The residential tax rate for 2023 in Colorado is 6.76%. The commercial tax rate for 2023 in Colorado is 27.9%. A draft Colorado bill to increase property tax rates on short term rentals will convert those properties that are short term rentals from the residential rate to the commercial rate. That’s a huge tax increase! This isn’t the first time. There have been bills circulating in the past but so far, none have made it all the way through.
Bill #6 draft
In a bill draft, currently known as Bill #6, that has been approved to be presented in the 2024 legislative session, it would change the property tax calculations on short term rental properties. The Colorado bill says if an owner short term rents, which is defined as less than 30 days at a time, for more than 90 nights a year, that property will change classification to lodging and is subject to the commercial lodging tax rate. If an owner short term rents for 90 days or less, it is still residential. Homeowners will be required to fill out an affidavit every January to report their rental nights. That affidavit would determine the tax rate. If passed, the Colorado bill to increase property tax rates would start in 2026. This bill does not apply to someone’s primary residence. A primary residence, even if it has short term rentals, will continue to pay the residential property tax rate.
There was a lot of public comment against the bill when it was discussed in an October 31st session. More about that is available in an article in the Colorado Sun
How the numbers shake out
Here’s the rough math to show the difference in property taxes for residential vs lodging on a condo valued at $950,000 in a Keystone neighborhood by the county assessor. At residential rates, the assessed value is $64,220. Multiply that by the mill levy of .057138 and the tax bill is $3669.40. If that property is rented short term for more than 90 nights a year the assessed value goes up to $265,050. Multiply that by the same mill levy and the new tax bill is $15,144.43. That’s an annual increase of more than $11,475. This Keystone condo is projected to rent 146 nights a year. It averages $287/night. Those extra 56 nights will make you about $16k additional but you are paying out an additional $11k in taxes. In addition to that, you are paying your rental company a percentage of that $16k too. If the rental company gets 30%, they are taking about $4800 of that $5k gain. This Colorado bill to increase property taxes on short term rentals makes it not worth it for most owners to rent more than 90 nights a year. Of course, these rental numbers are just estimates. If you decide to rent over 90 nights, you need to rent substantially more than 90 nights or you will be losing money with the increased tax bill.
If the majority of homeowners decide to rent for 90 nights or less, what will that do to the supply of rentals available for tourists? If rentals are in short supply, nightly rates could go up. There will be fewer properties to rent off season unless it is for more than 30 days. 30+ day rentals do not count toward the cap. If the rates go up, would our ski tourists opt to go to other states to ski? Their Epic or Ikon Passes will work at resorts in Utah. Maybe they will go there rather than paying high, Colorado, rental rates. More front range travelers will be driving up for a day trip rather than spending a couple of days. Imagine how that will impact I-70 traffic! Beyond the consequences this bill will have on homeowners, long term impacts on our resort communities need to be taken into consideration.
What is the ultimate goal of this Colorado bill to increase property tax rates on short term rentals? Are they just trying to increase tax revenue? Is their plan to reduce demand for Colorado property and in turn make it more affordable? What is the government trying to accomplish by proposing such a drastic increase in property taxes for so many people?
Read the bill
Voice your opinion
If you are a second home owner that rents, the Speaker of the House, Julie McCluskie would like you to take a quick poll. If you do not short term rent but have comments you would like to express, you can email Julie McCluskie directly, Julie.Mccluskie.firstname.lastname@example.org, or leave them below. We will be sending any comments we get to her.
There are now TWO surveys to help people share their thoughts.
Please fill out this survey if you own a short-term rental: https://forms.gle/
Please fill out this survey if you DO NOT own a short-term rental: https://forms.gle/MaTBJSrxPwcAn5s79
This is just a draft and won’t have discussions on the house floor until 2024. At that time it will be given an official bill number. I expect to see some amendments to the current bill during the discussions. We will be keeping an eye on this as it moves through the process.