Is a 20% tax on STRs too much? Not for Crested Butte and Ouray

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The Steamboat Springs City Council has approved the first reading of an ordinance that would require Steamboat voters to put a 9% tax on short-term rentals on June 20. The second reading is scheduled for July 5.
John F. Russell / Steamboat Pilot and Today

Before the Steamboat Springs City Council moved to ask voters to impose a steep tax on short-term rentals, members of the lodging community warned the hike would hurt the local economy.

The majority of council members preferred to ask voters for a 9% tax on short-term rentals in particular, carving out legacy accommodation options like hotels. If approved by voters, it would raise the effective tax rate on a short-term rental stay in Steamboat Springs to 20.4%.

“We would be 10 points above Vail,” said Mark Walker, president of management company Resort Group, referring to Vail’s 10.3% tax rate. “As a community, we won’t be as competitive in the future, and hosting is a highly competitive business.”



Walker, echoing the sentiments of several others who spoke to the council on Monday, June 20, said the 9% tax would be too high, potentially forcing Steamboat visitors to look elsewhere. If passed, Walker warned that taxes on short-term rentals in Steamboat would be among the highest in the state, even topping Denver’s 15.75 percent.

Instead of a new tax on short-term rentals, the accommodation community has proposed an additional 2% tax on all accommodations and a 0.75% sales tax instead, which does not apply. would not apply to groceries and utilities.



But there are two mountain communities – Crested Butte and Ourai — which have an effective tax rate well above that, and even above Steamboat’s potential 20.4%. Officials in these cities say the high level of taxes has not shut down their short-term rental markets.

“Our tax rate in the town of Crested Butte, along with our local excise tax, is the highest in our community,” said Dana MacDonald, City Manager of Crested Butte, where the effective tax rate on short-term rentals is 20.9%. “But we’re still seeing a continued increase in revenue, so that doesn’t seem to be deterring people from renting the units.”

None of these towns compare to Steamboat, as each has a population of a few thousand people, compared to Steamboat’s roughly 13,000. Each also has far fewer overnight rentals, compared to Steamboat’s more than 3,000 short-term rentals.

But both face housing and employment challenges similar to those in the Yampa Valley and have turned to additional taxes on short-term rentals as a financing option. In Crested Butte, voters not only approved the original tax, they also voted to increase it last year.

“There was no discussion or opposition expressed when the board put it on the ballot, or before the election,” MacDonald said. “Both times the tax issue went by a very, very comfortable margin.”

Each short-term rental stay at Steamboat is taxed at a minimum of 9.4%. This includes 4.5% sales tax and 1% lodging tax, each collected by the city. Routt County collects another 1% tax and the state of Colorado takes a 2.9% reduction.

Most short-term rentals are in the Local Marketing District, which collects an additional 2% which is used to fund air service and Steamboat marketing. This brings the current effective tax rate to 11.4% for most short-term rentals, which would increase to 20.4% if the STR tax were passed.

A rental listed on Airbnb at $160 a night plus a 4th of July weekend plan fee will cost about $900 in total, before taxes. Taxes add about $100 to the bill. If the short-term rental tax were passed, the person staying in the unit would pay about $180 in taxes for a four-night stay, about $80 more than they currently would.

Members of the Steamboat accommodation community argued that this added cost would not only discourage people from staying in Steamboat, but if they did, they would likely spend less money on local businesses.

Crested Butte vacation rental inspector Eric Treadwell said property managers there also made that argument when a tax was first considered. Since then, rental prices have generally increased, but their number has not decreased.

“It hasn’t hindered rentals,” Treadwell said of the initial 5% tax, which rose to 7.5% earlier this year. “That’s still not the case.”

The effective tax rate in Crested Butte is now 20.9%. The municipality also caps these rents at 30% of the local housing stock. That limit is 212 rentals, but Treadwell says it’s growing as new units are built.

Crested Butte used the proceeds of this tax to support the construction of a housing estate called Paradise Park which was part of a two-decade-old annexation deal. Primarily, the money paid for the development’s water infrastructure, which can reduce overall house costs.

Ouray has an even higher tax of 15% on short-term rentals, bringing the effective tax rate for rentals in the city to 27.95%. This was approved by voters last year and came into effect this year. Ouray also has a cap on short-term rentals, with a maximum of 120 in total.

Lily Oswald, community development coordinator at Ouray, said despite the increase in fees for these units, there hasn’t been a drop in short-term rentals in the city.

“We have continued to receive applications and are steadily approaching the cap that the board has put in place,” Oswald said. “I wouldn’t necessarily say that once the (15%) tax was put in place, everyone opted out of the short-term rental market.”

Oswald said some of the revenue from that tax has already been used to cover salaries for the Home Trust of Ouray County, which has several projects underway in Ouray and has similar goals to the Yampa Valley Housing Authority. of Steamboat. Half of the income is earmarked for housing and the other half for water supply and sanitation infrastructure.

Still, this tax has brought in just under $100,000 through April and can raise a maximum of $600,000 a year, well below the nearly $12 million a year the Steamboat tax is expected to bring in.

“Because of the tax, the prices went up,” Oswald said, referring to the price someone staying in one of these rentals ends up paying. “I wouldn’t say that (the number of short-term rentals) has gone down as a result.”

Heidi Sheldon, the short-term rental agent for the town of Mount Crested Butte – a different township about 2 miles from Crested Butte proper – said it has a lower effective tax rate at around 16.8%.

Despite that rate and an additional pillow tax, Mount Crested Butte has seen short-term rentals increase by about 10% each year, Sheldon said. The 680 units allowed there is about 36% of the city’s total number of units and there is no cap.

Housing issues around Crested Butte are similar to issues in many mountain towns, Sheldon said. She commutes from Gunnison as many locals do, about 45 minutes. For her, a tax rate close to 20% may be a bit high, but does not seem so unusual

“I don’t think that’s out of the realm,” Sheldon said.

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