Recent Suits Take Aim at City Short-Term Rental Regulations

As the popularity of short-term rental services has stayed high in Colorado, a number of local governments have made efforts to regulate and tax these services. But homeowners and companies have been pushing back against some of these efforts with recent lawsuits. 

In the last decade, the popularity of short-term rentals has exploded across the country. According to its latest quarterly report, Airbnb has more than seven million listings worldwide compared to 300,000 listings it announced in 2013. Other short-term rental platforms, like Vrbo, have also experienced rapid growth with the company reporting it had two million listings worldwide in 2022 compared to 120,000 reported listings in 2009. 

But short-term rentals have garnered criticism as well, with some researchers drawing correlations between rent increases and the number of short-term rentals. Across the country and in Colorado, lawmakers and voters have passed a growing number of policies and ordinances that take aim at regulating the short-term rental industry, but not without pushback. Two recent lawsuits are challenging some of these efforts.  

On Aug. 14, a Summit County homeowner who rents his properties as short-term rentals who is also the director of the nonprofit interest group Summit County Resort Homes Inc., sued the Summit County Board of County Commissioners accusing the body of enacting illegal regulations on short-term rentals. The county, which includes several ski resorts, passed a wave of ordinances and moratoriums between 2021 and 2023 in an attempt to regulate short-term rentals which it estimated accounted for 30% of all residential properties in the county. 

The regulations included caps on the number of short-term rental licenses in certain geographic areas of the county, additional requirements of owners seeking certain licenses and occupancy limits on certain properties, among other things. 

According to the lawsuit filed in federal court, the regulations “arbitrarily” and without justified government interest apply differently to similarly situated homeowners and violate the Equal Protection Clause. The filing also claims that by treating in-state and out-of-state property owners differently, the local regulations violate the dormant Commerce Clause and that by impacting property ownership, homeowners have had their due process rights impacted under the state and U.S. constitutions. The homeowners make a number of other claims under state statutes concerning restrictions on how local governments can regulate property use. 

The lawsuit’s plaintiffs, who all own and rent properties as short-term rentals in the county, claim the new regulations could eliminate a stream of income they depend on. 

The homeowners are asking a federal court to hold that multiple ordinances are unconstitutional or violate Colorado law and award attorneys fees. The homeowners are being represented by Brownstein Hyatt Farber Schreck. 

Another recent lawsuit filed in state court is also pushing back against local government efforts to regulate short-term housing. On Aug. 17, Airbnb filed a lawsuit in district court against the City of Boulder and several of its officials challenging a six-figure sum the city said it was owed from tax revenue. In the lawsuit, Airbnb argues its guest fees are not taxable by the city. 

According to the lawsuit, Airbnb and Boulder entered into a voluntary agreement for tax collection on short-term rentals in 2016. According to the filing, from Jan. 1, 2017, through Dec. 31, 2019, Airbnb collected and passed along taxes based on the price of nightly rental charges that include services like cleaning or pet fees. The company didn’t collect or remit taxes from its guest fees, which the lawsuit said compensate Airbnb for its services connecting guests and hosts. 

From 2017 through 2019, Boulder audited Airbnb and determined it should have paid taxes on the guest fees. In 2022, the city asked the company to pay $514,780.06 to cover the alleged non-payment, plus interest and a penalty. That figure was later reduced by a municipal court to $415,223.05 after summary judgment determined the city couldn’t collect taxes for much of 2017. The municipal court concluded after a hearing that the guest fee was taxable and it upheld the city’s finding. 

Now, Airbnb is suing the city in state court. The company argues the guest fee covers services provided by Airbnb, not services provided by the owner of a short-term rental. In holding the guest fee was taxable, the company argues Boulder officials abused their discretion and that any fees or penalties applied against the company should be overturned. 

Airbnb is represented by attorneys with Silverstein & Pomerantz in Denver and Roberts Law Group in New York. 

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