Colorado lawmakers Thursday dropped bipartisan legislation that would allow local voters to raise their county lodging tax rate to 6% from the existing 2%.
The potential tripling of local lodging taxes — which mountain town voters have recently embraced as a way to fund affordable housing — would also come with an expansion in the types of projects that could be funded with lodging tax revenue.
House Bill 1247 would allow increased lodging tax revenue to fund infrastructure, preserve historical sites, land and wildlife habitat, promote sustainable tourism practices, and employ more police and emergency workers.
Colorado Sen. Dylan Roberts, a Democrat from Frisco, in 2022 sponsored legislation that allowed communities to redirect lodging taxes from just marketing to allow spending on child care, recreational amenities and housing. Short-term rental advocates who have been girding for additional taxes are promising a fight as tourism funding moves beyond housing.
Voters in several mountain communities have approved that shift in tourist-tax spending. Roberts is also sponsoring House Bill 1247, calling it “a modest but important expansion” of not just the revenue but how communities could expand uses for lodging tax dollars.
“There’s a proven track record of communities embracing the use of lodging taxes for crucial needs within their community,” said Roberts, calling the redirection of lodging taxes “a game changer” in places like Eagle, Clear Creek, Grand, La Plata and Summit counties.
The new tax bill was expected by now well-organized groups of short-term rental property owners and advocates who galvanized last year to reject a proposal that would have quadrupled property taxes on short-term rentals. Short-term rental industry advocates have been predicting increased taxes and regulation on homes rented to vacationers as communities grapple with a lack of affordable housing.
The proposal to increase county lodging taxes up to 6% was first floated last year by Colorado Counties Inc. alongside a proposal to tax homes that are left vacant for most of the year. The lodging tax legislation would be for unincorporated portions of counties and could not add taxes to areas where there are existing municipal or district lodging taxes.
The proposal lands as tourism traffic ebbs in Colorado. Last year’s overall visitation is expected to be flat compared with the previous year, marking a softening in the post-pandemic vacation boom. Fickle weather this winter has slowed skier traffic.
Breckenridge, home to the busiest ski area in the country, is down about 2% in lodging nights and 8% in revenue compared with the previous winter. And bookings remain slow for the rest of the year, said Lucy Kay, the head of the Breckenridge Tourism Office.
Combine the slowdown with an increasing movement toward managing tourism more than marketing to tourists and redirecting tourism taxes away from that traditional trumpeting of destinations and Colorado could be on the cusp of shifting away from an economic over reliance on visitors. But could a downturn in tourism revenues prod local voters to better recognize the value of tourism and maybe reject an additional tax for visitors?
“This is the question we are all asking,” Kay said. “Those of us in the hospitality industry are looking at bookings for the next six, eight, 12 months and we are seeing this softening. For a lot of folks who are maybe voting on these issues, they may be less likely to see that until it is happening and revenues are compromised.”
(Breckenridge conducts resident sentiment surveys every two years to take the pulse of locals, second-home owners and employers. Since 2017, those surveys show 80% of Breckenridge locals and homeowners supporting the town’s management of tourism traffic, Kay said.)
Short-term rental advocates were ready for the tax proposal. Julie Koster, the head of the Colorado Lodging and Resort Alliance and the Summit Alliance of Vacation Rental Managers, said owners are staunchly opposed to a vacancy tax.
“We have existing ordinances that restrict occupancy and limit the number of nights an owner can rent and how many reservations we can book. You can’t restrict occupancy and then tax people because their home is empty,” Koster said.
Opposition to a bump in lodging tax to 6% is more nuanced, Koster said. Vacation rental owners and advocacy groups support a 2% tax on nightly rentals to fund workforce and affordable housing. The new legislation would expand the uses of lodging tax revenue beyond housing and Koster said those community-focused investments should be handled with a community-wide tax.
“If we want to generate funding for all these different community needs, maybe we should use a broad sales tax that applies to all the spending in the region, not just visitors,” she said. “Vacation rentals have been taxed and fee’d and regulated nearly to death. It feels like a death by a thousand cuts and I feel like at some point we need to say enough and I think we are nearing that point.”
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The legislation would allow communities to craft their own plan with an increase in overnight taxes to as much as 6% in addition to choosing where that revenue could be spent. Koster said the short-term rental industry would support increased lodging taxes that fund housing, but not other projects.
Because of the Taxpayer’s Bill of Rights, counties could not unilaterally impose a higher lodging tax rate if House Bill 1247 passes. They would need voter approval.
Roberts said the backers of the bill were careful to set the cap at 6%.
“It could have been higher but we wanted to make sure we were not going to have a detrimental effect on tourism,” Roberts said. “In order to provide a good tourism and visitor experience that gets people to want to come back, you have to have the services — like housing, child care, law enforcement, landscape conservation — to support that visitor experience. I think by improving those services we can improve tourism and provide benefits for locals.”
House Bill 1247 hasn’t been scheduled for its first hearing yet. Its other lead sponsors are Democratic Reps. Katie Stewart of Durango and Karen McCormick of Longmont, as well as Republican Sen. Cleave Simpson of Alamosa.