Colorado state set to raise property tax rates for short-term rentals

United States: A proposed bill in Colorado which would make owners pay commercial property tax rates for every short-term rental is awaiting approval from the Alternatives to the Gallagher Amendment Interim Study Committee.

Fire stations, libraries and other public services in rural areas may be facing steep budget cuts but one group is looking to short-term rentals such as Airbnbs for a potential solution to the issue.

Beverly Breakstone, an assessor in Summit County, Colorado, said: “We have people who don’t live in the area who own 10 or 15 condos. We’re thinking from the fairness point of view.”

Assessment rates account for the portion of the short-term rental property’s value that can be taxed. These are set by a state constitutional amendment called Gallagher and the tax change could lead to an increase in the 7.2 per cent of value taxed for residential properties and 29 per cent in commercial properties.

If the owner lives in part of the house, it would be taxed like a bed and breakfast, where the private parts of the home are assessed at the residential property tax rate. However, if the owner lives elsewhere, the whole house would be taxed as a commercial property.

Implementing the change would produce more commercial properties in the state, which could potentially reverse the worrying trend of falling property taxes across rural Colorado.

In Summit County, where about one in five homes is used as short-term rental accommodation, this could increase the amount of assessed value in the county by 63 per cent.

In the meantime, a constitutional trigger is expected to cut residential property taxes in rural counties by 15 per cent next year.

The amendment states Colorado homeowners are not required to pay more than 45 per cent of the state’s total property tax bill, whatever their house value.

When that amendment was passed, counties taxed homeowners on 21 per cent of their home’s assessed value. That led home prices to rise sharply on the Front Range, and the state continually lowered the rate paid by homeowners.

Rural communities across Colorado have seen the money they pay for firefighters, police and even the county clerk’s office be whittled down as the assessment rate dropped every two years. That has resulted in a series of cost-cutting measures in smaller counties like Las Animas, which has reduced employees’ working weeks by two days.

Ouray County Commissioner, Ben Tisdel, said: “How to address the Gallagher problem is the most serious problem we have to address after the drought we’re experiencing in western Colorado and the wildfires.”

The short-term rental draft bill proposed by Gallagher is among those under review by the interim committee. One bill would repeal Gallagher altogether and another would divide the state into regions to stop home prices in Denver lowering assessment rates further.

Those two proposals are assessors Breakstone’s and Lamb’s preferred solutions as alternatives to Gallagher’s as they would be straightforward to implement.

Breakstone is concerned about how to police the taxes of owners who occupy their property for part of the year or part of their property all year.

She sees the short-term rental question as a big tax raise which would fail to solve the overall problem.

If any bills is voted out of the interim committee on 3 October, they would likely be legislative referrals that would then go to the people to be voted on. Even the short-term rental bill could require the state to ask voters whether counties could keep the extra money.

Interim committee chair, Rep. Daneya Esgar, believes Gallagher could be repealed if rural communities speak out but will wait to see whether the bill is changed at the next committee meeting before deciding whether or not to support it.

Esgar said: “You have some homes where people are never living in it. Where it gets wonky and tricky is how you divide up the homes people live in without being unfair.”