People who make money renting property through websites like Airbnb can breathe a sigh relief after state lawmakers decided Wednesday against pursuing a property-tax increase on short-term rentals.
But the way Colorado’s property tax system works overall appears headed for a major overhaul in 2019.
“I feel a bit like I’m at my own wake,” former state lawmaker Dennis Gallagher said.
He’s the author of the Gallagher Amendment, which created a property tax formula Colorado has used for more than three decades. It has kept home property taxes low — so low some rural counties are struggling to pay for basic services — and now state senators and representatives on an interim committee are debating whether to unwind all or part of the amendment.
One of those ideas was to reclassify short-term rentals as commercial property for the days they’re rented out — effectively quadrupling the percentage of their home that’s subject to property taxes.
The idea was that adding more commercial property, which Gallagher taxes at 29 percent, would immediately offset some of the money rural fire, police and library districts lose every time the residential rate ratchets down.
No matter what happens to Colorado home values, homeowners can’t pay more than 45 percent of the state’s total property tax bill. Initially, counties taxed homeowners on 21 percent of their home’s assessed value, but that number dropped as home prices soared in the Front Range. In 2018, the percentage of a person’s home that could be taxed was 7.2 percent.
Metro-area homeowners have kept paying more despite the lower rate, but rural Coloradans have started to pay less because their homes’ values don’t rise as fast.
“It’s been a 23 percent reduction in four years,” Executive Director of Colorado State Fire Chiefs Garry Briese said.
Reclassifying short-term rentals as commercial property sounded like something that could help until legislative counsel staff said it would take a year or more to implement.
“If it wouldn’t apply until after (a Gallagher repeal has) been on the ballot, I’m hesitant to deal with this one today,” Sen. Lois Court, D-Denver, said. “It’s not going to be an immediate relief.”
The committee nixed the short-term rental bill and sent three ideas for fixing Gallagher forward.
One would be a referral to voters asking them to repeal the entire amendment.
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It’s a risky proposition. Nearly 80 percent of Coloradans voted against changing the property tax formula in 2003.
Rep. Bob Rankin, R-Carbondale, thinks 2019 could be different — especially if the legislature passes another bill proposed by the interim committee. That one would replace Gallagher’s statewide calculation with regional districts, which means people in Pueblo or Trinidad would be taxed differently than people in Broomfield or Boulder.
“I think people agree that one size fits all doesn’t work in Colorado anymore,” Rep. Daneya Esgar, D-Pueblo, said.
But both Esgar and Rankin think determining the size and shape of those districts will be the center of the Gallagher debate in 2019. The draft bill divides the state into eight regions.
“It’s the best shot at a starting point. I know it’s not right yet,” Rankin said. “If we can make (this bill) acceptable, the repeal will pass.”
Regardless of whether voters repeal Gallagher, lawmakers have another idea to consider. The third bill passed by the committee Wednesday would use general fund dollars to backfill library and fire districts that lose 5 percent or more when the home property tax rate drops again in 2019.
It’s a one time bailout, which Briese said sounds nice but doesn’t begin to solve the bigger problem.
“It’s not what we’ve been asking for since January of 2016,” Briese said. “We need a long-term fix.”
