Cook County commissioners are asking the state of Minnesota to clear up the confusion around shortterm rental classifications.
At the board’s February 11 meeting, commissioners passed a resolution giving the Minnesota Legislature three options to consider that would place short-term rentals, Airbnbs and short- term lodging establishments into their own classification.
Early last year the Minnesota Department of Revenue, in response to Minnesota county assessors who asked for guidance about short-term rental classifications, said that if a home’s primary use is as a short-term rental, it shall be classified as 3a Commercial for 2020 taxes payable in 2021.
What defines primary use?
In December 2019, Cook County Assessor Bob Thompson came before the Cook County board of commissioners with an answer.
Thompson said a multiple use property, such as a seasonal cabin used for short-term rentals, that has 183 nights or more of rental in a calendar year will be classified commercial.
Thompson wasn’t the only county assessor to use the 183-day rule. Crow Wing County and Cass County used the same 183- day standard. However, other assessors across the state came up with different standards for primary use, and that led to the question of fairness.
During the summer of 2019, commissioners voted to adopt Vacation Rental License Ordinance 62, which provides a five month enrollment window for all current vacation rental owners to file for a license between January 1, 2020, and May 31, 2020.
The intent of the county’s Vacation Rental Ordinance is to continue the allowed use of private vacation rental homes and cabins, but also mitigate possible adverse impacts of those operations. The draft ordinance establishes basic requirements for each rental operation.
However, some business owners and vacation rental providers are upset with the new ordinance and have asked the county to hold off on licensing this year.
The Cook County Chamber of Commerce cited unfairness with the new classification. Cook County Chamber of Commerce Director Jim Boyd crafted a resolution from the chamber for the county board to consider. Generally, the resolution stated that if the county’s short-term rental property ordinance went into affect, it would triple current property tax burdens on “affected properties.”
The chamber’s resolution called for a series of changes in the Cook County ordinance, and asked the county commissioners to endorse the direction the chamber proposal takes, “and requests the 2020 Minnesota Legislator enact legislation to make these changes, creating clarity and certainty for Cook County’s economy and all owners of short-term rental properties in Cook County.” If action by the Legislature in 2020 proves impossible, the chamber supports a year-long moratorium on changes in tax classification of short-term rentals and the appointment of a legislative task force to address the issue and make recommendation’s to the 2021 Legislature.”
Senator Tom Bakk asked Cook County to come up with a resolution that he could take to the Minnesota State Legislature that could solve this confusion over short-term rental classifications.
Cook County Commissioner Dave Mills used Boyd’s resolution as a template for the county’s resolution to the Minnesota Legislature.
Mills’ resolution points out that the current Minnesota property tax system did not fully contemplate the short-term rental of residential property, and the “primary use” directive led to inconsistent practices in classifying property used for short-term rentals across the state.
The resolution “recommends the Legislature create a property classification for short-term residential rentals, defined as: one to two residential units rented for periods of less than 30 consecutive days and or advertised as a short-term rental in the year preceding the assessment date; and
“Therefore, the Cook County Board recommends a local class rate of 1.25 percent for the first $275,000 of property value and at 1.5 percent for any dollar of property value exceeding $275,000, this class being subject to RMV tax and exempt from state general tax; or more generally, a local class rate higher than the Seasonal Recreational class and lower than the Commercial class; or alternatively, including residential properties used as short-term rentals in the current class 4b(1), Residential Non- Homestead (1-3 units).”
The resolution was sent to Senator Tom Baak who will present it to the 2020 legislature. Should the legislature agree to make one rule that would cover how short-term rentals are classified, that new rule would nullify any of the counties that had come up with a regulation that wasn’t the same as the new legislation for short-term rentals.
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