Avon sidelines use tax in favor of short-term rental tax for housing fund

The town of Avon has been evaluating multiple options to create a dedicated revenue stream for community housing, as the need for housing continues to grow.

“I think everyone is aware that that’s probably the most pressing issue in Eagle County and the town of Avon right now, as long as mud flows aren’t flowing into peoples’ homes,” said Eric Heil, Avon’s town manager, at the Aug. 10 Town Council meeting. “Clearly, the housing has gotten to a point where it’s beyond challenging, it’s effecting our local economy.”

With urgency, the Town Council is considering putting a tax question on the upcoming November ballot that would help generate funds for this.

“I think with the intensity of the community housing issue, this is an opportunity for the community if they want to approve a funding source that would really take us from not having a housing program to having the funding to do some type of housing program,” Heil said.

Last month, the Town Council considered implementing a construction material use tax that would go toward a community housing fund.

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This tax would be collected at the time a building permit was issued by the town and use a predetermined formula to calculate the construction value and therefore the tax. Commonly, construction use taxes calculate a use tax based off of 50% of the construction value. Once the use tax was collected, a build would be exempt from paying further sales taxes on materials related to the permit. Avon is the only jurisdiction in Eagle County without a construction use tax.

However, at the Aug. 10 Town Council meeting, council sidelined the use tax, citing guidance from the town’s finance committee as well as considering the likelihood of its success. Instead, the council is considering placing a short-term rental tax on the ballot.

“Right now, I see the use tax going down in flames if we go for that. I also think if we ask for both, then we see both go down. I think the timing is right for just the short-term rental tax,” said Council member Scott Prince. “Housing is an issue, no doubt about it. Everyone is being impacted and we have to do something. And I don’t think waiting another year is appropriate right now and I think just going after that short-term rental and gauging voter appetite is appropriate at this time.”

Short-term rental tax

The short-term rental tax would be applied to any rental property that is not assessed as a commercial property and that is rented for less than 30 days.

According to Heil, Avon is in a unique situation to profit off of a short-term rental tax because most of its properties are not considered commercial properties.

“Avon is a little bit of an anomaly in that Comfort Inn is the only property that’s a commercial property hotel. Everything else is either a time share, which is assessed as residential or condominiums,” he said, listing The Westin, The Seasons at Avon, The Lodge at Avon Center, Beaver Creek West and more as examples of condominium projects that are assessed as residential and not commercial.

This differs from the town’s existing 4% accommodation tax, which applies to all timeshares, hotels and vacation rentals. Short-term rentals account for approximately two-thirds of those that apply under the accommodation tax.

Heil estimated that, based on the 2019 Accommodation Tax revenues, that a 1% short-term rental tax would generate approximately $227,500, a 2% tax would generate $455,000 and 4% tax would generate $910,000.

Making it on the ballot

In favoring this short-term rental tax over the construction use tax, the reasoning is that the use tax would bring in less revenue and be harder to pass. Other arguments included that the short-term rental tax has greater potential to produce a more stable and long-term revenue source, it makes a clear connection with housing, and it is largely a tax on guests rather than residents.

However, this doesn’t mean the use tax is nixed for good. Council directed the town staff to continue researching the tax for consideration on future ballots. This includes possible education, outreach and polling services on the use tax.

Still, with the ballot deadlines rapidly approaching, some council members expressed trepidation about the short time frame left to develop a ballot question for November. In order to make it on the Nov. 2 county ballot, the town would have to submit the ballot question by Sept. 3.

“If we put two unripe tax questions on our ballot that we haven’t polled on, haven’t focused grouped on, haven’t prepared marketing materials, we don’t even have ballot language of what TABOR makes us ask; we’re just asking for the voters to say hell no,” said Council member Tamra Underwood. “Let’s talk about it and do a sophisticated process instead of just winging it and throwing it on a ballot and getting denied.”

Others expressed interest in identifying examples to use in the ballot question of what the community housing funds would go toward. Mayor Sarah Smith Hymes noted that drawing from history, a ballot question has a higher chance of success with voters if it identifies an explicit use for the money.

However, Heil expressed that this is a difficult ask.

“I can help be very clear to where we are. If we had funding that would enable us to continue to support Mi Casa Avon as a dedicated funding source,” he said. “It would put us in a position to partner with the county and the town of Vail and match grant funds and available funds from the state and federal government but without owning land I can’t point to that project A, B, C is going to break ground next Spring.”

Ultimately, council raised a number of questions regarding the short-term rental tax — including whether the tax would discourage visitors and de-incentivize future developments as well as what the right percentage of tax would be — to be answered by the next council meeting, which is scheduled for Aug. 24. At that time, town staff will present a proposal on the potential short-term rental tax, including the ballot language.

Smith Hymes noted that, for her, going forward would require reaching a nearly unanimous decision among all council members.

“I think it’s very important that all of us, if we decide to go to a tax, that we all agree it’s an important thing to do,” she said. “If it’s not pretty much close to unanimous, then I’m not sure that’s a good idea. I don’t think it bodes well for its ultimate success.”