MN cabin, vacation property owners could see tax hike

I think the headline should be “Rental Cabins Could See Tax Hike” But heads up for all you VBRRO and AIR B&B owners. Also keep an eye open for this “Letter” coming in the mail.

-J.

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MN cabin, vacation property owners could see tax hike

Under penalty of law for lying, property owners are asked to list the number of days they personally stay at a property and the number of nights they rent it out.

Author: Associated Press

Published: 1:42 PM CST December 16, 2019

Updated: 2:35 AM CST December 17, 2019

ST PAUL, Minn. — Some Minnesota cabin and vacation property owners will receive letters this month posing questions that could carry substantial tax ramifications, and could bump their land into a pricier commercial classification.

Assessors in Cook County along the Lake Superior shore and Otter Tail County in northwestern Minnesota are among those that recently mailed out notices, Minnesota Public Radio News reported.

Under penalty of law for making erroneous statements, property owners are asked to list the number of days they personally stay at a property and the number of nights other people rent it for brief getaways.

“That’s where you have an inequity,” said Cook County Assesor Robert Thompson, “when a hotel is paying a commercial tax and a vacation rental is not paying a commercial tax but they’re operating in the same fashion and renting short-term.”

Thompson said the county has roughly 600 seasonal recreational properties at issue — a combination of cabins and individually owned resort units. Thompson set a mid-January deadline. If a form isn’t returned, he said the county would turn to information from vendors that track rental data to make a decision.

“If it’s rented more than it’s used personally, it’s going to be classified commercial,” Thompson said. “That is following the Department of Revenue’s guidance.”

Revenue Commissioner Cynthia Bauerly said the memo was not an order, but was intended to provide stability across the state. Bauerly noted local assessors classify individual parcels for property tax purposes.

However, other counties took it as a Revenue Department order. Otter Tail County’s letter to property owners said the state agency “recently directed all county assessors to review the property tax classifications of properties offered for short-term vacation rentals.”

Otter Tail officials cautioned that failure to respond by year’s end would result in a commercial classification.

Statewide, there are about 111,000 parcels valued at $10,000 or more that are classified as seasonal recreational. Bauerly believes a small fraction face classification changes, but notes it is too soon to conclude.

In May, Minnesota’s tax agency advised assessors on methods to classify properties considered short-term rentals — those that are rented for less than 30 straight days. The guidance was a response to queries the department has received amid the boom of lodging services such as VRBO, Airbnb and others.

Daryl Moeller, president of the Minnesota Association of Assessing Officers, said via email that the association expects state legislators to take up the issue in 2020.

The thing that ticks me off the most is these local “Up North” governments can hike taxes at will. Since cabin owners can’t vote in these local elections, we have no say. They always pass.

I have seen the numbers and they are outrageous. For example in Cook County, A cabin with a $3,000 tax bill could rise to over $15,000.

-J.

Always to be expected that local government will state that they are “required” to reassess per instructions from the State Revenue department. No accountability on their part, pass the buck upward. Also to be expected is that the default position will be that property will be assessed at the highest tax rate classification unless the property owner responds per the instructions of the assessor and makes an acceptable case.

Also agree with John Jordan’s comment about being taxed without representation for recreational property outside of your county of residence.

Jon Jordan wrote:

The thing that ticks me off the most is these local “Up North” governments can hike taxes at will.

In fairness to the counties and the subject of the story listed, this is not really “hiking taxes at will”. This is about the property owners dodging existing taxes by hiding the fact that they are running a business disguised as a family cabin.

There has been a significant trend toward cabin owners running stealth businesses and ducking existing taxes while still claiming deductions on the other side of the ledger. I don’t blame the counties for trying to enforce existing laws. I can see where local businesses, resorts and others who have to pay the taxes that VRBO owners are dodging would want to see a level playing field.

Grouse

It will be interesting to see what this will do to cabin prices if it does happen

Completely agree with Grouse here, people using their properties like this should have to be on a level field with other small businesses since they’re maintaining the properties as such.

I agree with that comment TFG. However, the counties should address the problem property owners rather than blanket every cabin owner with a “Do this or else” letter. St Paul is dong this now for VBRO and AIR B&B. The city didn’t send a letter to every property owner in the city to get it figured out. Ugggg!

