Surge in cabin rentals in northern Minnesota sparks tax debate
"Excellent VRBO potential," read one, referencing the Vacation Rental By Owner business.
"This tiny house is currently used as a rental ... May through October," advertised another.
Thanks to the internet, renting out cabins has become so popular that some officials are now wondering: At what point does the simple family cabin morph into something more? And should it be taxed more heavily?
In
"We're ... trying to be as equitable to the taxpayers as we possibly can," Smith said. "That's really what our job is."
While properties in
"They're leading the pack because they are affected the most," said
Officials in the
While most of the county is forest owned by the state and federal government, outsiders have for decades owned vacation properties around the
Many are family cabins, some of which have been rented out periodically. Others are individually owned, condo-style properties managed by resorts. But, more recently, some property owners seem to be placing multiple stand-alone properties into the short-term rental market full time.
Along one shoreline-hugging road, a small company from
The cabins sold for handsome prices, Smith said. As set out by state rules, assessors used those sale prices to determine taxable value on comparable properties nearby.
The sales were "driving the market, so values were going up," Smith explained.
Rick and
So they appealed. Once appraisers realized their property wasn't the same as the nearby vacation rentals, their taxable value went down.
The problem, the Assessor's Office said, was the increase in value of nearby cabins used as vacation rentals.
"These people are doing it for a year-round rental business,"
Proposal sparked panic
After several appeals by other cabin owners, Smith's office began to reconsider whether it was fair to assign the "noncommercial seasonal residential recreational" classification to everyone -- those owning properties used solely as family cabins as well as those that seemed designed to rent out almost constantly.
Smith, who doesn't set tax rates but only determines classifications based on use, at one point considered designating popular rentals as commercial -- something that could have raised some property taxes by 150 to 300 percent.
The proposal sparked some panic, including among some longtime residents who have recently invested time, energy and savings into building or restoring properties to rent out. A switch to a commercial classification could have destroyed their ability to do business.
But most short-term rentals simply aren't that profitable, argues
"Vacation rentals don't actually net very much money at the end of the day," Surbaugh said. He advises most clients that renting out their second homes can help pay for property taxes, insurance and utilities. Homes that do really well on the vacation rental market might also produce income to help with upgrades, maintenance and modest mortgage contributions, he said.
Real estate developer
He keeps the property because his family has made wonderful memories there, he said. But he argues that it shouldn't be compared to businesses that operate year round.
"My income is based on 150 nights a year," he said. "You really can't just paint it with a brush as if somebody's there every day."
Hoping to resolve the issue, Smith contacted the state
"Changes in property use over time, including increase of vacation rentals by owner properties, create new circumstances," a department spokesman said in an e-mail to the
A question of fairness
But finding the right designation is a question of fairness, assessors say.
In some areas, hotel owners complain that they're losing revenue to less-regulated cabin rentals.
"If you're going to operate sometimes like a hotel, then you should be on equal footing," said Swartwoudt, the
The question, he said, is "at what point does it become a business?"
"Obviously we support the right of people to do what they want with their properties," Forester said. "There has to be some definition of what it means to be a business."
Vacation rentals have a significant economic impact, Surbaugh pointed out. A firm hired to study vacation rentals in
In the
"If you're in that arena, it kind of polarizes people one way or the other," he said. "I will be watching. Absolutely."
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