Hearing for lawsuit about short-term rental tax reveals a case with little precedent | SteamboatToday.com

Hearing for lawsuit about short-term rental tax reveals a case with little precedent

During the first court hearing for a lawsuit between members of the Steamboat Springs Community Preservation Alliance and the city, both legal counsels agreed the case is unique and without legal precedent.

Within the legal realm, laws are often interpreted based on precedents. But some rulings, especially those with little or no precedent, are perceived as foundational for future rulings.

With short-term rental organizations filing numerous lawsuits against municipalities over the last decade and an abundance of short-term rental taxes and regulations in the works across Colorado, the 14th Judicial District Chief Judge Michael O’Hara could have a difficult ruling ahead of him in the lawsuit filed by the community preservation alliance against the City of Steamboat Springs.

“I think this is a case of first impression,” said Mark Grueskin, an attorney who’s representing the city. “I’m a little surprised that it’s never surfaced before, but it hasn’t to my knowledge.”

While there are previous court cases with similar arguments, there doesn’t appear to be a specific ruling with all the themes present in this one — those being the Taxpayers’ Bill of Rights, the powers of referendum, home rule charters and the definition of a special election.

The plaintiffs have argued the city defied the state constitution when Steamboat Springs City Clerk Julie Franklin rejected an application for a referendum petition on an ordinance that would put a question of whether to levy a 9% tax on short-term rentals on this November’s ballot.  

In response, the city has argued the Steamboat Springs Home Rule Charter exempts certain procedural and administrative actions from referendums, such as the calling of a special election.

In the city clerk’s decision to deny the petition, Franklin explained that calling for an election on whether to put the tax question on the ballot could confuse voters and delay the process.

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“What the question really will be is, should voters agree to a future election?” Grueskin said in court. “In other words, this is an election about some other election.”

Representing the plaintiffs, attorney Bill Kyriagis argued before the judge that the Colorado Constitution states all legislative actions can be subjected to a referendum, and because the ordinance involves levying a 20-year tax, it should be defined as legislative in nature.

Grueskin countered by saying that even though the tax itself is legislative in nature, sending the ballot question to voters is procedural and calling for a special election is exempt from the powers of referendum because the ballot question satisfies the requirement of putting legislative actions into voters’ hands. 

Elections in odd-numbered years are considered special elections in Steamboat Springs, as no local candidates for office are on the ballot. Each year, the city coordinates with Routt County, which provides the ballots for county and state elections, while the city attaches local ballot questions. 

Kyriagis argued that the ordinance therefore does not “call for a special election,” because an election in November would happen through the county anyway.

Grueskin argued that the plaintiffs failed to present their own definitions of special elections versus regular elections and downplayed any reasonable alternative strategies such as campaigning against the tax before November’s election.

Kyriagis added that the powers of referendum also create a juncture for City Council to repeal the ordinance outright if council so chooses, and the petitions themselves give the petitioners the opportunity to engage with the community as they gather signatures.

The plaintiffs cited the court case of Brooks vs. Zabka — which is the closest either side could identify as a legal precedent — that was presented before the Colorado Supreme Court in 1969.

In the Brooks case, Greeley was sued for rejecting a petition for referendum on an ordinance that referred the question to voters whether to enact a new sales tax. In that case, the district court upheld the city’s rejection, but the Colorado Supreme Court reversed that decision after determining that Greeley’s charter didn’t adequately exempt the ordinance from the powers of referendum.

While the Greeley charter exempted “the levy of taxes” from the powers of referendum, the higher court ruled that the authors of the charter were referring to the mill levy tax and therefore a sales tax didn’t qualify for the same exemption.

“It really could not be more of an apples and oranges case,” said Grueskin who pointed out that the Brooks Zabka case preceded TABOR, which was passed in 1992.

Instead, Grueskin said the ruling actually reinforces Steamboat Springs’ position that a town charter can exempt actions from the rules of referendum if the charter’s language is strictly construed. 

But Kyriagis disagreed. 

“TABOR doesn’t write any kind of specific exception into the constitutions referendum provisions,” Kyriagis said. “I think one can make an argument that there should be. I think the city effectively does that.”

Kyriagis asserted that creating any TABOR-specific exemptions for referendums would require a constitutional amendment that can’t be decided upon in a regular court case.

The significance of this case did not seem to be lost on Judge O’Hara, who could take several days to make a decision.

“It’s been helpful to me to be able to meet with counsel and discuss what boils down to be a very interesting issue in this case,” said O’Hara at the end of the hearing.

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