Resort towns having trouble with private rental homes
Cities like Steamboat trying to ensure taxes paid on homes
February 13, 2010
When Elizabeth Smith first listed her three-bedroom Crested Butte home on VRBO.com in 2000, she was one of five Crested Butte homeowners on the Web site offering private nightly rentals directly to vacationers.
Today, she is among 200 Crested Butte homeowners peddling pillows on VRBO.com. There are 100 more up the road in Mt. Crested Butte and dozens more down-valley.
"I do pay taxes, but so many do not," said Smith, who pays 12.5 percent of her revenue in taxes that go to the state, county, town and local transit authority. "I would say a majority on VRBO don't pay their taxes. I'm definitely a rarity, which is a shame. The town needs those taxes."
Under-the-radar renters are a growing problem for Colorado's resort communities. As ski towns wrestle with withering tax revenue and skyrocketing numbers of people hawking their homes on the Web, the push to find and tax private rentals has become a priority.
"They are essentially hotels, and they need to be paying taxes like hotels," Telluride Town Manager Frank Bell said.
One of Bell's employees spends most of her day trolling vacation rental Web sites — such as VRBO, HomeAway and Craigslist — to find private renters violating Telluride's no-nightly-rental zoning rules or not paying local lodging taxes.
Recommended Stories For You
Resort towns rely on those taxes to provide services such as bus transportation and affordable housing. Telluride has leveled criminal charges against owners who don't comply with tax and zoning laws.
"People pay taxes when they go to the Marriott, but they don't have to pay when they rent from owners directly through the Internet," Bell said. "It's a skewed playing field, and it doesn't help our hoteliers one bit. This is a huge priority for our Town Council."
A 2007 study by travel industry research firm PhoCus Wright found vacation-home rentals to be a $24 billion industry, with about half of that coming from owners who deal directly with renters. The research group estimated that the online vacation rental market would grow from $2.8 billion in 2007 to $4.7 billion this year.
But tracking underground transactions, especially cash deals sparked by an online meeting, is "next to impossible," said Glenn Mueller, a real estate professor at the University of Denver's Daniels College of Business.
"When it's a private individual running a very, very small business, they are very hard to catch and funnel them into paying taxes," Mueller said.
With that in mind, the 25-member Colorado Association of Ski Towns board of directors recently decided to hire an expert who will seek out private renters in resort towns and make sure they are in compliance with local licensing and tax rules.
The expert will develop a uniform strategy for towns to track private rentals and enforce local laws.
"I think it would be conservative to say there are hundreds of thousands of dollars being missed out in Colorado alone," said Joyce Burford, executive director of the association.
Right now, most towns struggle to keep abreast of private rentals in their area. Telluride is watching about 400 private rental homes. Late last year, Steamboat Springs reached 450 private renters; today, all but about 30 have begun paying taxes. Breckenridge recently counted as many as 600 and found that about 100 were not licensed or paying taxes.
Most of those 100 owners, Breckenridge Town Manager Tim Gagen said, were out-of-state owners who were unaware that they needed to be licensed and paying taxes.
Ralf Garrison, whose Mountain Travel Research Program delivers industry statistics to resort-area managers and marketers, calls the private rental business a "gray market" because it is so difficult to track. But it has grown too large and influential to ignore.
"It's interesting to watch as these resort towns continue to struggle with this, especially as they try ever harder to find ways to bolster their tax revenues," Garrison said.
The challenges are plentiful.
"How do they find them? How do they reach them? How do they enforce paying taxes?" Garrison asked. "And really, do they want to rain on a parade that is potentially bringing more people to town than would otherwise come, even if they aren't paying the traditional hotel prices?"