The city of Aspen’s finance department is reevaluating a policy proposal intended to increase tax compliance and tracking of the short-term rental market after pushback from property management companies and condo-hotels.
Aspen City Council on Tuesday held an initial discussion on a land use code amendment that would require all short-term rentals to have a business license tied to their address. This is a significant change from existing policy, where any number of short-term rentals can be accounted for under one business license tied to a property management company.
Representatives from two property management companies and two condominium properties that are operated like hotels urged the council to reconsider the directive.
Requiring entities such as theirs to get a new business license — at a $150 annual fee — for every unit under management would be a burden that would put them at a further disadvantage against unscrupulous property owners who seek to avoid paying taxes, the representatives told the council.
“This resolution is really punishing the people who are helping you,” said Wendalin Whitman of Whitman Fine Properties. She added that as she attempts to broker vacation rentals while paying sales and lodging taxes, she is often competing against others who offer avoidance of local taxes as a benefit to their customers.
Added John Corcoran, general manager of the Aspen Alps, “What you’ve done is create a way to burden people who are already paying sales tax.”
Council members appeared sympathetic to the property managers’ concerns and tabled the policy resolution and first reading of the ordinance, likely until after the new year. In the meantime, staff from the finance department will work on changes to the proposal that would attempt to address the concerns.
“We somehow need to distinguish between The Gant” — another local condo-hotel — “and the couple of condos down the street from me that are clearly Airbnbs,” said Councilwoman Ann Mullins, referring to the online platform that has increased the prevalence of home and condo owners renting out their properties on a short-term basis to tourists.
Since the popularization of such online platforms — Airbnb is one of many — cities have been struggling with the social and economic implications of portions of their residential housing stock converting into lodging.
Some portion of the homeowners who engage in the practice do so without paying sales and lodging taxes on the revenue they earn. How big of a share of the market this is is unknown; getting a handle on it and bringing those operators into compliance has long been a city hall objective — in Aspen and nearly every other community where short-term rentals are happening.
“It’s important to know that what we are looking for is some equity,” Councilwoman Rachel Richards said. She noted that when a residential property owner begins running what is essentially a lodging business out of his or her home, they have the advantage of continuing to pay property taxes at a residential rate, which is far lower than the rate paid by commercial property owners.
“That’s not very equitable to the small lodge across the street paying commercial taxes” — which are up to five times higher — “to provide the same service.”
She added that a $150 annual fee as a cost of doing business to turn residential property into an income-producing commercial lodge is reasonable. However, Richards supported tabling the ordinance to make sure the city was advancing the best possible policy.
Besides requiring short-term rentals to pay sales and lodging taxes, even if the revenue is remitted in a batch with other units, each individual unit is currently required to obtain an annual vacation rental permit through the community development office. This regulation is seldom followed as there are just 70 such permits on the books for 2019.
“Clearly, we are coming up short,” Councilman Skippy Mesirow said of the current regulatory picture.
Mesirow, who runs a local company that brokers short-term rentals, asked council to consider that in some cases, short-term rentals increase vitality. It’s important to understand what the short-term rental is displacing, he said. In the case where the short-term rental displaces a unit that used to be offered to long-term residents, that’s a bad thing, he said. But take, for example, a property that would otherwise sit empty most of the year that is instead offered as a short-term rental when its absentee owners aren’t using it — that’s a good thing, Mesirow said, and may be more prevalent than people assume. In addition, many short-term rentals offer some of Aspen’s most economical accommodations, which is something the city ought to encourage, he said.
Each unit a small business
Members of Aspen’s lodging and property management community, who city officials reached out to for input on the ordinance, have asked that the ordinance be changed so that properties where condos are managed with a hotel-style front desk and on-site lodging amenities be allowed to continue operating with a single business license.
In a memo to council written before Tuesday’s meeting, finance department officials offered pushback against allowing multiple properties to be managed under one business license. Each residential unit that operates as a short-term rental, even if it is managed under a condo-hotel framework, is connected to an individual who has made a choice to conduct business in the city of Aspen, notes a memo from Pete Strecker, the city’s finance director, that was written before Tuesday’s meeting.
The current rules allowing one license to represent multiple such units — each their own small business, in effect — is unique to this particular sector of the local economy. If one business has multiple locations in town, each must have its own business license, the memo notes. Four Mountain Sports Aspen Highlands and Four Mountain Sports in town do not get to file consolidated monthly sales tax returns.
The individual licensing requirement was intended to go hand in hand with new software that provides a platform for businesses to register for licenses and pay taxes online, while also scouring the web for vacation rental listings and cross-checking them against city records, in order to ensure compliance. Requiring each unit to have an individual business license is seen as critical to this function, according to finance department officials.
“By requiring individual business licenses and individual tax returns, the city will have ready access to tax collection data, auditing and reporting — if filings happen under one business license and then separate ancillary documentation is provided, the tracking and auditing for compliance becomes a greater burden on the city versus the business owner,” says the memo.
“Staff knows that change includes a bit of the unknown and that this process change will require a feedback loop and continued partnership between the city and the lodging community on how to make improvements with all concerned,” the memo continues. “The single business license and fee structure, plus other areas within this new process, can be revisited as we start down this push for increased compliance, but until there is some data to assess, there is limited information to support the status quo and this will be a significant step to moving forward.”