OPINION: Proposed Colorado Law Threatens Vacation Rental Industry

Many Short-Term Rental business owners are petrified by the implications of impending policy change, and we must offer the perspective of the property management industry in the mountain towns of Summit County.

The skiing industry is the precious lifeblood of resort towns throughout the state of Colorado and one of the leading attractions for tourism. Short-Term Rentals are a necessary and lucrative market that bring skiers and tourists with disposable income into Summit County and various mountain towns. The bottom line is that our communities are predicated on the tourism industry and some estimates show that for every dollar spent on Short-Term Rental lodging, three more dollars are spent within that same community.

Legislators who will be voting on Bill 6 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 hourly wages provided by large corporations. Simply put, my company, and others like it have found a way to turn jobs into careers for the local Summit County residents. This includes not only property managers, but cleaners, hot tub maintenance technicians, accountants, handy men and vendors of all trades that maintain a depreciating Short-Term Rental property.

The stark reality is that the Colorado government will never come close to generating its projected goal of $370 million from 24,000 of our state’s Short-Term Rental owners.  Instead, these property owners will stop renting their properties and Colorado will lose the significant revenue from lodging and sales tax that they currently benefit from.

This misguided tax increase is absurdly backward and can guarantee devastation at the loss of perhaps $1.4 billions of dollars, as stated in the study currently being undertaken by Dr. Arthur B. Laffer, who was hired by the Colorado Lodging and Resort Alliance and he is known to be a respected author that state officials often use.

If this bill stands as it is written, my company and the supporting industries that were described above will be few and far between.

There are many reasons why:

The taxation of Bill 6 will discourage STR owners from renting their properties. One example is that my company represents a client property that is rented 180 days out of the year and generates approximately $300,000 in revenue and $40,000 in property taxes annually as of 2024.  Under Bill 6, this same property now owes $160,000 in property taxes if it is rented for more than 90 days. That is a 400% percent property tax increase on top of a 30% property manager fee. Other expenses include maintenance, utilities, and income tax. Due to expenses exceeding revenue, the owner will be forced to stop renting their property.

If law makers run numbers on most properties that would be affected by this bill, they will see that the profit margins in many instances (especially with larger properties) are exceeded by expenses from this commercial property lodging tax. This would obviously cause current rental properties to stop renting. If law makers want to acquire revenue through taxation, they need to figure out how to allow short term rentals to continue being a viable business, like hotels.

Bill 6 will not level the playing field between Hotels and Short-Term Rentals.  The Breckenridge Residence Inn sold in 2023 for approximately $40 million. However, its assessed value — which is based partly on its income potential, was about $8.6 million. The $40 million property is taxed at the commercial rate of 27.9% based on an appraised value of only $8.6 million.  The Residence Inn with 129 one- and two-bedroom units, paid $493,266 in property taxes. If you had 129 one- and two-bedroom condos in Breckenridge, owned and taxed individually at 27.9% based on their appraised value, they would pay a significantly more in property taxes.

Short-Term Rental taxation cannot be compared to the current taxation of normal hotel operations. That is because hotel commercial tax has a completely different structure that is not assessed at the residential market rate. By volume alone, the two business models are completely different to be in the same competitive market. Hotels can still make a desirable business margin because their property tax is a fraction of their revenue, while Short-Term Rentals can lose up to half of their revenue in many instances as provided in the example shown above.

Misconceptions about workforce housing have inaccurately influenced the drafting of Bill 6. The long-term housing issue (more than a thirty-day rental) in Summit County pertains primarily to studio and one-bedroom properties, which can go weeks or some cases months without inquiries because of their high market rates. I speak on this from many years of personal experience in renting such apartments for my business.  The overwhelming reality is that homes with three bedrooms or more are not rented by local families or the workforce. Public officials cannot use this notion to justify this bill by any means.

Rental rates will skyrocket as the supply of available Short-Term Rental housing shrinks from this bill. Rental customers and their disposable income may seek to book their ski vacations out of state, in places with more realistic tax structures like Utah, California, Wyoming, New Mexico, Montana, Idaho, and Vermont. They will find the value that reflects what they once received in our state. Colorado will receive a huge loss in tax revenue.

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 predicated on how many hotel rooms there are. Without Short-Term Rentals, the lodging industry cannot keep up with tourism demand, which is why billions will be lost.

Officials must scrutinize this bill and understand its major flaws, with billions of dollars on the line. The consequences to the tourism industry for the state of Colorado and how it will greatly affect mountain town economics should outweigh any of the benefits this bill could bring. I really hope the arguments provided in this op-ed are closely reviewed and that lawmakers consider the devastation that this bill would bring to the Colorado economy.

Questions you can ask yourself after reading about this existential threat to Colorado:

If Bill 6 were to pass, 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 ?

If Bill 6 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?

Short-Term Rentals and Hotels provide completely separate consumer lodging needs.  Why are we comparing them to each other in the first place? If fairness is the reason for this bill, then lawmakers should value Short-Term Rentals the same way Hotels are valued… not create a new lodging tax category that no longer makes the Short-Term Rental businesses viable.

Steven Frumess is General Manager / Partner at Alpine Edge.