On March 26, 2026, a unanimous division of the Colorado Court of Appeals ruled that a state or local government does not violate Colorado’s Taxpayer Bill of Rights (“TABOR”) by imposing a regulatory fee on short-term rentals.
In Dorotik v. Town of Breckenridge, 2026 COA 20, the division considered whether a charge on short-term rental owners enacted by the Town of Breckenridge violated TABOR. The division concluded that it did not.
In 1992, voters amended the Colorado Constitution to add TABOR, which requires state and local governments to receive voter approval prior to implementing a new tax. Taxes enacted without the requisite approval are invalid.
In 2021, Breckenridge passed Ordinance No. 35, which charged owners a fee to obtain or renew a short-term rental license. The ordinance’s purpose was to “defray the costs of housing policies and programs for the local workforce essential to the [t]ourism economy that benefits the short-term rental licensees.” After hiring a consultant and considering the data regarding guest spending and demand for affordable housing for the local workforce, Breckenridge landed on a license fee of $756 per short-term rental bedroom.
A short-term rental owner in Breckenridge sued the town to challenge the fee. He argued that the fee constituted an impermissible tax that generated excess revenue for the town and which had not been properly approved by voters pursuant to TABOR, as laid out in article X, section 20(4)(a) of the Colorado Constitution.
The trial court dismissed the suit, reasoning that Ordinance No. 35 was not a tax because its purpose “is to protect the public’s health, safety, and welfare and it labels the charge as a fee.” Additionally, the primary purpose of the charge is to defray the costs of “administering [Breckenridge’s] regulatory scheme,” not to raise revenue for general government expenses.
On appeal, the division affirmed the trial court’s dismissal.
Reviewing Breckenridge’s Ordinance No. 35, the division considered whether the town was exercising its legislative taxation power or its regulatory police power. The Colorado Supreme Court has defined taxes as charges “that raise revenues for general municipal purpose.” But municipalities can also regulate activities pursuant to their inherent police powers “to promote the health, safety, and welfare of its citizens” without taxpayer approval under TABOR. The key inquiry is whether the regulatory charge “is imposed as part of a comprehensive regulatory scheme and its primary purpose is to defray the reasonable direct and indirect costs of providing a service or regulating an activity under that scheme.” (Alterations omitted.)
First, Ordinance No. 35’s stated purpose, the division held, clearly outlined its intent to defray the costs of its programs to support the local workforce and to address the secondary impacts of the short-term rental industry. And while its label doesn’t necessarily make it “regulatory fee,” the municipality’s intent cannot be ignored.
Second, in considering the practical realities of the charge’s operation, the division analyzed “how the charge operates to determine if [it] is in fact imposed to defray the direct or indirect costs of regulation and if the amount of the fee is reasonable in light of those costs, or if the charge’s primary purpose is to raise revenue for general governmental use.” Here, the charge was fixed in the Town’s annual budget process and is separately accounted. The ordinance also restricts funds from being used for “general municipal or governmental purposes of spending.” Ordinance No. 35 also requires that the funds be spent on Breckenridge’s “housing policies and programs,” the “secondary impacts caused by the [short term rental] industry,” and to defray the costs of administrating the program. These practical realities indicate, the division held, that the charge is a fee, not a tax.
Third, the division rejected the argument that the charge must be a tax because it generates additional revenue from short-term rental guest spending on hospitality and recreation. It pointed to the Town’s consultant, who concluded that Breckenridge would have to charge $2,161 per short-term rental bedroom to defray the short-term rental impact on local housing, and that the Town set the fee at a fraction of that—$756. The division analogized to regulatory fees imposed on the sales of plastic bags and marijuana while separately taxing the products. Further, the “touchstone” of the fee analysis is whether “the charge b[ears] a reasonable relationship to the direct or indirect costs of the government providing the service of regulating the activity.” So, the division concluded, the revenue positive activity of the short-term rental charge did not violate TABOR.
The opinion was authored by Judge Kuhn, Judges Dunn and Lipinsky concurring.
For questions about this legal alert, please contact a member of the Davis Graham Appellate Group.