Colorado Legislative Tax Force Meeting Notes 10-28-2021

October 29, 2021

The task force of the Legislative Oversight Committee Concerning Tax Policy met today to hear public comment on Short Term Rental tax issues. This is a non-legislative committee that advises the legislative committee. Senator Hansen was the only Committee member present and made remarks during the opening comments portion of the meeting. There were no decisions made or comments on strategies moving forward, the committee heard and commented on public testimony. Notes below.

Task Force Concerning Tax Policy | October 28, 2021

Short Term Rentals Public Testimony Hearing

Comments from the Task Force

Chair Sobanet comments on the process of public testimony and shares that their charge is from the legislative committee on Tax Policy. They will not be supporting or opposing any policy but giving tax policy considerations. He notes that yesterday they didn’t vote on the STR bill but that doesn’t disallow us to continue to take this topic up or for the legislature to move forward with legislations. He welcomes Senator Hansen who is present today. They will allow questions of the testifiers.

Sen. Hansen comments on yesterday’s committee hearing and he’s glad to be able to attend the meeting today. He’s done a lot of stakeholder meetings on this topic; I think there is still significant interest in the topic among the committee and across the legislature even though the bill yesterday didn’t move forward. We are very interested in your thoughts and research. There are local issues, lodging and sales tax and however the state issue is property tax, school funding, and general fund impact. The other thing is the shift in the early 90s of the local share to state share for school funding, this is moving in the wrong direction in my opinion. The STR issue is a part of that in my opinion. I want to get a handle on this for the general fund as a member of the JBC this is a focus of mine.

Commissioner Eisner comments that the testimony wasn’t accurate yesterday. One of the big things he’s worried about is that they have many STRs in their county and the impact on emergency services. South Park ambulances 60-70% come from STRs. 10% of the housing is STR but when they take up 60% of the special district, same percentage with the Sherriff, that is a lot. We need to come up with some way to address the problem. When you get into the school districts, we have one that does a good job of paying their funds themselves and then one where 20% comes from the local district, this would be an additional source of income for the state to support backfill. We do have a big impact from STRs. We need to get the assessors to be marginally happy with it, that will be tough. He really appreciates what you’re doing.

Professor Zax shares that this is a really serious concern however he asks if the problem really needs a state response or if the county can handle it. Commissioner responds that there are things the county can do, we can now license them. Before that we couldn’t control them in any manner. Sen. Hansen comments on the parity issue, a bed and breakfast will pay a much different differential even if it’s sitting next to an STR. That is gaming the system, this is a tax parity issue. Mr. Ellington comments that he’s glad the caveat was made on this parity issue. Someone comments on the commissioner’s challenge and suggests an auction that the people who want them the most and then the county gets the funding from it. Commissioner Eisner comments that this would benefit only corporations rather than the local folks who use it as a way to subsidize their time. Someone else comments on the issue of housing supply in certain mountain communities, the administrative burden can be high with licensing and assessment. There will be a parity issue in communities that don’t choose to license them and those that don’t. I think the regulatory tools at the local level are important, but it won’t get to the question of parity. Time shares are really the big impact because they don’t pay their fair share either and are all owned by international hotel businesses.

Mr. Ellington comments that he wishes they would change the state lodging tax requirement for tourism advertising, but he wants to use them for anything else. He thinks this is a heavy lift because of the influence the lodging industry has. He hopes that we are able to support K12 schools in the way we need to. Ms. Criswell comments on the share of the lodging tax by home rule municipalities so they don’t have the same constraints. I like the idea of regulators fees but the general approach to offset burden is difficult to repurpose for general fund.

Someone asks about the challenge of the assessors and understanding the number of nights, how do we get that data sharing. Sen Hansen says he’s talked to different platforms who connect renters with properties, and they already have an aggregated anonymized data precedent from other local cities to share with local and state governments. You could put into statute that any platform has to provide, by property tax record, the number of nights per year that each property is rented. This is implementable and they are already doing it and would be more than willing to do this here too. I don’t see a problem with us putting that data access into the statute. Don’t get too tripped up on this. Commissioner Kury asks if that would require a legislative fix? Sen. Hansen says it would make sense to require that data, many of the platforms are willing to give that data right now but it’s his preference to make it crystal clear in statute.

