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

Both have effective tax rates that are higher than Steamboat's potential new tax

Steamboat Springs City Council discussed details about how to implement a tax on short-term rentals if it gets voter approval in November.
John F. Russell/Steamboat Pilot & Today

Before the Steamboat Springs City Council progressed toward asking voters to put a steep tax on short-term rentals, members of the lodging community warned the hike would be detrimental to the local economy.

The majority of council members favored asking voters for a 9% tax on short-term rentals specifically, carving out legacy lodging options like hotels. If approved by voters, it would bring 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, referencing Vail’s 10.3% tax rate. “We as a community won’t be as competitive in the future, and lodging is a highly competitive business.”

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

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

But there are two mountain communities — Crested Butte and Ouray — that have an effective tax rate well above that, and even higher than the potential 20.4% in Steamboat. Officials in those towns say the high level of taxes hasn’t shuttered their short-term rental markets.

“Our tax rate in the town of Crested Butte, with our local excise tax, is the highest in our community,” said Dana MacDonald, town manager of Crested Butte, where the effective tax rate on short-term rentals is 20.9%. “But we still see ongoing increases in revenues, so it doesn’t seem to be dissuading folks from renting the units.”

Neither of these towns are direct comparison’s to Steamboat, as each has a population of a couple thousand people, compared to Steamboat’s roughly 13,000. Each has far fewer nightly rentals too, compared to Steamboat’s 3,000-plus short-term rentals.

But both are dealing with similar housing and hiring struggles as the Yampa Valley and have turned to additional taxes on short-term rentals as a funding option. In Crested Butte, voters not only approved the initial tax, but they also voted to increase it last year.

“There was no discussion or opposition expressed when council put it on the ballot, nor leading up to the election,” MacDonald said. “Both times, the tax question passed by a very, very comfortable margin.”

Every short-term rental stay in Steamboat is taxed at least 9.4%. This includes 4.5% in sales taxes and 1% in accommodation taxes, each collected by the city. Routt County has another 1% tax it collects, and the State of Colorado takes a 2.9% cut.

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

A rental listed on Airbnb at $160 a night plus fees for Fourth of July weekend projects to cost about $900 total, before taxes. Taxes add about $100 to the bill. If the short-term rental tax passed, the person staying in the unit would pay about $180 in taxes for a four night stay — roughly $80 more than they would now.

Those in Steamboat’s lodging community have argued this extra cost will not only discourage people from staying in Steamboat, but if they do, they would likely spend less money at local businesses.

Eric Treadwell, vacation rental inspector in Crested Butte, said property managers there made this argument when a tax was first considered as well. Since, prices on rentals have generally increased, but the number of them hasn’t dropped off.

“It did not hamper rentals,” Treadwell said of the initial 5% tax, which increased to 7.5% at the start of this year. “It still hasn’t.”

The effective tax rate in Crested Butte is now 20.9%. The town also has a cap on these rentals at 30% of the local housing stock. That limit is 212 rentals, but Treadwell says it grows as more units are built.

Crested Butte has used proceeds from this tax to support the build of a subdivision called Paradise Park that was part of a two-decade old annexation agreement. Primarily, the money has paid for the development’s water infrastructure, which can lower the overall costs of the homes.

Ouray has an even higher, 15% tax on short-term rentals, which puts the effective tax rate for rentals in the city to 27.95%. This was approved by voters last year and went into effect this year. Ouray also has a cap on short-term rentals, maxing out at 120 total.

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

“We’ve continued to see applications and we are steadily approaching our cap that council put in,” Oswald said. “I wouldn’t necessarily say that once the (15%) tax went into place that everyone chose to opt out of the short-term rental market.”

Oswald said some of the revenue from this tax has already been used to cover pay at the Home Trust of Ouray County, which has several projects in the works in Ouray and has similar goals as Steamboat’s Yampa Valley Housing Authority. Half the revenue is earmarked for housing, and the other half pays for water and wastewater infrastructure.

Still, this tax has raised a little less than $100,000 through April and can collect a maximum of $600,000 in a year, far below the nearly $12 million a year Steamboat’s tax is projected to garner.

“As a result of the tax, prices did go up,” Oswald said, referring to how much someone staying in one of these rentals ends up paying. “I wouldn’t say (the number of short-term rentals) surged down as a result.”

Heidi Sheldon, the short-term rental officer for the town of Mount Crested Butte — a different municipality about 2 miles away from Crested Butte proper — said they have a lower effective tax rate at about 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 licensed units there make up about 36% of the town’s total units and there is no cap.

The housing problems around Crested Butte are similar to problems being dealt with in a lot of mountain towns, Sheldon said. She commutes from Gunnison as many locals do, which is about 45 minutes away. To her, a tax rate near 20% may be a little high, but doesn’t seem that unusual

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

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