners to establish how they plan to use their properties for the following year “reduces the flexibility of Colorado homeowners to use their homes as they wish, even if they are fully in compliance with their local laws.”
Opponents to state efforts to rein in short-term rentals point to Colorado communities that have spent several years developing regulations, taxes and fees to limit their impact. The Colorado Association of Ski Towns has tracked short-term licensing and regulation in 27 Colorado mountain communities and Denver. All but two — Eagle County and Routt County — license and tax short-term rentals. (Vacation rentals are not allowed in Routt County. Eagle County is reviewing a draft plan for regulation.)
“Our homeowners are working with their local officials every day to ensure compliance,” Willey said. “We continue to believe these local solutions are preferable, as they are carefully crafted to meet the needs of their communities.”
Chris Romer, the head of the Vail Valley Partnership, which supports a valley-wide tourism industry that depends on short-term rentals, said House Bill 1299 is better than Senate Bill 33, but he still has issues.
The new legislation does not identify how properties owned by trusts or individual LLCs would be classified, he said. The new legislation also could cause problems with how properties would be valued, Romer said.
Opponents of Senate Bill 33 had similar concerns over valuation and appraisals of short-term rentals. Would the rental properties be appraised by market value like residential homes — based on how much similar homes sell for — or like hotels, which are valued in part by how much revenue they generate.
“Long story short, the application of new statewide policies will have a detrimental impact on local communities,” Romer said. “Local towns are able to best manage STRs to meet their individual needs.”
Bird says she is listening to local concerns and hopes to create a policy that can work with existing regulations.
“It’s important to be listening to people. Everything we pass has such impact beyond what we can even imagine and I have great caution in understanding the variability of local communities,” she said. “Not everyone is on the same page about the substance of this legislation or whether the state should even be in this space and that adds extra challenges.”