Public Testimony

Ms. Elizabeth Peetz, 29,000 Realtors from across the state

We want to focus on the middle ground approach. We’d like this bright group of minds to give more thought to this easier way to administer. We’d like tiers based on property usage. We think institutional investors a much different than a mom and pop or small operator. This is the tax parity issue because it treats institutional investors differently than the one family owning a second home to support their income. Many diverse communities use this as a way to build and pass down generational wealth. She requests that this committee dig into the property tax system, is the current system still meeting your needs? There was a bill last session that would allow local governemtns to fund services, we need to think through what the right way is to approach property tax system. In the mountain communities, we need to think through what the product we need to buold is.

  1. Transparency for local governments
  2. Data matches (would that be a statewide subpoena? The platforms don’t do this on a statewide level anywhere, what’s the cost of this and the data security concerns for the state?)
  3. This doesn’t immediately convert into long term affordable rentals
  4. Potential litigation of property owners
  5. Financing and lenders won’t finance these because their regulated under Fannie May etc
  6. If we are transferring property for tax rate one year and it changes, the lag will charge the new owner for an assessment that is on prior use

Commissioner Eisner comments on the corporate run rentals vs the mom-and-pop rentals. The property managers actually fix the problems with the STRs its immediately, the mom-and-pop owners can’t address the issues immediately. That doesn’t seem fair or stand up to me because of the issues that arise. I’m not sure taxing STRs at a higher rate would add any affordable housing but it would help us offset the cost of them. Ms. Peetz comments that out of state ownership has many different issues, including boots on the ground, let’s talk about that offline. I want to make sure the ways we incentivize property owners to rent to local civil servants helps keep people in our communities. Summit County is doing this and I think that is a great way to be moving.

Commissioner Kury asks if the Realtors supported exempting primary residences. She shares that we shared our feedback with Sen. Hansen and would take a different approach than the Senator took in his initial bill. Professor Zax says that the conversation thinks this makes him more interested in the data sharing portion that Sen. Hansen brought up. He’d like to know if this industry is mainly owner operated or by larger corporate investors or corporations. Commissioner Eisner said the assessor’s office could pull that information for us, they added licensing so that is how they are moving forward. As we refine this data we will be going after the corporations. Someone else chimes in that the real issue is if this is a commercial enterprise, even if they rent it for Christmas and Thanksgiving, that is a commercial decision.

Mr. Meyers said a lot of folks will utilize different entities to own a home for a variety of reasons lessening the different liabilities. He doesn’t think the distinction of personal ownership v. corporate ownership answers the question. There could be an LLC for one house that is just to limit liability. Mr. Meyers just received this last week but the town of Frisco did a survey of their STR owners and 72% of STRs responded and to the question of whether these are mom and pop shops, at least in the town of Frisco, 90%+ split their time in the property itself throughout the year. He isn’t sure how many of them are really corporate entities that are tourism v. mom and pops. It will be difficult to determine that based on the ownership of the property but perhaps a similar structure that Frisco took in surveying these folks could be helpful.

Ms. Peetz said we agree that we don’t want to create something that creates a loophole. We want to get at something that is a commercial loophole which is why we are looking at this type of approach. Those “tels” have other opportunities for commercial activity with their amenities and restaurants. Someone asks if Ms. Peetz would share her preferred proposal with staff so the committee can see it. Someone chimes in that he’s not sure bifurcating the property ownership tax is constitutional.

Mayor PT Wood, Salida

Mayor Wood wants to comment on the negative impacts. If we regulate these as commercial businesses we can control what their up to and how it’s impacting our community. They aren’t taxed as mom-and-pop businesses, the hotels in our town are mom-and-pop owned and they pay commercial taxes. I own a distillery and pay commercial tax. We use these taxes to pay for our schools and town services. Our housing stock is being eaten up by STRs which we’ve seen less and less families moving here as a result which lowers the student count in our schools and therefore lowers the state backfill. Someone asks about the number of day threshold that they chose; this is easier to track for us as a statutory city so it’s harder for us to track taxes.