-J.

I like it! I’m not a huge fan of VRBO and alike popping up everywhere especially on smaller lakes. Nothing like going up north to get away and every week you have new guests and most want to party. These establishments should be zoned commercial. I’d put up a great fight if one of these moved in at a lake lot I owned…and it’s only going to get worse.

I hope they can find that sweet spot where the state makes it money as it should, levels the playing field for hotels and resorts, yet still allows many of these cabin owners to keep doing what they are doing. Good to see different and/or affordable options up north or wherever they may be.

ClownColor wrote:

I’d put up a great fight if one of these moved in at a lake lot I owned…and it’s only going to get worse.

Agreed. I never really thought about that point of view, I wouldn’t want one of these as my neighbor. Sure, I’m quiet and courteous when renting a property, but I know MANY people are not. Not sure if this process is the right way of enforcing the law, but you can’t please everyone.

My parents happen to own a home next door to their lake property. They rent it out also, but long term rentals only, with screening. These VRBO and Airbnb type websites can make owning a home next door a nightmare.

Jon Jordan wrote:

The thing that ticks me off the most is these local “Up North” governments can hike taxes at will. Since cabin owners can’t vote in these local elections, we have no say. They always pass.
I have seen the numbers and they are outrageous

Absolutely no different than a resort owner living in a different county than his business. He doesn’t get to vote either.

In full agreement with clowncolor’s comment … our remote cabin is our refuge from noise and commotion until the folks (from calif) who own the cabin on the adjacent property started renting on VRBO and attracting loud, disrespectful partiers who frequently destroy the quiet and serenity of the northwoods. Also agree that if the owner is running a business by renting the property they ahould to be taxed on that income.

Jon Jordan wrote:

Under penalty of law for lying, property owners are asked to list the number of days they personally stay at a property and the number of nights they rent it out.

“If it’s rented more than it’s used personally, it’s going to be classified commercial,” Thompson said. “That is following the Department of Revenue’s guidance.”

I can’t for the life of me understand how they will be able to “police” the answers. Who in their right mind, considering the relatively short season, will admit to more than 1/2 the time being rented out. This will lead to neighbors ratting one another out.

HRG

“This will lead to neighbors ratting one another out.”

Then so be it. I really dont like the fact some feel their so entitled they feel their above the law. Try to change the law rather than go around it. This supposed to be a democracy,right?

Everything we do is on the honor system. If you want to cheat on your taxes it’s just a mouse click away.
However by lying about it opens you up to get the book thrown at you.

Hot Runr Guy wrote:

I can’t for the life of me understand how they will be able to “police” the answers. Who in their right mind, considering the relatively short season, will admit to more than 1/2 the time being rented out.

It’s like any other business reporting activity. A business owner can cook the books and lie to the county in response to the letter. However… this comes at the risk that the government could catch you some other way.

The county could get VRBO/Air B&B records, they could get MN state tax records that show the owner writing off cabin expenses, or the neighbors could rat out a renting owner. And THEN you’d be in hot water not just as a tax dodger but for lying on the form as well.

These “sharing economy” businesses have become sensitive to the fact that they can quickly be regulated out of business by local governments, so it’s not out of the realm of possibility that some MN counties ALREADY have a list of cabin renters. And they’re just waiting to see who tries to lie about it.

Grouse

You vote the government in, vote them out and change the law. Complaining about the gov does nothing if your not willing to do anything about it.
Sorry you feel about cabin owners, I see the same thing with neighbors at home and towns I travel through.

I’m really not understanding the stupid argument here. These property tax laws have existed for some time now and no one had a problem with them until now? Now that they are threatening to enforce them?

Am I reading this right?

biggill wrote:

I’m really not understanding the stupid argument here. These property tax laws have existed for some time now and no one had a problem with them until now? Now that they are threatening to enforce them?

Am I reading this right?

Yeah, you are reading it right, but I think where its getting its steam from is that with the popularity of VRBO and AirBNB now there are a LOT more people doing it than there was even just a few short years ago.

I look at it two ways, I wouldnt be too excited to live next to one for sure especially if they had troublesome renters, but that may not change at all regardless of this law being enforced because if the property owner is forced to pay commercial tax rates, then you can guarantee they are going to rent it out MORE.

