Courtesy El Paso County
Assessor Steve Schleiker says shifting how short-term rentals are assessed for tax purposes could have far-reaching consequences.
In an explosive move with potentially devastating consequences for some, the El Paso County Assessor’s Office plans to tax short-term rentals, often simply called by the brand name Airbnb, as commercial properties.
The change opens a can of worms regarding how those properties are handled by city and county officials, insurance companies and lenders. It also means hefty tax bills for local short-term rental (STR) owners. While the residential assessment rate is 7.15 percent of assessed value, the non-residential assessment rate stands at 29 percent, meaning property tax bills on STRs could quadruple.
The revelation comes after Colorado Springs City Councilor Wayne Williams asked County Assessor Steve Schleiker how short-term rentals are assessed, and Schleiker responded in a July 9 email obtained by the Independent.
Asked to comment, Schleiker tells the Indy
via email: "Short term rentals and Airbnbs have been a topic of discussion over the past several years at the State Capital and throughout all 64 county assessor’s offices on the challenges of discovering and valuing these types of properties, and the voices from hotel/motel/and bed & breakfast properties throughout the State have been loud requesting fair and equal valuation and taxation."
So far, Schleiker has made no changes, but he says that assessing single-family properties as short-term rental commercial properties could have other major consequences.
• Homeowners could face major problems with their mortgages.
Many lenders require "owner occupancy" and for the home to be used primarily as a "single-family home." In the worst case scenario, a commercial STR designation could lead a lender to "call the note," meaning the full loan would be due immediately. There's a chance that this could even impact a home that is a main residence. Consider, for instance, soldiers who lists their homes as an STR while they're deployed.
• Utilities bills could change.
Once a home is converted to nonresidential use as a short-term rental, Colorado Springs Utilities or other utility providers in El Paso County could consider charging those properties commercial rates.
• Homeowners might need to buy different insurance.
Most homeowners pay homeowner's insurance. But if an STR is a commercial property, the insurance needed to protect it could change.
• More paperwork could be required, and it could mean a larger tax bill.
Non-residential property owners must submit an annual Business Personal Property Tax (BPPT) declaration form that lists business equipment associated with the business. While the city and county no longer collect the BPPT, the assessor is still required to gather the information and value it for school districts, fire districts, the library district and the like. "The current State of Colorado BPPT Exemption is $7,700, which means any Business Personal Property that has an actual value of less than $7,700 is exempt from this tax," he says.
City Councilor Wayne Williams
• Homeowners could be in trouble with their HOAs.
Some of STRs may be in violation of their homeowner association covenants and city and county zoning. Is it proper to operate a commercial short-term rental in a single-family residential neighborhood?
Schleiker also notes that his office's task of running down all the properties being used as short-term rentals could be a nightmare. While the city licenses short-term rentals, and could merely hand over the list to the Assessor's Office for changes in taxation, the county requires no such license, making the tracking of unincorporated STRs difficult.
Schleiker says he plans to host a series of community meetings to explain what's going on and why. He also tells the Indy
that property is assessed as it stands on January 1, not willy nilly throughout the year as properties shift from one use to another. And since not all STR owners keep their properties listed all the time, the exact time that the property is listed could also have a big impact.
We'll update when more information is available about the meetings.
In a related action, City Council on July 9 approved a change to the short-term rental (STR) ordinance that requires STR operators to first pay sales tax due on past rentals when applying for an STR license. The vote was 8-0 with Councilor Andy Pico absent.