Professor Zax shares that he thinks property taxes are a really awkward way to capture this, as it is a two-year assessment cycle and so ridged. I think addressing the revenue that is generated seems like a tax on that is much more flexible. The Vice Chair comments that property taxes are awkward and something we need to tackle. Is it possible to know the number of properties owned by a specific entity or individual? Mayor Wood comments that I think that would be challenging he uses the three buildings owned by their distillery and that they aren’t all in the same LLC name.

Commissioner Pogue, Summit County

Comm. Pogue gives her sincere thanks to Sen. Hansen, as Summit is ground zero for STRs. 1 out of every 3 properties in Summit County are STRs, there are over 10,000 STRs within the towns and unincorporated Summit. Some have estimated that this industry brings $80M in our community, many workers, etc. We are an STR community, It does bring a burden to our infrastructure though. I want to highlight the impact on water and sewer, law enforcement, and we simply don’t have the tools we need to mitigate these impacts. We definitely see an impact on workforce housing. We are trying to put together a thoughtful licensing approach. We will do this on types of properties, primary residence has a much different impact that those that rent 365 days a year. We don’t have the tools to mitigate this financial impact. Someone testified today that we don’t have apartment buildings, we do actually but they’re tremendously expensive to build. We are grateful for the mill levy for affordable housing, but we can’t keep up with the impacts that STRs are having on our affordable housing. If there is one thing, I’ve learned over the last ten months of trying to thoughtfully regulate is to enhance the positive impacts and reduce the negative impacts it is just how complex this issue really is. She urges the task force and the legislature to take an extremely thoughtful approach.

Commissioner Kury asks about data, what data are you looking at and how can we access it? Pogue responds that as a county to implement licensing you have to have software; I encourage you not to look solely at the platform data but through the regulatory platforms as well. That is where you’ll get the deepest body of data. We look at who owns, primary residence or not. She says the impact is based on the number of nights, not who owns it. Look at the differences between resort communities rather than residential neighborhoods. Surveyed STR license owners around revenue generation – a 3bed in Keystone generates a ton of revenue vs the same in Wildernest. A lot of this data can be shared.

Mr. Sherr

In our communities we have nuisance and safety concerns. We have diminishing community and neighborhood characteristics, that can’t be valued. The increased cost on local government and the driving increase of housing markets coupled with the diminishing housing stock. This means no available housing in mountain communities and therefore no labor force.  

Ms. Dana Lubner, STR Property Manager

Colorado resident and STR property manager. This conversation is about the regulation of STRs but we need to be discussing how we want to tax them. She is deeply concerned about this STR bill changing from residential to commercial tax rates, all taxes are not passed through to all guests, a commercial tax wouldn’t allocate funds to go through to enforcement. This should be covered in permitting and licensing fees. This would severely impact our livelihood and small business as well as the small businesses like cleaning companies, lawn care, etc that would have trickle down affects in the economy. It would decrease STRs across the state which is counter to the state’s tourism preferences. We’ll see tourism leave Colorado. This bill would impact local deed restrictions and we would like a more thoughtful conversation. We need to look to zoning and land use, imposing a tax is short sighted.

Commissioner Kury comments on strict zoning laws, we still have 1,700 STRs. Are you managing on behalf of yourself or others and are they primary residences? All in Denver are primary residences of course, and the majority are second homeowners. Commissioner Kury asks if she thinks locals should be subsidizing the second homeowners. Ms. Lubner comments that she doesn’t know what the question is getting at, but that property manager bring a level of professionalism, employ a lot of locals and contribute to the economy. Someone asks about the difference between hotel and motels. Ms. Lubner comments that consumer decisions have changed, and people want to stay in single family homes. Commissioner Eisner comments on the cost to the fire district, we need to get back to addressing the real issue of the impact and the tax policy recommendations.

