Pillow Tax and Liability: Renting Your Mt. Crested Butte Home

Pillow Tax and Liability: Renting Your Mt. Crested Butte Home

You may not have noticed the recent letter from the Town of Mt. Crested Butte regarding the responsibility you have to collect and remit the “Pillow Tax” and Sales Tax to the town of Mt. Crested Butte. The Pillow Tax is the license to do business in Mt. Crested Butte – it is a yearly fee of $10 per pillow. As an example if your home is advertised that it sleeps 10 then your annual tax is $100, if your home is advertised that it sleeps 15 then your annual tax is $150…etc.

Short Term Rental and Sales Tax – whether you are renting via word of mouth, through a property management company, or through VRBO.com, Homeaway.com Airbnb.com…etc  you will also need to collect and pay sales tax of 13.5% and reporting those sales to:

1. Town of Mt. Crested Butte
2. Gunnison County
3. Local Marketing District (also Gunnison County)
4. State of Colorado

HELP – This can be a daunting collection, remittance and reporting nightmare –  If you need help setting all of this up – you can contact Tiffany O’Connell – Deputy Town Clerk at toconnell@mtcrestedbutte-co.gov or (970) 349-6632.

Mt. Crested Butte Town Website and Code for the above can be found in Chapter 11 and Chapter 19 – www.mtcrestedbuttecolorado.us for more info.

Insurance and Liability – Most standard homeowners insurance policies DO NOT cover short-term rentals. As well there is significant liability exposure if you do not protect you personal assets from a lawsuit if for example someone slips on ice on your property…etc As an excerpt from my book The Complete Guide to Buying Your Mountain Dream Home  – Quick and Easy Tips to Help You Purchase Your Vacation Home.

Insuring Your Vacation Home That Is Also a Rental Home
What if the maid service or the property manager does not lock the upstairs exterior door after the renters leave and the door blows open and a pipe freezes and breaks and 50,000 gallons of water flow through three levels of the house before the problem is detected a week later? If this happened as a result of renters and you did not have a policy covering that use, you may not be covered. Your insurance carrier will likely require you to install a security system that has water detection devices (“water bugs”) located under every sink, next to every toilet, and the water heater. A water main shut-off valve will be tied into the system so that if water is detected, the water main line will be turned off, preventing significant damage and sending an alert to the home monitoring service. Fire alarms and CO2 detectors are also required by most states, and will be a part of the home security system. Talk with your insurance company and ensure you have a policy that covers your vacation home and your rental home scenarios.

A regular homeowner’s policy and a vacation home policy may cover personal liability, but personal liability coverage or a personal umbrella policy will not cover business activities, such renting your second home. Personal liability is intended to cover you in the event that someone claims that you have caused them bodily injury, or damaged their property as a result of your personal actions. When you rent your home, you are a business and you need commercial liability coverage (business liability), which is specifically designed for “business activities” like your second home rental business. Liability coverage protects you if someone slips on an icy sidewalk and you are sued for damages. If there is severe damage to your second home and it cannot be rented, you may also want to ensure that your lost rental income is also covered.

Who Should “Own” Your Rental Home, You or an Entity?
What about the “renter slips on the ice” worst-case scenario, where you get personally sued for negligence and $1,000,000? Just like you need liability coverage to protect you, it is also recommended to separate your personal finances from your business liability. It is wise to contact an attorney to set up an entity that will shield your personal assets from a potential lawsuit from a renter. Anybody at any time can sue you; the lawsuit may be justified or frivolous, but you will likely need to hire an attorney to defend yourself. If you set up a Family Limited Partnership (FLP), Limited Liability Company (LLC) or a Corporation, you can separate your personal assets from being at risk. Talk with an attorney to ensure you are informed and protected.