Short-Term Vacation Rentals in Cook County
a Hot Topic
COOK COUNTY, MINNESOTA - November 21, 2018 (LSN) Short-term vacation rentals, properties advertised on sites like VRBO, Airbnb, HomeAway, etc., are a hot-trend in Cook County, around the country and the world. For some, these are lucrative operations, and properties are being purchased specifically for this purpose. As this trend increases, licensing and appropriate property tax classification have become questions for many jurisdictions, as consistent standards do not yet exist. Due to Cook County’s popularity as a prime, year-round tourist destination, Cook County has some of the highest percentages of short-term vacation rentals in the state, and is leading the way on development of standards and classification.
What is a Short-Term Vacation Rental?
· A dwelling that is rented short-term (less than 30 days at a time); and/or
· The intent of the occupant to reside for short-term vacation purposes; and/or
· The management or advertising of the dwelling unit as a tourist home or “vacation rental,” on websites such as Airbnb or VRBO, HomeAway, etc., and/or
· The use of a system of reservations, deposits, confirmations, credit cards, or other forms of electronic payment.
Property Classification & Background
In recent years, the emerging trend of renting residential real estate on a short-term basis caught the attention of the Cook County Assessor’s Office and elected officials as it has been the driving force of real estate value increases in a particular area. After further investigation and determining that roughly 10% of the taxable real estate value was being rented short-term, the classification of these properties was questioned.
The County Assessor’s Office has now completed an extensive amount of research across the State, with other jurisdictions and with the Department of Revenue (DOR) to develop the appropriate classification. Many counties statewide have been struggling with how to address this growing issue and to-date, consistent standards do not yet exist.
A comprehensive study, the 2018 Short-Term Rental Classification Report, was completed in 2018, by the Cook County Assessor’s Office on the property tax classification of short-term rental properties in Minnesota. (To receive a full copy of the report please email Assessor@Co.Cook.MN.US and request a copy). Through this research around 300 short-term rental cabins/houses were found, in addition to over 300 resort units who list through short-term rental sites, were identified.
The majority of the short-term rental properties in Cook County are classified as Seasonal Residential Recreational Non-Commercial(SRR). The SRR class does not fit an income-producing property as it specifically states ‘Non-Commercial’ in the classification and description of the class. The SRR classification fits the family cabin with seasonal and recreational use, not producing an income.
To classify an income-producing property that is used year-round, similar to a seasonally used cabin, did not seem equitable to the taxpayers of Cook County. With the SRR Classification, some of the property tax is exported to the State in the form of “State General Tax” and does not remain locally. A threshold was identified in which a short-term rental is no longer a Seasonal Residential Recreational property and is considered a residential rental property – when it is rented more than 30 days and less than 250 days within a calendar year.
Through analyzation of Department of Revenue Publications reports, info & ed opinions, previous case law, state statute and examining other jurisdictions, the Assessor determined the appropriate classification is residential non-homestead for the majority of short- term rental properties.
If a property is rented less than 30 days, the rental use would be considered incidental to any other use. If a property is rented short-term over 250 days, it will be classified as a commercial use. All properties rented short-term between 30-250 days, unless qualified as a seasonal resort will be classified as one of the residential non-homestead classifications.
New Classification and What It Means
In November 2018, the Cook County Assessor opted to implement a 2019 Classification Change for Short-Term Vacation Rentals in Cook County, which will be realized/payable in 2020. Most properties listed as rentals are currently classified as Seasonal Recreational and will be changed to Residential Non-Homestead. As a result of changing the classification on these properties, the Cook County Net Tax Capacity and Referendum Market Value will increase while these properties will no longer be subject to the State General property tax. County Auditor Braidy Powers indicates this will keep a greater portion of the taxes that currently go to the State, here in the County and in some cases property owners may see a reduction in their overall tax rates. The Assessor’s Office regularly updates the list of parcels available for short-term rentals in the County. The County Auditor estimates this change in classification will divert over $300,000 or approximately 3% of the 2018 property tax levy* currently going to the state general property tax, to the County’s general fund and local referendum levies. *The amount of property tax collected county wide - 2018 County Budget.
How Will a Classification Be Determined?
All short-term rentals will be examined on a case-by-case basis to determine the number of days rented during the year. Criteria the Assessor’s Office will use to determine the appropriate classification are influenced by The Minnesota Department of Revenue, The Appraisal Standards Board/Appraisal Foundation, The Internal Revenue Service, Appraiser Peer’s, and general real-estate and appraisal concepts.
Ultimately the goal of the Assessor’s Office is to classify these properties according to Minnesota statute 273.13.