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STR operators need to account for state-level taxes, state-administered local taxes, and jurisdiction-specific lodging taxes. Each tax has its own rates, remittance procedures, and compliance requirements. This guide clarifies these obligations for legal and profitable operation.
STR Search helps investors identify high-performing vacation rental properties and navigate the Colorado market, including tax implications on returns. Our data-driven approach ensures you make informed decisions about your STR investments, from property selection to compliance.
This guide covers state sales tax requirements, local tax variations, collection responsibilities, income tax considerations, and compliance practices for Colorado STR operators.
In Colorado, a short-term rental is a property rented for less than 30 consecutive days. This definition is crucial for determining your property’s tax obligations. While the exact definition may vary slightly between jurisdictions for licensing, for state tax purposes, the 30-day threshold is the standard.
This distinction matters because STRs are subject to sales and lodging taxes that don’t apply to long-term rentals. When your property falls under the short-term classification, you enter a different taxation category with specific registration, collection, and remittance requirements.
Colorado STR operators must navigate multiple taxation layers from different governmental entities requiring distinct compliance procedures:
Many cities and counties impose their own lodging or occupancy taxes, collected directly by the local jurisdiction. These taxes vary significantly by area.
Understanding all tax layers is essential. Compliance requirements differ at each level, and the overall burden can influence your pricing strategy and profitability.
In Colorado, short-term rental services are classified as taxable lodging services, subject to state sales tax. As of 2024, it imposes a state sales tax rate of 2.9% on lodging services, including STRs.
The tax applies to the entire accommodation charge, including the rental rate and mandatory cleaning fees. Optional services on the invoice may be treated differently. Review the current Colorado Department of Revenue (DOR) guidance on the taxable base for your rental arrangement.
STR operators must register for a Colorado Sales Tax License through the Colorado Department of Revenue, unless all bookings are through Marketplace Facilitators that handle tax collection. Registration can be done online through the Colorado Business Express system.
For state sales tax, the collection responsibility typically falls to the STR owner/operator or the booking platform, depending on whether it qualifies as a Marketplace Facilitator and how the booking is processed. Understand where this responsibility lies for each channel you use.
Besides the state sales tax, the Colorado Department of Revenue collects local taxes for specific districts. These state-administered local taxes are added to the state rate and remitted through the state's tax system, typically using the DR 0100A Sales Tax Return.
These include county sales taxes, special district taxes, Local Marketing District (LMD) taxes, Regional Transportation Authority (RTA) taxes, and other locality-specific taxes. The rates depend on your property's location and whether it falls within these taxing districts.
Use the Colorado Department of Revenue's location/jurisdiction code search tool to determine applicable state-administered local taxes for your property. Enter your property's address to identify the specific tax rates and jurisdiction codes for accurate collection and reporting.
The most complicated aspect of Colorado STR taxation is the locally administered taxes that vary across the state's cities and counties. Many jurisdictions impose their own lodging taxes, often called Occupational Lodging Tax, Accommodations Tax, or Tourism Tax. Unlike state and state-administered taxes, these are collected and remitted directly to the local government, not through the state DOR.
Jurisdictional variation is substantial. Tax rates, application rules, filing frequencies, and tax names differ. Your obligations in Denver differ from those in Breckenridge, Telluride, or Colorado Springs.
Local taxes include property tax, sales tax, income tax, and various service fees like garbage collection and parking.
To illustrate this variability, consider these examples:
Denver has a 10.75% Lodger's Tax on accommodations. Summit County has a 2% Accommodation/Lodging Tax for short-term rentals in unincorporated areas. Aspen has a lodging tax structure with a 2% lodging tax plus a 0.5% transportation tax.
Verify the current rates and rules with your local jurisdiction, as these examples are illustrative and rates differ.
Follow these steps to determine your local tax obligations:
Property owners must identify and comply with all local taxes, regardless of research difficulty. Not collecting and remitting these can result in penalties, back taxes, and interest charges.
Colorado's Marketplace Facilitator laws require qualifying platforms facilitating retail sales, including STR bookings, to collect and remit certain taxes on behalf of sellers. Major platforms like Airbnb and Vrbo qualify as Marketplace Facilitators.
These platforms must collect and remit Colorado state sales tax and state-administered local taxes for bookings made through their websites. This means the host doesn’t need to separately collect or remit these taxes for bookings from these major platforms.
Marketplace Facilitators typically DO NOT collect or remit locally-administered lodging/occupancy taxes. The responsibility remains with the property owner/operator, even for bookings through major platforms. There are limited exceptions where platforms have specific collection agreements with individual cities, but they are not comprehensive.
STR owners/operators are responsible for:
The state tax remittance process involves regular filing via the Colorado DOR website using Form DR 0100A (monthly, quarterly, or annually depending on volume). Local tax remittance processes vary; some require monthly filings, others quarterly, and each jurisdiction has its own forms and procedures.
In addition to sales and lodging taxes, Colorado STR owners must consider state and federal income tax implications. Your net rental income (gross revenue minus expenses) is subject to Colorado state and federal income tax.
STR operators can deduct various rental business expenses, including mortgage interest, property taxes, insurance, utilities, cleaning fees, repairs, maintenance, management fees, and depreciation. The rules for deductions and depreciation depend on factors like rental versus personal use days, so consulting a tax professional is necessary.
For high W-2 earners, STR investments offer tax advantages through depreciation deductions and other benefits when structured properly. STR Search helps investors identify properties with strong returns while considering broader financial planning. Specific tax strategies should be developed with qualified professionals.
Follow these best practices to meet Colorado's STR tax requirements:
Proper tax compliance protects you from penalties and audits while ensuring your investment operates on a strong financial foundation.
Understanding the tax landscape is crucial for STR success in Colorado, but it's one piece of the investment puzzle. The foundation of a successful business is finding the right property in the right location with strong revenue potential.
STR Search helps investors identify high-performing short-term rental properties using data-driven market analysis. We analyze market trends, occupancy rates, revenue potential, and regulatory environments to find properties with strong investment fundamentals.
Our approach aligns with high W-2 earners seeking tax benefits from real estate investments. We focus on properties with strong cash flow and advantageous treatment when structured with guidance from tax professionals. Our STR investment strategies consider your investment objectives.
While we focus on property identification and acquisition support, we understand tax considerations are essential to the investment decision. Our process includes awareness of local regulations impacting your investment and connecting you with resources to navigate these aspects.
Colorado short-term rental tax requirements demand attention to multiple state and local taxation layers. Success requires understanding applicable taxes for your property, who collects them, and how to remit each type.
The complexity, especially the variation in local tax rules, necessitates thorough research specific to your property's location and verification with official government sources. This guide provides a framework for your due diligence.
Work with specialists like STR Search to identify promising properties and consult qualified tax professionals for a tailored compliance strategy to maximize returns while staying compliant.
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