Colorado vacation rental tax guide

With a bounty of popular destinations including Rocky Mountain National Park, Steamboat Springs, and Crested Butte, the Centennial State offers ample opportunity for short-term rental (STR) businesses.

But new income opportunities bring new tax implications. Like hotel stays, STR stays in Colorado are subject to lodging taxes. Failure to comply with state and local tax laws can result in fines and interest penalties. Tax jurisdictions are increasingly making STR tax compliance a priority, so it’s important to address compliance before tax authorities address it for you. 

Avalara MyLodgeTax put together this guide to help you comply with Colorado lodging tax laws at the state level. Local jurisdictions such as cities or counties may have their own lodging tax rules. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No lodging tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Colorado tax laws.

Lodging taxes are calculated as a percentage of the cost of your guest’s stay and added to the price of the bill. The guest pays the tax, but the STR operator is responsible for collecting and paying it to the proper tax authority.

What’s the definition of “short-term rental” in Colorado?

Operators of units rented for less than 30 consecutive days are required to collect and remit lodging taxes. 

Who’s required to collect and file lodging taxes on short-term rentals in Colorado?

If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling, you’re likely responsible for collecting, filing, and remitting lodging  taxes to Colorado tax authorities. 

Location is key to compliance

The location of your rental is a crucial piece of information for lodging tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and your tax rates.

Use our lodging tax lookup tool to get a rate report specific to your Colorado address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.

Local short-term rental regulations

STR operators in Colorado should be aware of the local regulations that apply to them, including rules covering:

• Legality

• Permits, licenses, and registration

• Zoning

• Advertising

• Neighborhood notification

• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of STR policies that apply to your property.

Before you can begin collecting taxes on your STR in Colorado, you’re legally required to register with the Colorado Department of Revenue. You can register online to receive a sales tax license. You may also be required to register with local tax authorities. If all of your STR bookings go through a marketplace such as Airbnb or Vrbo, you’re not required to have a state sales tax license.

Once you’re registered with tax authorities, you’re ready to start collecting lodging taxes, which you’ll add to your guest’s bill when they pay for their stay.

Which taxes apply to Colorado short-term rentals?

In Colorado, a number of different lodging taxes may apply to your STR, depending on your location. These can include:

What’s the tax rate?

Before you can begin collecting lodging taxes, you need to know the correct rate to charge to avoid compliance issues. 

Our lodging tax lookup tool can give you a rate report specific to your Colorado address.

What charges are taxable?

Colorado imposes lodging tax on the entire amount charged for accommodations, including charges such as cleaning fees. Deposits paid in advance for accommodations only become taxable once the accommodations are provided. The taxability of deposits, forfeits, and cancellation charges for accommodations is based on the amount of the charge. If the charge is greater than 50% of the daily reservation rate, it’s considered payment for the rental and therefore fully taxable. If the charge is 50% or less of the daily reservation rate, the charge is not considered payment for the accommodations and is not subject to sales tax.

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects lodging taxes for me? 

Colorado accommodations offered for rent through marketplaces are subject to lodging tax. Marketplace facilitators are required to collect and remit the applicable state and state-administered lodging taxes, county lodging tax, and local marketing district tax. Home-rule cities may have their own rules. If lodging taxes aren’t being collected for you, you’re responsible for collecting and remitting them to tax authorities. If all of your STR bookings go through a marketplace such as Airbnb or Vrbo, you’re not required to have a state sales tax license.

Are guests ever exempt from lodging taxes?

There are situations in which you aren’t required to collect lodging taxes in Colorado. For example, a guest who rents for a long term rather than a short term is exempt from lodging taxes. Charitable organizations and federal and state government agencies may be exempt from paying state taxes on accommodations.

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Colorado Department of Revenue. In Colorado, you can file and pay the tax amount due via paper or online returns. The Colorado Department of Revenue allows credit card payments, but may charge a fee.

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. At the state level, due dates are as follows:

I didn’t rent my property during this filing period. Am I still required to file a lodging tax return with the Colorado Department of Revenue?

Yes. STR operators registered with the Colorado Department of Revenue are required to file returns each assigned filing period, regardless of whether you had any STR income or collected lodging taxes. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.

Are there penalties for filing taxes late?

Whether you choose to offer STRs through a marketplace like Airbnb or Vrbo, or directly to guests, you open the door to tax liability at the state and local level. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses breaking tax laws. Failure to register with tax authorities and file lodging tax returns in Colorado on time may result in late fees, interest payments, and in extreme cases, legal action.

I’ve been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating an STR but not collecting lodging taxes, you may be in violation of Colorado tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.

STR operators in Colorado may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Colorado Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.

Are there options for outsourcing lodging tax filing?

Yes. Many STR hosts in Colorado file several state and local lodging tax returns every year. Filing solutions such as Avalara MyLodgeTax can relieve this burden.