As noted yesterday in Part Three — and in other previous editorials here in the Daily Post — the lodging industry in Colorado currently operates on a very uneven playing field, in terms of property taxes.
Here in Archuleta County, for example, a motel or bed & breakfast is considered a commercial property, for tax purposes, and assessed at Colorado’s 29% commercial tax rate. This means that, this past year, a hotel valued at $1 million paid a total of about $16,000 in property taxes, towards the operations of local governments — school district, fire district, water districts, county government, library district, hospital district.
A residential home operating as a commercial STR — Short-Term Rental, vacation rental — is assessed in Colorado as a residential property, and pays a 7% property tax rate. No one can truly explain why a commercial STR is considered to be ‘residential property’. It’s simply how the state government classifies things, currently. So a large commercial vacation rental valued at $1 million will not contribute $16,000 to the operations of our local governments, the way a hotel does. It will contribute only about $4,000 in property tax.
Both businesses provide short-term lodging, and serve basically the same type of customer. But they do not contribute to the needs of the community in the same way.
A uneven playing field.
On Tuesday, November 2, the Pagosa Springs Town Council took a serious look at two possible ways to make the playing field more level, by establishing an excise tax on vacation rentals.
One option would tax STRs annually based on the number of bedrooms permitted. Pagosa Housing Partners, in line with recommendations approved unanimously by the Town Planning Commission, has recommended an annual tax (or fee) of $2,000 per bedroom. This type of tax or fee should be very simple to collect. The tax is paid once a year. Simple to calculate, simple to collect, simple to project future revenues. It also aligns closely with the recommendations made by the Town Planning Commission last July.
Another option considered by the Town Council would establish a tax (or fee) based on a ‘percentage’ of the room rents.
This approach suggests certain problems. Local realtor Lauri Heraty has often stated, in public meetings, that STR owners will attempt to evade taxes, if the Town decides to increase the tax burden on vacation rentals. This could be done, for example, by accepting payments ‘under the table’ and carelessly neglecting to declare those payments.
Another problem with a ‘percentage’ tax based on nightly bookings, concerns the uneven playing field. A licensed vacation rental that books only a few days of the year will contribute very little of their fair share to the operations of local government — while a motel will continue to contribute generously via property taxes, no matter how many room nights are booked there.
A third problem: the inability to estimate future revenues. If each STR contributes $2,000 per bedroom at the start of the year, we should have a very accurate accounting of the revenues available for government programs for the rest of the year — as is the case, already, with annual property tax revenues. But if STRs are paying piecemeal by ‘percentage’, based on changing room rates and variable occupancy rates, our local governments cannot depend upon a certain amount of available funding… which makes future planning more difficult.
Here’s Council member Maddie Bergon, commenting on the Council’s intention to place ballot questions on the April 5, 2022, municipal ballot. At first, she had dismissed the idea of an STR excise tax. But a few moments later, she reconsidered.
“We talked, when we were having the Short-Term Rental discussion, that we did want to have an excise tax as an option for the voters. And so, for that reason — even though I might not support the excise tax personally — I do support the idea that the voters should have a choice in the matter. And so I guess I’d like to see the issue on the ballot.”
Council member Matt DeGuise agreed.
“And I would like to see an exemption for owner-occupied STRs.” This was a suggestion that came from PHP: that no tax or fee would be assessed when the property owner lives on the same property.
Council member Shari Pierce questioned whether a tax could legally exempt certain people from paying the tax. Town Attorney Clay Buchner thought that was a good question.
“Could be difficult to figure that out. A tax usually applies across the board, and if we have selective taxation, it could become a problem…”
“Could be a tough one, to get the language right…”
The state of Colorado has, for many years, waived or reduced property taxes for senior citizens and disabled veterans, so we know that differential tax treatments have been practiced at the state level.
We also know that the Archuleta Board of County Commissioners recently agreed to reimburse County property taxes to a certain developer — David Dronet — to support a small affordable housing development.
A reimbursement of taxes might make matters simple for the Council, if they wish to offer special support to locally-owned vacation rentals.
Mayor Don Volger asked Town Manager Andrea Phillips if she had needed more direction.
Ms. Phillips responded, “I think we have enough information to bring back for you guys, for consideration, in the form of ordinances at your next meeting.”
Council member Jeff Posey requested the proposed ordinances be accompanied by estimates of how much tax revenues would be collected by each plan.
This would be very simple to calculate… if the annual tax were based on $2,000 per bedroom, because the Town already has an accurate count of bedrooms permitted.
If an excise tax were based, instead, on a percentage of room rates, it would be almost impossible for the Town Council to estimate the total taxes in advance. The room rates vary by season, and no one currently tracks the number of room nights booked.
A per bedroom tax would be… so simple… and so appropriate…
Bill Hudson began sharing his opinions in the Pagosa Daily Post in 2004 and can’t seem to break the habit. He claims that, in Pagosa Springs, opinions are like pickup trucks: everybody has one.