Local Governments Are Slapping on Shocking New Taxes—Are You Prepared for the $1,200 Hit?

As local governments across Colorado grapple with budget constraints, many are turning to new revenue sources to fund priorities like housing and public services. This effort involves proposals for various taxes and fees, including levies on vacant homes and real-estate sales. However, these initiatives may face considerable pushback from legislators and community members.

The push for new revenue streams arises against the backdrop of declining federal and state funding, which has left many cities and counties struggling to meet their service obligations. With the cost of living and housing in Colorado on the rise, the conversation is heated. Proponents of the new taxes argue they are essential for addressing urgent needs, while opponents voice concerns about the potential financial burden on residents and businesses.

The Colorado Municipal League (CML) is currently searching for sponsors for three key bills that have already passed their policy committee. These include proposals to permit local governments to levy real-estate transfer fees, allow cities and counties to place taxes on vacant homes before voters, and expand the ability of certain municipalities to impose short-term rental taxes. Additionally, Representative Kyle Brown is drafting a bill at the request of county leaders that would allow counties to ask voters to approve excise taxes on specific goods or services.

Addressing Workforce Housing

These legislative initiatives are largely driven by the Colorado Association of Ski Towns (CAST), whose focus is on creating and preserving affordable housing for local workers. CAST Executive Director Margaret Bowes noted that the issue has been brewing since at least 2019. She recalls walking through tourist towns where businesses struggled to maintain regular hours due to a lack of staff who could afford to live nearby.

“When you can’t house your employees, it really threatens a tourism-based economy,” Bowes said. “It’s also about the fabric of a community. How does a community continue to function without its policemen and nurses and teachers being able to afford to live there?”

While there is a consensus that Colorado is experiencing an affordable housing crisis—an issue that has dominated discussions at the state Capitol for the past three years—opinions on how to solve it vary. Brian Tanner, the vice president of public policy for the Colorado Association of Realtors, expressed frustration that most proposed solutions seem to involve raising fees rather than addressing regulatory issues that contribute to high housing costs.

“There are other tools to increase affordable housing. Let’s find incentives to reduce permitting time,” Tanner said. “There are other approaches out there that, rather than adding onto the cost of housing, would encourage builders and developers to get homes in those markets.”

Vacancy Taxes: A Contentious Proposal

One of the more controversial proposals is to permit cities and counties to impose vacancy taxes on properties that remain unoccupied for significant portions of the year. For example, the town of Crested Butte attempted to implement such a tax in 2021 but met considerable resistance. Proponents argue that this legislation would clarify the legal standing for other home-rule cities to adopt similar measures, potentially alleviating the affordable housing crisis by incentivizing homeowners to rent out vacant properties to local workers.

The specifics of what constitutes a "vacant" home would be determined on a local level, allowing communities to tailor the legislation to their unique needs. Crested Butte Mayor Ian Billick explained that this tax could generate funds not just for affordable housing, but also for other pressing infrastructure needs in tourist-heavy areas.

“I’m a big believer in local government. And I’m a big believer that local communities should have control over their future,” Billick stated.

However, not everyone is onboard. Chris Romer, president and CEO of the Vail Valley Partnership, raised concerns about the implications of such a tax on private property rights and questioned how local governments would define and enforce vacancy. He pointed out that nuances—like whether a home under renovation is considered vacant—could create complications, potentially driving homeowners to opt for short-term rentals instead.

Real-Estate Transfer Fees and Excise Taxes

In contrast to the relatively new concept of vacancy taxes, real-estate transfer fees have already been implemented in 12 mountain cities, generating substantial revenue. These fees, which typically range from 1% to 3% of the home sale price, have proven lucrative, with Vail earning approximately $10.4 million annually and Aspen collecting around $31.9 million. Municipal leaders believe they could circumvent the Taxpayer’s Bill of Rights (TABOR) by framing these assessments as fees tied to specific programs, such as affordable housing development.

Although this approach is currently being considered, it poses its own set of challenges. Tanner warned that the 'fee' could still face legal challenges as a tax under TABOR and might deter real estate transactions, especially in an already expensive market. Governor Jared Polis has expressed his opposition to the idea, citing concerns that it would further inflate housing costs.

Finally, the proposal for counties to seek voter approval for excise taxes on specific goods and services is still in its developmental phase. Such taxes could target various items, from alcohol to ski-lift tickets, with the revenue potentially aiding public services that counties are increasingly responsible for, including transportation and public health.

As local governments explore these revenue-raising strategies, the debate continues over how to best address the affordability crisis without overburdening residents and visitors. While some argue for innovative solutions that require new taxes and fees, others caution against adding financial stress to communities already grappling with rising living costs. Ultimately, the outcome of these proposed measures will shape the future of housing and local economies in Colorado.