Rising Taxes And Shifting Tourism Trends: COSTRA Prepares For Upcoming Challenges In Short Term Rental Market Of Colorado

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The landscape of short-term rental properties in Colorado has seen a significant transformation with the establishment of the Colorado Short-Term Rental Alliance (COSTRA). This nonprofit organization officially launched in September, aiming to unite and represent the diverse short-term rental community across the state. With the merger of influential organizations like Mile High Hosts and the Colorado Lodging Resort Alliance, COSTRA has emerged as a powerful voice advocating for both seasoned and new rental property owners, providing education and resources while addressing legislative and regulatory concerns.

A Unified Voice for Short-Term Rental Owners

COSTRA’s formation represents a strategic move to consolidate the efforts of various stakeholders in Colorado’s short-term rental industry. The merger was driven by the need for a more unified approach to tackling the challenges that rental property owners face, including legislative hurdles and ever-evolving regulations. Under the leadership of Julia Foster, the newly appointed executive director, the organization is poised to provide comprehensive support for property managers and owners throughout Colorado. Foster emphasized that the mission of COSTRA will be to address the pressing issues surrounding short-term rentals while also ensuring that property managers are well-equipped with the knowledge to succeed.

In an era marked by growing legislative scrutiny on short-term rentals, COSTRA has committed itself to collaborating with key stakeholders like Airbnb, Expedia, and state legislators to ensure that the voice of the short-term rental community is heard. Foster’s leadership aims to guide the organization in addressing the needs of property owners while also navigating the complex political landscape that impacts the industry.

Tourism’s Role in Colorado’s Economy

Tourism continues to be a cornerstone of Colorado’s economy, contributing significantly to state revenues and job creation. In 2024, Colorado’s tourism sector saw impressive growth, with visitor expenditures hitting a record $28.5 billion, a modest increase of 0.5% from the previous year. The industry also generated $1.9 billion in tax revenue for the state, providing an average of $800 in tax relief per household. Additionally, tourism added over 3,700 jobs to the state’s economy in 2024, underscoring its vital role in sustaining Colorado’s financial health.

However, the impact of international tourism on Colorado’s economy is a point of concern. International travelers tend to spend significantly more than domestic visitors, contributing to the stability and profitability of short-term rentals. Unfortunately, international tourism has been on the decline since 2015, with some recovery after the COVID-19 pandemic. This decrease in international tourism has led to a more competitive market, particularly for short-term rentals, as hotels are vying for a larger share of domestic visitors.

Short-Term Rental Occupancy Rates Declining

The occupancy rate for short-term rentals in Colorado has also faced challenges. In July 2024, the occupancy rate stood at 59%, a decrease from 63% in July 2023. Data from the Colorado Tourism Office highlights a 1.8% year-over-year decline in short-term rental occupancy. Despite these challenges, industry experts remain optimistic. According to Tim Wolfe, the director of the Colorado Tourism Office, forecasts for platforms like Airbnb and VRBO look promising through the fall months, though early-stage bookings may still influence these numbers.

Rising Taxes on Short-Term Rentals

While Colorado remains competitive in terms of state taxes, with a low rate of 2.9%, the same cannot be said for local taxes on short-term rentals. Steamboat Springs and Aspen are prime examples of areas where the tax burden on short-term rentals has increased significantly. In Steamboat Springs, the sales tax on short-term rentals stands at 20.4%, while Aspen imposes a 21.3% tax, a stark contrast to the more moderate tax rates applied to hotels. These rising taxes, coupled with the potential for even higher levies in some areas, have raised concerns among rental property owners.

Legislative Hurdles and Challenges Ahead

One of the most significant challenges COSTRA faces is navigating the complex web of legislative issues that continue to affect short-term rental owners. Over the years, numerous legislative proposals have sought to regulate the short-term rental industry in ways that some believe could be detrimental to property owners.

The Vacancy Tax Proposal

A prominent issue that emerged in the past legislative session was the vacancy tax proposal introduced by the Colorado Association of Ski Towns. The proposal aimed to address the affordable housing crisis by allowing local governments to impose taxes on vacant homes. Initially, this proposal would have included short-term rentals, but following strong pushback from the lodging industry, it was revised to exclude these rentals. Despite its revisions, the proposal failed to advance and is unlikely to be revisited in the near future.

The Excise Tax Proposal

Looking ahead, the excise tax proposal is another piece of legislation that short-term rental owners are closely monitoring. This bill, which would give local governments the authority to impose taxes on any industry, has raised alarms among property owners. According to Jaclyn Terwey, regional government affairs manager for Expedia, this bill has the potential to create significant uncertainty for the short-term rental market, as there would be no cap on the tax rates that could be imposed. For Julia Foster of COSTRA, the prospect of such an open-ended tax is concerning, particularly since county commissioners could theoretically impose taxes on whatever industries they choose at any level.

Property Tax Concerns

Property taxes remain another point of contention for short-term rental owners in Colorado. The 2024 property tax bill aimed to change the tax classification for short-term rental properties, shifting them from residential to commercial tax rates. Although this proposal did not gain traction in the last legislative session, experts warn that property taxes could again become a topic of discussion in 2025, especially considering the state’s budget shortfall. This potential shift could have significant financial implications for short-term rental owners, further complicating the landscape of property management in the state.

Looking Forward: What’s Next for COSTRA?

As COSTRA prepares for another year of legislative challenges, the organization is focused on ensuring that the voice of short-term rental owners is represented at the state and local levels. With an emphasis on advocacy, education, and collaboration, COSTRA aims to mitigate the impact of rising taxes, regulatory challenges, and evolving tourism trends. In addition to its existing chapters in Denver and Summit County, the organization is looking to expand to Steamboat Springs and Telluride, reinforcing its commitment to the short-term rental community across Colorado.