A proposal to raise property taxes by reclassifying short-term rentals (such as AirBnb), from residential properties to commercial properties will not go before Colorado lawmakers. A legislative committee studying alternatives to the Gallagher Amendment decided not to forward the proposal to the General Assembly’s 2019 Session.
Tourism is one of Colorado’s top industries. Changing the property tax rate for less than 30 day rentals was considered as a possible way for some of the state’s smaller towns and mountain communities to increase tax revenues. Colorado’s residential tax rate is 7.2 percent, while the commercial tax rate is 29 percent.
"The idea is some of these communities aren't necessarily getting all of the property tax dollars that they should be getting if this was an actual commercial property and it's impacting fire districts, it's impacting water districts and school districts," said Representative Daneya Esgar, who chairs the committee considering alternatives to Gallagher.
Coloradans passed the Gallagher Amendment in 1982 as a hedge against rising property taxes. The one-of-a-kind tax measure limits residential properties to 45 percent of the statewide property tax base. So when home values rise faster than those of commercial properties, like they have in recent years, it can trigger a statewide tax cut for homeowners. Last year, it triggered a 9.5 percent cut to residential property tax assessments. An even deeper drop is expected in 2019.
Also, since another constitutional amendment requires voter approval for any tax hike, the Gallagher formula that forces property taxes down can’t send them back up, even if property values decline.
The tax rate increase on short-term rentals was one of several proposals being considered by the interim committee that will forward recommendations to the legislature. The goal is to develop a 2020 ballot measure that would make revisions to Gallagher.
However, critics worry that waiting until 2020 will mean the residential assessment rate will drop by another 15 percent next year and compromise the budgets of special districts even further. School districts could also lose major funding but they’ve been somewhat insulated because the state is supposed to backfill their losses.
If property tax rates keep falling, local services ranging from fire protection to elections, could soon require additional state help, leaving less money for statewide needs, such as roads.