By ANN ZIMMERMAN
Some tony Colorado ski towns are cracking down on people who rent out their homes without paying taxes, as local governments keep scouring the tax terrain for hidden revenue.
The hard part is collecting, without spending more on the effort than the revenue it reaps.
Several of Colorado’s toniest ski towns — including Aspen, Breckenridge, Steamboat Springs and Telluride — are cracking down on real estate owners who rent their homes to tourists without paying taxes and other fees. Ann Zimmerman has details.
Aspen estimates it is losing $100,000 a year in revenue—in a budget of about $86 million—on residents who fail to get a business license and pay taxes when they rent out their houses or condos, according to Don Taylor, Aspen’s finance director. City officials have proposed that property owners apply for a permit that would be revoked for noncompliance, such as not offering adequate off-street parking. The planning commission will discuss the proposal Tuesday.
Breckenridge, where 75% of the dwellings are residents’ second homes, estimates it also is losing out on $100,000 or more annually on lodging taxes, which go into the town’s marketing budget, and sales on rental fees, said town manager Tim Gagen. Breckenridge’s general-fund budget is $21 million. Still, the town estimates that the lost revenue comes to about 8% of the marketing budget. Steamboat Springs and Telluride, too, are looking to root out offenders.
Hotels and other lodging establishments in Colorado’s ski towns, which pay from 7% to 10% of their revenue in combined taxes, also are behind the push.
“This is a way to maintain a level playing field,” said Joyce Burford, executive director of the Colorado Association of Ski Towns, which represents 24 Colorado towns and one county.
But tracking down vacation-rental scofflaws isn’t easy. Websites that list vacation-home rentals by owner typically don’t give a property’s address, only a neighborhood. City officials say it is hard to find a listed property’s address and contact information. The ski-town association said it had contracted with a company that has developed a computer-software program to help identify the property owners.
Some homeowners don’t mind paying the fees and taxes and say they just didn’t know they had to. When Houston lawyer Sanford Kahn first advertised his three-bedroom townhouse in Aspen for rent in a local paper last year, the city tax assessor’s office called to ask him if he knew he was required to get a business license and pay rental taxes.
“I wasn’t aware of that,” said Mr. Kahn, whose home is currently listed on the Vacation Rentals By Owner website for $1,100 a night in the winter high season, or $10,000 to $25,000 a month, depending on the length of stay. He said he has since decided to rent the property for at least 30 days at a time, which is considered a tenant lease and not subject to occupancy taxes.
Others say they are struggling to hold on to their second properties and don’t want the tax cutting into their incomes. They say if they raise prices to offset the taxes, it will make their properties less competitive.
A task force of the ski-town group has been exploring the problem for more than a year, as the number of homeowners who rented out their dwellings to earn additional income grew in the sluggish economy. HomeAway Inc., owner of three U.S. websites that list vacation rentals by owner, said its paid listings grew to 527,535 at the end of 2010 from 324,933 in 2008.
In recent weeks, since the association began publicly discussing plans to capture taxes and fees from property owners, Ms. Burford said, it has heard from several other tourist towns interested in following suit, including Park City, Utah; Boise, Idaho; and Hilton Head, S.C.
In late June, the Aspen city council voted to move forward on a preliminary plan to track down the vacation rentals that aren’t paying taxes. The city’s inspection of one vacation-rental website found that about half of the 350 local properties listed lacked business licenses and had failed to pay taxes.
The twist is, those homes also were in areas of town not zoned for rental properties to begin with. The city is now considering changing the zoning laws to allow rentals in all neighborhoods as long as owners get a license and pay the taxes.
Not all city officials are on board. “I am a little concerned that turning a couple of hundred homeowners into businesses is going to cost more in time and money than it’s worth,” said Councilman Adam Frisch.
Breckenridge had a city worker track down vacation-rental properties on a website and found that 50 of 100 listed properties weren’t in compliance. The property owners were contacted by letter, said Mr. Gagen, the town manager.
Sandy Sheikh of Albuquerque, N.M., received such a letter about her Breckenridge condo. She handed it over to her son, Michael Sheikh, a travel agent based in Washington state who rents out people’s condos and re-rents them as part of ski packages. Mr. Sheikh said it was difficult to reckon the taxes in those instances.
He also said he doesn’t have to buy a license on his mother’s property, because his company has a long-term lease on the condominium that it, in turn, rents out for short stays. Calling the letter he received a “nastygram,” Mr. Sheikh said he decided to pay for the license because it wasn’t worth the effort to fight it.But he said the town lacks the infrastructure to enforce the law.
Mr. Sheikh said it took him four months of repeated phone calls before the town sent him the paperwork to apply for the license and that it would be easy to cheat on the taxes, though he plans to pay.
“It’s on an honor basis,” he said, “and they have no idea what I am collecting” in rent.
Not so fast, Mr. Gagen said.
“We can audit them and cross-reference the records they supply with their income taxes,” he said. “The service we are contracting with will look at the calendar on the rental websites and see what dates are available for renting and what they are charging. That is a starting place.”
Write to Ann Zimmerman at ann.zimmerman@wsj.com