Guest opinion: This short-term rental bill will destroy Colorado tourism and mountain town economies – Summit Daily

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Short-term rentals are allowed at the units on Fourth Street in Silverthorne. A bill proposed by legislators this year seeks to tax short-term rentals at the state’s commercial rate, which is four times higher than the current property tax rate for the properties.
Tripp Fay/Summit Daily News archive

What is the lodging property tax treatment bill? The measure would classify homes that are rented for more than 90 days a year on a short-term basis — defined as less than a month per booking — as commercial lodging properties. The property tax assessment rate for lodging properties is 27.9% compared with the 6.765% rate used this year for residential properties.

A vital part of the economy

Short-term rental properties provide stable careers in Colorado mountain economies. Business owners are petrified by the implications of impending policy change, and we must offer the perspective of the property management industry in Summit County. 

Legislators who will be voting on this bill need to understand that careers are relatively scarce in most mountain towns. These well-paying, salaried jobs offered by short-term rental companies along with the supporting industries are critical. They provide essential stability in anchoring many of the residents and their families, allowing them to earn significantly higher income than typical seasonal jobs with low hourly wages provided by large corporations. This includes not only property managers, but cleaners, hot tub technicians, accountants, handymen and vendors of all trades that maintain a depreciating short-term rental property.

The bottom line is that our communities are predicated on the tourism industry — and for every dollar spent on short-term rental lodging, three more dollars are spent within that same community. This misguided tax increase is absurdly backward and can guarantee devastation at the loss of $1.4 billion, as stated in the study undertaken by economist Arthur B. Laffer, Ph.D., who is a respected author that state officials often use for lodging studies.

If this bill stands as it is written, Colorado mountain economies will have a significant decline.

Why this bill will hurt 

First, the taxation of this Bill will discourage owners from short-term renting their properties. One example is that my company represents a client’s property that’s rented 180 days out of the year and generates approximately $100,000 in revenue and $12,000 in property taxes annually. Under this bill, the same property now owes $48,000 in property taxes if it is rented for more than 90 days. Other expenses include maintenance, management fees, heightened utilities and income tax. Due to expenses nearly exceeding revenue, this owner will be forced to stop renting.

Second, it will not level the playing field between hotels and short-term rentals. The Breckenridge Residence Inn Sold in 2021 for approximately $45 million. Its assessed value was $8.6 million, which equates to $490,000 in property taxes. Commercial property is valued for real estate taxation purposes using three methods: cost, market value and capitalization of income generated by the property. Commercial property is commonly at a lower value for property tax purposes than it could be sold for based on its income generating capacity.

This bill would value vacation rentals based solely on the market approach regardless of income generation. That means if a property is valued at $1 million, its assessed value is $1 million, unlike hotels. Hotel properties can sustain lesser values due to the income approach of valuation while vacation rentals would be forced to stop renting their properties.

Third, rental rates will skyrocket as the supply of available short-term rental housing shrinks from this bill. Rental customers may seek to book their ski vacations out of state in places with more realistic tax structures like Utah, Wyoming, New Mexico, Montana, Idaho and Vermont. They will find value that reflects what they once received in our state of Colorado.

Fourth, there is a severe hotel occupancy shortage in mountain towns. Hotels cannot keep up with the lodging needs of tourists. Resort towns like Keystone, Breckenridge and Copper Mountain rely heavily on short-term rentals to meet this current demand. Restaurants, retail shops and the entire economy would be predicted on how many hotel rooms there are. Without short-term rentals, the lodging industry cannot keep up with tourism demand.

In conclusion, here are some questions that you need to ask yourself after reading about this existential threat to Colorado: 

If this bill were to pass, how much money would be gained for the state? How much money will be lost through lodging tax, sales tax and tourism? How many mountain town jobs will be lost? What incentive would property owners have to continue renting their homes? How would the state acquire their property tax goal, if a large percentage of properties stop renting?

Steven Frumess
Steven Frumess/Courtesy photo

Steven Frumess lives in Dillon and is a partner at Alpine Edge, a property management company that oversees homeowners associations and rentals across Summit County.

This post was originally published on this site

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