Sara Bradford, Steamboat and Winter Park Lodging

We have 50 employees, and she shares her national and local advocacy for short term rentals. We often feel like a small voice at the state level. She did an analysis of the properties she’s managed and the assessed value, based on the analysis they would stop renting, sell their property, or choose not to use property managers. They would pressure us to reduce commission rates and we already run on really small margins. Commissioner Kury asks about the property tax side, there are only a handful of special districts that have sales tax authority, there are unique instances where we can drive sales or excise taxes but those don’t touch on the school district impact. Ms. Bradford responds that emergency services haven’t really come up, they’re just now trying to track the data to know if STRs are having an impact. I think we can tax STRs in our community, if the community votes on that then they can use it however they want. I have done this for 15 years and I’ve never had anyone call emergency services, this isn’t something that happens that often. She doesn’t’ know the answer for the schools, this has never come up in any city council or county discussions. Comm. Eisner says that we need to keep this on the fact based issue, I am the one who said that 60% of his emergency services can

Summit county rental property manager (missed her name)

All 60 rentals they manager are second homes, and the owners use them frequently and put them into the STR market. They are able to subsidize the dream they are fulfilling. I don’t know which percentage would go in either direction, but some people will stop renting and some people will sell their properties. These are serving a vital purpose in our community. If this large increase goes through, you’ll see a lot of dark homes. Increases in licensing are because of the threat of the moratorium not necessarily an increase in nights used. It would make a lot of sense for the counties to levy a sales, excise, etc tax for schools and affordable housing rather than a blanket statewide commercial tax rate.

Comm. Kury comments on parity, if we are using commercial for commercial use for the portion of the year that you used it that is an analysis that can be modeled by the rental managers.

Carlton Willy, Corporate Council at Evolve

He begins by sharing that Evolve employs 700 employees and run a tech company that allow owners to maintain their own vacation rentals. They are a Colorado based company, he comments on their ability to process tax remittance and support nuisance management to support this industry. We want to work with you, we are contributing 1% of all profits to local affordable housing. We are a real supporter of our Colorado community, and we want to continue to be able to support our owners, we look at the data and they use their properties regularly. They are individuals that have homes in areas they like to frequently visit, this commercial tax change is really significant, and those homes would likely go dark. We support local tax remittance when local ordinances change local tax structure.

Ms. Sinclair, Denver STR Owner

Shares that she is a STR owner, it’s part of her primary residence. She’s paid her fair share into the taxes, her kids have gone to school here etc. She has never had the emergency services called on her – is this statistic in the whole state or just in your local community? We need these facts. I believe in the tiers of all of this, I am a single owner, I don’t make enough money to really be able to be taxed. The STR situation started for the mom and pop, I don’t know that it was meant to be taken over by another hotel industry. When you make laws, the two different entities need to be considered. Would you really consider me a commercial business, I make under $25,000 a year. I am saving that for my retirement, this is a room in my home.

Ms. Danielle Anderson

She is here to speak to the committee as an individual. She’s a Denver resident with a property in Summit County, she’s currently on vacation and renting them both out. This option is exacerbated right now because of work from home policies. I am calling on behalf of my mom who also has a short-term rental in Bel Mar Colorado that used to sit empty. She comments on the expense of her home in Frisco, I didn’t buy this property as a money maker, I bought it to have an awesome opportunity to live and spend time with my family in Frisco, I rent it out to break even when I don’t use it. This could force people to sell those properties. We need to focus on the actual data.

Mr. Mark Waldman

We are the largest locally owned Breckenridge property management company. I want to comment that unincorporated or other areas cannot issue taxes or other options that municipalities have. I advocate for changing that. His remarks are to the Hansen bill specifically, I view this slightly differently with my formal background in economics and mathematics. If this bill were to pass, I would take my case to the courts to implement the bill just to the intent, requiring them to value my property as a business or commercial site, then applying my commercial tax rate to the newly appointed commercial tax value. Every property would then need to have two property valuations under the bill. That would create administrative chaos. STRs are significant net under performers for the value of the residential property, the commercial value would be 1/3 or ½ of the residential. The commercial tax then would be minimal. Keep in mind that there will be additional loss in sales tax revenue in many of these STRs simply going dark. I’d ask this committee to do a true analysis of the impact on the wholistic tax landscape and administrative burden.

Tax Force member comments that commercial and residential property aren’t valued differently, they are just subject to a different assessment ratio, which essentially subsidizes residential usage. It would change the value based on use type. The market value is whatever the market value is. The obvious answer is that there should be a single tax rate but that wouldn’t happen because residential use is preferred in nearly every state. Mr. Waldman comments that the market values them differently at an appraiser’s price in either category. If we are changing the tax law, then the assessor would reevaluate under the new use model. These are done on a threefold manner, a rental property wouldn’t be solely commercial, therefore they would use cap rate which is around 1.5-2.5%. He believes the courts would rule that if you were using it to tax at the commercial rate then it would have to have a commercial valuation done.

