Steamboat’s vacancy tax proposal moves forward; How would city verify if a property is vacant?

Staff analysis recommended setting a flat tax rate of $3,100 a year for homes that are unoccupied for 183 days a year or more.

A vacancy tax proposal being talked about by Steamboat Springs City Council would assess homes that are unoccupied for 183 days or more a year a flat charge of $3,100 annually, according to discussions about the tax proposal on Tuesday.

With that rate, a vacancy tax could generate between $3.8 and $10.1 million in the first year that would go into the city’s general fund, a wide range fueled by uncertainty about how many vacant units are out there.

Council’s rationale is that these vacant homes receive a variety of city services, but are not fully supporting the general fund in the way occupied homes do. As the city is predominantly funded by sales taxes, vacant homes produce little revenue for the city when no one is home to spend money in town.

If sent to the ballot and approved by voters in November, the vacancy tax would be the first in Colorado. Looking broader, there are only a handful of similar taxes in North America, some aimed at reducing blight and others attempting to discourage vacant homes. As discussed, Steamboat’s vacancy tax would be unique because it is solely looking to extract revenue from vacant homes.

“We’re not proposing this tax as a way to disincentivize second home or vacant home use,” said City Attorney Dan Foote. “We did discuss the affordable housing connection and elected not to go that direction.”

Two people spoke in public comment, both opposing the vacancy tax. While Council agreed to move the vacancy tax forward, Council member Michael Buccino said he wasn’t ready to support it yet, saying it was akin to “taxation without representation.”

“I would rather do a property tax across the entire city than to pigeonhole a vacancy tax because so many of the assumptions are just that and there’s too many unknowns,” Buccino said. “We’ve always been taxing the man behind the tree.”

“I look forward to your proud and vocal support for a property tax when we discuss our goals,” said Council member Brian Swintek in response.

Council directed staff to draft ballot language for a vacancy tax, which will be discussed at their June work session.

How would the city tell if a home is vacant?

A vacant home is defined in the proposal as one that is empty for 183 days or more per year, which is one day more than half. The city intends to verify this by requiring all homeowners in Steamboat to provide them a tax return.

For full-time or primary residents, proving their home is not vacant would be relatively simple. A driver’s license, voter registration or vehicle registration showing the address of your home would be enough proof to consider the home occupied, said City Attorney Dan Foote. Residents may even be able to simply declare residency without needing to submit any documents to the city.

“We might just accept the declaration because that is something that we can check pretty easily,” Foote said. “If it’s your primary residence and this is where you live and this is where you vote, that can’t happen unless you are here for more than half the year.”

For someone whose home is vacant for 183 days a year or more — meaning they would be subject to the tax — there is no proof needed. Foote said they would simply pay the tax.

For someone who is not a primary resident but whose property is occupied 183 days a year or more — meaning they wouldn’t pay the vacancy tax — Foote said the city could look at a variety of potential data sources. For example, if a unit is rented as a short-term rental, those days would count toward the number of occupied days. Utility data could also be used to show the home was occupied, Foote said.

“If that evidence doesn’t support a conclusion that a home was occupied, we might do an audit and request more detail or granular information about the use of the home,” Foote said. “It is very common for people to have to share confidential information in connection with tax returns.”

Foote said they will need to accept that no enforcement system would be perfect and that some vacant properties could slip through the cracks. Still, Finance Director Kim Weber said the methods described are similar to how the city currently audits sales tax licenses.

“It’s somewhat based on the honor system, and we use different tools like looking at bank accounts or looking at sales or maybe spot audits of some sort to determine whether or not we believe it’s in compliance,” Weber said.

Some of these details would be saved for an “implementing ordinance” if voters were to approve such a measure this fall. That ordinance would include penalties aimed at incentivizing compliance, Foote said.

Why $3,100 per year?

The city doesn’t know how many vacant homes there are in the city, but conducted a fiscal analysis attempting to create a rational basis for how to set the tax.

The U.S. Census estimates about 4,500 homes in Steamboat Springs are vacant, but the census definition of vacant is different from what the city is using, said City Finance Director Kim Weber. For example, a short-term rental with 200 rental nights a year would be vacant according to the census, but occupied by the city’s definition.

From there, Weber said they looked at STR license data, where there are currently 2,295 licensed STRs. Out of those, about 345 of them have been rented for less than 100 days, and 510 have been rented for less than 160 days. That leaves the city with an estimated range of be between 1,250 and 3,250 vacant units, and the analysis uses the average of 2,250.

Another key assumption was that general fund revenue is the ratio of expenses and revenue between occupied and vacant properties. The city assumed occupied homes generate revenue at a five-to-one ratio to vacant homes. For expenses, they assumed that ratio at five to two, as there are some baseline services that need to be offered whether a home is vacant or not, such as police, fire or snowplowing.

The analysis found that the general fund subsidizes the average full-time residence by $572 annually, a subsidy that is made up for by visitors and residents in Routt County from outside of Steamboat paying sales taxes. For a vacant home, Weber said that number is $2,955 each year.

Weber estimated that it would cost the city about $300,000 each year to administer a vacancy tax, which, when combined with the subsidy for vacant homes, inspired the proposed tax on vacant homes of $3,100 a year.

City council members said they supported staff analysis and agreed that $3,100 seemed appropriate. The tax could be assessed at a lesser rate and council members briefly broached the idea of adding an “up to” in a ballot question. The phrase was seen as important when it was included in the city's STR tax, which can be assessed at "up to 9%."

“No municipality, town, city in Colorado has done this, and we have the opportunity because we’re home rule,” said Council member Steve Muntean. “When you’re first at anything, it does create a little more uncertainty and maybe risk. … I think we just have to understand that as we go into this, and I don’t see any numbers that make more sense than what you’ve come up with.”