ISSUE #226: Aspen's Proposed STR Tax Will Kill Traditional Rentals (7/31/22)

"When a new source of taxation is found, it never means, in practice, that the old source is abandoned, It merely means that the politicians have two ways of milking the taxpayer when they had one before."

-- H.L. Mencken

The latest round of courtship of the law of unintended consequences is underway. Council is floating the idea of adding 13.1% to the existing 11.3% tax on lodging for short term rentals (STR). This will affect the VRBO-type rentals as well as every rental unit of every size in the city of Aspen. 

It's too much. And it's too broad. For over 50 years, Aspen has relied upon rental condos to supplement its bed base and provide non-hotel lodging options for our visitors: Aspen Square, The Gant, North of Nell and many others. Subjecting these properties to the same punitive tax as luxury home rentals and those via online platforms is wrong, and the results will be devastating.

Read my column in today's Aspen Times HERE.

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The tax on short term rentals (STR) proposed for the November ballot is too high and casts far too wide a net. It goes far beyond VRBO and the lawless, nontraditional rentals at the center of the STR debate. This tax will impact every property, large or small, that rents short term in Aspen. Hotels are the only exemption. Intended to address the perception of unmitigated growth and alleviate negative impacts of rogue rentals on local neighborhoods, the proposed tax is city council’s way of saying they “did something” but it completely overshoots the target.

The city is ginning up support to add an additional 13.1% tax on all STR. Today’s tax rate is 11.3%, so the total becomes 24.4%, justified by council because it sees these as “mini hotels” and wants them treated as commercial entities. Individually owned, these properties currently pay residential property tax rates and do not mitigate for subsidized housing. The new tax is designed to put STR on par tax-wise with commercial lodges. Ironically, council has just made it legal for multi-family subsidized housing complexes to be developed in residential neighborhoods creating similar if not greater full-time impacts, but no, these aren’t “mini hotels.” These impacts are apparently ok. I digress.

The STR tax unfairly lumps luxury home rentals together with rentals of 50-year-old condos that have been rentals since they were built. Think North of Nell, The Gant and Aspen Square. These traditional rental properties are in the lodging zone, so they will get the STR permits they desire, however, they will also be on the hook for the new tax.  For other traditional rental properties a few blocks away in the RMF zone like Chateau Eau Claire and Chateau Roaring Fork, along with all other privately-owned condos and homes on the rental market, they now must compete for a very limited number of rental permits and pay a hefty premium should they land one. And then pay the tax.

These are the condos that have supplemented our hotel bed base throughout the resort’s history. They’ve played vital hospitality roles and have long supported our most cherished events: World Cup, X-Games, Food & Wine.  But are STR really the sole cause of our recent population growth and associated impacts? According to local property managers, no. In reality, these traditional rental properties have actually seen an unprecedented amount of inventory come off-line since the pandemic. The data shows dramatic increases in residential occupancy by long-term tenants and actual homeowners, fueled by the remote work movement.  

This loss of STR inventory has clearly opened the door for VRBO and such to fill the shortfall, which has pushed rentals farther into residential neighborhoods. This is at the root of the problem. The provisions of Ordinance 9 recently created a new permit quota system, enforcement regime and operational standards. Now is not the time to levy a debilitating tax but instead look at constructive ways to narrow the focus of STR oversight and regulation in instances where there is little. If online providers and luxury home rentals are the problem, focus specifically on them. But don’t up-end our traditional rental condo industry. 

Furthermore, it is notable that when occasionally-used vacation properties and second homes become longer term rentals or even permanent residences, the associated need for services (housekeeping, maintenance and other personnel) becomes constant rather than occasional. In other words, the impacts that some neighborhoods find objectionable may be those associated with use, regardless of length of stay. These impacts will not go away with an STR tax and should be at the forefront of a much larger community conversation on carrying capacity.

Regardless which if any segment of the rental market is eventually subject to a 24.4% STR tax, the results will be nothing short of devastating. To compare, Snowmass Village has a 12.8% total tax rate, half of what is being proposed for Aspen.  Telluride, Jackson Hole, Vail and Park City range from 10 - 13.3%. As with hotels that already pay commercial property taxes and mitigate for subsidized housing, any tax increase will be passed along in the nightly room rate. We’ll be punishing our visitors, and this will adversely affect our tourism economy. Competition between resorts is already fierce; why would we deliberately put ourselves at such a disadvantage? Especially for something that will not work.

Contrary to council’s belief that our visitors are so wealthy that more than doubling the rental tax rate will go unnoticed, consumers are rational actors. Simply put, they’ll go elsewhere. As in elsewhere outside of Aspen. And rental property owners will find the work-arounds. They’ll still rent their properties, just illegally or with 30 day minimums. The objectionable impacts will remain and the city will get zero revenue. What will we have then accomplished?

Instead of waiting to see how the provisions of Ordinance 9 affect the marketplace, city council’s mad rush to heavily tax this critical segment of our resort economy stands to specifically target and detrimentally impact our visitors who prefer not to stay in hotels. We’ll be pricing them right out of Aspen. 

Here they go, picking winners and losers again, while they survey the community on how to spend the expected $11 million this is expected to generate annually.