Mr. Amirehsani asks about the economics of transition from short term to long term rentals. Why is the assumption that sales tax would be decreased? Mr. Waldman says that for every lodging 1 dollar spent on lodging, $3 are spent in the local economy. The second part of your question about long-term rental conversion is unrealistic. Ten years ago, when someone was buying a second home, they could fully pay for it. Now there is augmentation incentive and not people not wanting it to be sitting empty. There is an increase in demand for second home markets. An $800k 2 bedroom or $500k 2 bedroom won’t go back to the long-term rental market, the owners want to own these for their own use. If they sell them, that’s not going to solve the affordable housing problem at those market prices.

Comm. Kury appreciated the analytical approach, and she asks if there is case law he can reference. He responds that he doesn’t know the case law. I use my own knowledge and my engagement with my attorneys every day. As a private homeowner I would submit this question to the courts. Ms. Criswell asks about the clear instances where we know what the direct impact of the larger trends are. The committee yesterday commented on the large conversation of the hotel to short term rentals and had a direct impact on the school district over $1M. The local governments are stuck on their side of things for solutions. Mr. Waldman comments that the macro change in tax policy would have a distinctly different impact across the state in different communities. He comments that there are different options to take, like giving local communities greater ability to solve those particular problems, let’s write legislation to support that rather than writing this larger macro policy. Mr. Ellington asks about the $1 to $3 study and where they can find it, does it take into account cannibalization of one industry vs another, is there differences in the STR vs hotels for example. Mr. Waldman will follow-up and send it.

Ms. Moriarty, Denver STR owner

I short term rent to offset costs of owning a home built in 1890. I ask that they exempt primary residences. When you are looking at the number of nights, I think you should consider the $85 a night place vs the $400 mountain rental. If you make my taxes more complicated, I will take this off the market and remove a cheap option for the students who stay here to interview with the large employer I am two blocks from.

Mr. Morris, Georgetown STR Owner

Last year we rented 141 nights, my brother and I stayed there for 80 nights, and the property was vacant for 144 nights. We bought this place for our love for skiing. We couldn’t afford to buy in Summit, this helps defray the costs I am not making any money. We pay $830 licensing fee. We pay 11.9% in county lodging, sales tax in county and local, we use Vrbo and they submit all our taxes. This isn’t a business for us, if we ever come out on top we put that into maintenance. If this becomes too much, we’d maybe do a longer-term lease but we’d keep it empty during ski season so we can use it. People rent bikes, eat out in town, it’s a desirable place to come. This is hardly a business; we don’t make $40,000 a year on this by any means. He makes one more comment that in the small town, he knows the chief of police and he’s never heard anything about emergency services being called. He said the only time he’s ever seen the policy was long term renters who live there year-round who threw a party, again this is anecdotal. As far as on the schools, our kids are long gone and grown, but our property tax is still being paid, I don’t mind supporting the schools, but I don’t know why I would be considered a commercial entity.

Comm. Eisner comments on the rural communities, we have problems with STRs in the counties not the towns. I will have them supply this evidence. When you get down to schools, the idea is that the state is covering more and more, and Sen. Hansen hopes that this will help bring the local share back up.

Mr. Fixture, STR Owner

We won’t be able to sustain a tax increase this large. My wife already spends a hour a day filing our taxes as is.

Mr. Pardo, Airbnb host in Denver

He’s shares that he is a property manager and a member of Denver’s STRAC, helping found Mile High Host group. If you are 122 nights occupied by guests you will see your property tax bill double. If you have a $1M home and your annual tax bill was $5,000 a year. Make them contribute equitably to local tax bases. The one thing I wanted to bring up is many people have ADUs. To me it is still totally your primary residence there needs to be some way to write this in the bill. It is a manageable amount. We are talking about $10 a day. The average day rate is $150 a night. He thinks this is good as long as there are things written in so if people are using part of their home, allowing people to rent up to 30 days, that makes a lot of sense. He really likes what he read, and he thinks it makes a lot of sense and it really isn’t that burdensome. We can manage this because based on nights it isn’t a blanket increase in taxes. This is good as long as something is written in to accommodate those who are small.

