Passage of tax bill brings clarity to vacation rental properties in Cook County

After months of discussion, much of it halted by the COVID-19 pandemic and delays to the decision making process at the Capitol this year, the Minnesota Legislature in recent days approved the largest public works infrastructure package in state history.

Included in the package is a tax bill containing language for a new classification that applies to all vacation rental properties in Minnesota, including an estimated 600 such properties in Cook County.

The new tax classification is essentially the same as a residential non-homestead property as opposed to a seasonal rec cabin or a commercial property.

For those properties in Cook County, the change to this new classification will result in a tax increase of roughly 15 to 20 percent over their original tax designation as ‘seasonal rec’ properties, according to Jim Boyd, the director of the Cook County Chamber of Commerce. Boyd and others with the local chamber of commerce were instrumental in working with the Cook County Board of Commissioners and county staff to draft a resolution that was sent to St. Paul in hopes of bringing a clear and statewide approach for how to tax vacation rentals in Minnesota.

Boyd said Oct. 15 that while the uniform approach to taxing vacation rentals is good news, it also means these properties are liable for school levy override tax burdens, from which they were formerly exempt. That being the case, more of the tax revenue paid by these properties will stay in Cook County rather than flowing to St. Paul, Boyd said.

Cook County Assessor said during an Oct. 16 interview on WTIP that the passage of the tax bill is good news for most taxpayers. The new tax classification is also good news for owners or operators of vacation rentals in Cook County, primarily for those that would be considered commercial properties. As of January 2020, if a short-term rental operation, be it a cabin in the woods or a privately owned condominium at Bluefin Bay Resort, is rented for more than 183 days during a calendar year, the property was to be taxed at the commercial rate.

Thompson said the current language of the tax bill does not allow for a retroactive classification for taxes this year for vacation rentals. That being the case, more than 150 Cook County vacation rentals will likely pay the commercial tax rate this year, Thompson said.

This situation started with a May 2019 memo from the Minnesota Department of Revenue explaining that any property in the state of Minnesota where the primary use is short-term rental needs to be classified as a 3a commercial property. However, what determines ‘the primary use’ of a property in this context leaves room for interpretation. The memo said that it “does not address how assessors should determine or verify a property’s primary use, the first step in classification.”

All of this, from determining primary use to confusion over how vacation rentals should be taxed in Cook County, is no longer an issue or debate following the recent passage of the tax bill, Thompson said.

Listen to the audio below to hear Thompson’s Oct. 16 interview on WTIP with News Director Joe Friedrichs.

Joe Friedrichs October 18, 2020