The other thing is from a property owner aspect, they already are paying a significantly higher tax rate because its not homestead property. Which by definition means they are not living there the majority of the time. So, seeing this some property owners found a way to make some income when they arent using it. I honestly dont find too much harm in that provided its not a significant portion of the calendar year which is the spirit of this law in the first place IMO.

biggill wrote:

I’m really not understanding the stupid argument here. These property tax laws have existed for some time now and no one had a problem with them until now? Now that they are threatening to enforce them?

Am I reading this right?

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Jighead4914 wrote:

Thanks Sinker, I dont hate weekend cabin owners. just making a point. VRBO are not worst thing to happen, If you cant afford a cabin at first, making it a VRBO or Air B&B just might make it doable for your family to own a vacation home now and in the future.

…get off my lawn

On a different thought about this what if this passes and a closer cabin state such as wisconsin decides not to do this? assuming they dont already. The minnesota “rentals” would have to up prices or start selling off if its only an investment property. I wonder if the similar properties in western wisconsin would see a boom in bookings based on it being cheaper? then those minnesota cities would be losing a lot of people visiting local businesses. All speculation but its interesting to think about… Might need some more white claws to think this one over.

Jighead4914 wrote:

VRBO are not worst thing to happen, If you cant afford a cabin at first, making it a VRBO or Air B&B just might make it doable for your family to own a vacation home now and in the future.

From what I have seen that is not what’s happening. Most are using vacation rentals as a business ducking the taxes and making a fortune. They own many property’s and it’s driving the values out of range for legitimate people. Many owners are from out of state or out of the country. I have rented through vrbo in the u.s., Mexico and Costa Rica and have never met a property owner.
Bottom line is it’s illegal and the property is not zoned for what they are doing. With the new fee’s through vrbo and governments wising up I think the heyday maybe coming to an end.

MnPat1 wrote:

<div class=”d4p-bbt-quote-title”>jighead4914 wrote:</div>
VRBO are not worst thing to happen, If you cant afford a cabin at first, making it a VRBO or Air B&B just might make it doable for your family to own a vacation home now and in the future.

From what I have seen that is not what’s happening. Most are using vacation rentals as a business ducking the taxes and making a fortune. They own many property’s and it’s driving the values out of range for legitimate people. Many owners are from out of state or out of the country. I have rented through vrbo in the u.s., Mexico and Costa Rica and have never met a property owner.
Bottom line is it’s illegal and the property is not zoned for what they are doing. With the new fee’s through vrbo and governments wising up I think the heyday maybe coming to an end.

I think what is happening is fair.

If a property owner is renting out a property almost exclusively to make money (like a business), they SHOULD BE TAXED AS A BUSINESS, and the income should be taxed as well.

Renting out a remote cabin is no different than renting out an apartment building you own. Same thing, just different scenery. Your “cabin” should be up to code and zoned appropriately, IF the majority of time it’s a money making rental property.

If you’re a cabin owner renting out your family cabin a handful of weeks or weekends to help offset your property taxes and keep the heat on….. that’s a completely different story. It seems the state agrees with that mentality and will leave you be.

Youbetcha wrote:

The minnesota “rentals” would have to up prices or start selling off if its only an investment property.

If they’re selling off their investment property for this reason they were cheating on their taxes.

biggill wrote:

If they’re selling off their investment property for this reason they were cheating on their taxes.

I agree with you on that. In a selfish way I kinda hope the people in it for the money all end up selling and driving prices down some so more people might have a chance at affording a nice cabin. (for personal use)

Since we bought our cabin and head up every other weekend, we pull in and the neighbors pull the shades turn off their lights.
Just sayin.

I must be the exception. We rent a private cabin for a week once or twice a year, and have established a relationship with the closest neighbor, who has even offered to let us use his dock when the rental one is not in yet.

HRG

Clearly it can go both ways with tenants, but the VRBO’s should pay the proper fees.

Now I don’t know much about renting out property but just like any other business, I’d be willing there are other federal tax breaks for doing so. Especially if you are being hit so hard on property tax. I’d be willing to bet that $15k mentioned earlier is not nearly what is netted by big brother in the end.