County considers tax implications for short-term rentals

There was a meeting of the Cook County Board of Commissioners Sept. 9 at the courthouse in Grand Marais. Among the notable agenda items was an update on vacation rental classification as it pertains to taxation.

County Assessor Bob Thompson said the county recently changed the classification of vacation rentals from seasonal recreation to residential non-homestead. Following that, a memo from the Minnesota Department of Revenue dated May 21 was sent to every county assessor in the state. The memo says any property where the primary use of the home is a short-term rental should be classified as a 3a commercial property.

In a statement sent to WTIP, Thompson said he “intends to fully comply with the memo’s directive.”

Should vacation rentals be taxed at the commercial rate in Cook County there could be significant financial impacts for many businesses on the North Shore and private homeowners who operate vacation rentals out of their properties. These impacts could include large increases on how much tax a vacation rental operator must pay. In some instances, they could triple, Thompson said.

Thompson said the state legislature might play a role in determining, or at least have input on the proper tax classification for short-term rentals across the state.

The commissioners, Thompson and County Attorney Molly Hicken engaged in a lengthy conversation about to proceed in the best interests of the county regarding tax classification for vacation rentals. While they did not announce or determine Tuesday how to classify these properties, Thompson said the assessor’s office will be sending out a questionnaire at some point to determine a vacation rental's primary use. Hicken advised Thompson to team with the Cook County Land Services Department to gather data and contact information for people and businesses that operate vacation rentals locally.

The Land Services Department and county as a whole recently teamed with a business on the West Coast named Host Compliance to monitor the number of vacation rentals locally and how many days they rent. 

Ultimately, Thompson said, the process to determine taxation classification for vacation rentals could take up to a year or two to determine at the state level.

The audio below contains more information on this topic, including comments from Tuesday’s meeting of the county board.