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Proposed Tax Bill Threatens Short-Term Rental Property Market in Colorado

A bill introduced in the Colorado State Senate to change short-term rental properties from a residential tax rate of 7% to a commercial rate of 29% has ignited a firestorm of opposition throughout the state. The bill proposed classifying short-term rental properties defined as properties rented more than 30 days per year on a short-term basis as commercial property rather than residential property for the purposes of property tax assessment. Colorado property owners who lease short-term rental units on sites like Airbnb and VRBO would see a significant spike in their taxes under the proposed legislation.

State Senator Bob Gardner, R-Colorado Springs, the bill’s sponsor, said he wanted to address what he believed to be an inequity in the property tax assessment system after his County Assessor brought the issue to him. He believed the only way to do that was by introducing a bill that would treat short-term rentals as non-residential properties, meaning they could be subject to a 29% commercial tax rate.

I think it’s grossly unfair, as an economic matter, to assess and tax a bed and breakfast at a commercial rate while short-term rentals – maybe three or four of them in a row, not a block away – are being taxed at a residential rate, said Gardner. Gardner acknowledged his bill, SB20-109, might not be the right answer. Maybe what we need to do is lower the assessment rate on beds and breakfasts. Maybe we need to lower the assessment rate on hotels and motels of a particular size, that would be as good of a solution or better, to me, than taking all short-term rentals and calling them commercial, said Gardner.

County Commissioners from mountain communities where vacation rentals are popular testified in support of and in opposition to SB20-109. Several short-term rental hosts testified against the bill, sharing what their tax burden would be under SB20-109 and pointing out that short-term rentals are not as profitable as they are often portrayed.

SB20-109, Short Term Rentals Property Tax, was postponed indefinitely in the Senate Finance Committee this week at the request of the bill’s sponsor. In his closing comments at the Finance Committee hearing Senator Bob Gardner called for stakeholders to engage and work toward compromise on this issue. While SB20-109 isn’t moving forward, conversations over this issue are sure to continue.

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Rocky Mountain Commercial Brokers

Rocky Mountain Commercial Brokers is a group of independent professionals who specialize in the sale and lease of office, retail, healthcare, industrial, investment properties, land and ranches in the Rocky Mountain region. Our commercial real estate broker members have met high standards and recognition in their field and have years of experience with all aspects of commercial real estate.