State Supreme Court will decide whether Breckenridge's rental fee is a tax

In its case announcements on Monday, the court granted the petition for a writ of certiorari in Alexander Dorotik v. Town of Breckenridge, case No. 26SC283, and will decide the case en banc. The court denied the petition as to all other issues, and Justice Gabriel does not participate in the case.

The court reframed the dispute into two questions. The first asks whether a governmental entity can place a fee on a revenue positive activity, specifically an activity that directly and immediately generates revenue in an amount greater than the expense of that activity to the municipality, without voter approval. The second asks whether the court of appeals mischaracterized the charge at issue in a 2018 decision, Colorado Union of Taxpayers Foundation v. City of Aspen, describing it as a fee on shopping rather than a fee on the distribution of single-use bags.

The Breckenridge charge dates to 2021, when the town council passed Ordinance No. 35, imposing an annual regulatory fee on owners who obtain or renew a short-term rental license. According to the court of appeals, the fee's stated primary purpose is to defray the costs of housing policies and programs for the local workforce essential to the tourism economy that benefits rental licensees. A consultant's study for the town calculated a maximum fee of $2,161 per bedroom; the council capped the enacted charge at 35 percent of that figure, which set the fee at $756 per bedroom.

Dorotik, who owns a townhome in Breckenridge subject to the fee, sued, arguing that spending by rental guests generates more town revenue, through sales and lodging taxes, than the housing programs cost the town, which would make the charge a tax. Under the Taxpayer's Bill of Rights, the constitutional amendment voters added in 1992 and known as TABOR, a new tax requires voter approval. The district court in Summit County granted the town's motion to dismiss the case.

A division of the court of appeals affirmed that dismissal in March, in an opinion by Judge Kuhn. Considering the question as a matter of first impression, the division held that a government can impose a regulatory fee even if the activities being charged also generate revenue under the government's general taxation scheme, applying the state Supreme Court's 2018 Aspen decision. The opinion notes that the annual fee is fixed by the town council at no more than $756, that the money is separately accounted for by the town's finance director, and that it may not be used for general municipal purposes or transferred to the town's general fund.

The Supreme Court's grant means the fee's future rests on how the justices answer the two questions, including whether the Aspen precedent controls a charge tied to a rental license. Monday's announcement set no argument date.