Commissioner Kury asked why he has a sense of urgency to move this forward? He thinks it is long overdue. He is now working in the hotel industry. The hotel industry has its own niche. People who are traveling are coming, spending money on lodging, and this is something you can combine in your monthly rate. Everyone running an Airbnb has to pay our tax.

Mr. Austin, Realtor & STR Owner in Durango

He is the owner and operator of a multi-unit property, one unit of which is a vacation rental. He is also a realtor in Durango, CO, which is a tourist-based economy with lots of vacation activity. He voices his concern that short-term rentals are being targeted as operating as commercial businesses. He adds that income producing is the primary phrase used for defining a commercial business, which begs the question of why short-term rentals are part of this discussion, when long-term rentals exist solely for producing income. In terms of equity, he feels that there seems to be a stigma around short-term rentals being for secondary homeowners. He has been a resident of Durango for 20 plus years, and he can afford his property because of the ability to rent it out on a short-term basis. These additional taxes would make his margins much more challenging.

He mentions that he has many friends in the same businesses whose short-term rentals help supplement their incomes. Additional taxes will significantly harm them. He wants the committee to consider other ways to approach this, not just a blanket state-wide policy. He believes that the committee should look at giving municipalities more flexibility in how they can generate revenue from other streams. Short-term rentals have to pay taxes, and most people don’t make a large amount of money off of them regardless. Overall, Mr. Austin thinks the bill could be approached in a different way, by looking at other solutions that aren’t going to harm Coloradans and property owners as a whole.

Ms. Zimmerman, STR Owner in Denver

She is a long-time Colorado resident, currently a short-term rental owner living in Denver, CO primarily. She rents out half of her residency in Denver. She has a 13-year-old daughter, so she understands the need for additional school and teacher funding. She has an additional second home in Glenwood Springs, CO that she is using as a short-term rental when she cannot be there. She also adds that she works in the software industry, so she can contribute to the data conversation. She now works fully remote as a result of the pandemic. She is curious if there has been discussion on arbitrage, with the concept of subletting in Colorado. Subletting is a sizable segment of the short-term rental community which she believes should be considered in the bill. Subletting exists in Denver, in mountain towns, et cetera.  

Ms. Zimmerman also brings up the recreational marijuana industry, and the potential impact based on limiting short-term rentals. In Denver, there is a significant segment of people who use short-term rentals because they can use marijuana unlike in hotels. She adds that being a small entity, it is hard to hear the conversation around the committee not seeing a significant difference occurring. She greatly encourages the committee to understand what is going on in many different places, rather than just taking a blanket state-wide approach. She has no problem paying taxes, but she encourages the committee to think through different solutions especially around the 2-year evaluation, which could limit interest when she tries to sell her home.

Commissioner George Marlin, Counties and Commissioners Acting Together (CCAT)

He is the County Commissioner for Clear Creek County, speaking on behalf of Counties and Commissioners Acting Together (CCAT). He worries about long-term demand in tourism counties due to short-term rentals. In Winter Park, for example, they are willing to pay operators to convert homes into long-term rentals. They do this through an increase in sales tax so that businesses can reopen to normal hours and begin to function again. He feels that short-term rentals hurt communities and businesses that are already struggling with a labor shortage. He agrees with the assessors, arguing that we can construct a bill that addresses the issues with short-term rentals. He adds that just because a short-term rental is a home-based business does not change the taxes it must pay as a business. He makes it very clear that short-term rentals are just like hotels.  

Commissioner Hilary Cooper, San Miguel County  

She is the County Commissioner for San Miguel County, and she is also the co-chair of CCAT. She mentions the struggle with dealing with two divisive short-term rental ballot measures this year. She believes that leaving regulations on short-term rentals up to local governments is bad for industry, government, users, and communities. We need a state-wide approach to this regulation. The short-term rental industry has gone unregulated for too long and needs to be regulated like the lodging industry. She adds that short-term rentals are not the cause of the affordable housing shortage. We need an “all of the above” approach to affordable housing, which includes regulating short-term rentals. She encourages the committee to move forward with the state-wide approach, adding that we need consistency in the taxing of businesses, regardless of whether they are home-based or not.  

Chairman Sobanet adjourns the meeting.