COLORADO COURT OF APPEALS                                    2017COA30


Court of Appeals No. 16CA0066
Colorado State Board of Assessment Appeals Nos. 65665 & 65666


James E. O’Neil, Mary Ellen O’Neil, Shay Patrick O’Neil, and Shaun Michael
O’Neil,

Petitioners-Appellees,

v.

Conejos County Board of Commissioners,

Respondent-Appellant,

and

Board of Assessment Appeals,

Appellee.


                               ORDER AFFIRMED

                                    Division II
                            Opinion by JUDGE DAILEY
                         J. Jones and Berger, JJ., concur

                           Announced March 9, 2017


Benjamin F. Gibbons, P.C., Benjamin F. Gibbons, Monte Vista, Colorado, for
Petitioners-Appellees

Nicolas Sarmiento, County Attorney, Conejos, Colorado; Stephane Walter
Atencio (on the briefs), Alamosa, Colorado, for Respondent-Appellant

Cynthia H. Coffman, Attorney General, Emmy A. Langley, Assistant Attorney
General, Denver, Colorado, for Appellee
¶1    In this property tax case, respondent, the Conejos County

 Board of County Commissioners (the County), appeals an order of

 the Board of Assessment Appeals (the Board) classifying property

 owned by the petitioners, the O’Neil family, as residential for tax

 purposes. We affirm.

                            I.    Background

¶2    In 2010, James E. and Mary Ellen O’Neil purchased the

 subject property and built a log house on it, to be used as a

 vacation home and an inheritance for their two sons, Shay and

 Shaun.1 The house was initially classified for tax purposes as

 residential.

¶3    The O’Neils, who primarily live in New Mexico, periodically

 visited the home, but it remained unoccupied much of the time.

 Starting in August 2011, the O’Neils listed the property as available

 for short-term, overnight rental on the website Vacation Rentals By

 Owner (VRBO). In order to rent the property, they obtained from

 1 After purchasing the property, James and Mary Ellen purportedly
 quitclaimed it to Shay and Shaun. In the quitclaim deed, James
 and Mary Ellen (1) reserved the right to the use, occupation, and
 benefit of the property for the duration of their lives; (2) retained full
 financial responsibility for debts associated with the property; and
 (3) reserved the right to, at their option, render the deed null and
 void.

                                     1
 the County a special use permit, which required payment of sales

 and lodging tax; the permit did not reclassify the property or change

 the zoning from residential.

¶4    In 2012, the Conejos County Assessor (the Assessor) re-

 classified the property, for ad valorem tax purposes, from

 residential to commercial. Because the reclassification worked to

 the O’Neils’ detriment,2 James O’Neil filed a petition for abatement

 with the County regarding the 2012 and 2013 tax years. After the

 County denied the petition, the O’Neils filed an appeal with the

 Board, which, after conducting an evidentiary hearing, overturned

 the Assessor’s action and returned the property’s classification to

 residential for those years.

¶5    The County appeals the Board’s decision to this court,

 pursuant to sections 13-4-102(2)(x) and 39-8-108(2), C.R.S. 2016.




 2 In Colorado, tax rates apply to the “assessed value” of the
 property, meaning they are applied to a fraction of the value that is
 determined by the assessment rate. “Residential” property is
 assessed at 7.96% of its actual value, adjusted biennially; whereas
 “commercial” property is assessed at a rate of 29% of the actual
 value. §§ 39-1-104(1),-104.2(3), C.R.S. 2016; 2 Div. of Prop.
 Taxation, Dep’t of Local Affairs, Assessors’ Reference Library § 6, at
 6.1 (rev. Jan. 2017).

                                   2
                    II.   The Property’s Classification

¶6    The County contends that the Board improperly classified the

 O’Neils’ property as residential. We are not persuaded.

         A.     A Procedural Issue: Addressing the Presumption
                  Afforded the Assessor’s Classification

¶7    The County contends that the Board failed to apply the

 presumption in favor of the Assessor’s classification of the property.

 We disagree.

¶8    In the Board proceedings, the O’Neils, as the taxpayers, bore

 the burden of rebutting the presumption that the Assessor’s

 classification was correct. Gyurman v. Weld Cty. Bd. of

 Equalization, 851 P.2d 307, 310 (Colo. App. 1993). While the Board

 did not specifically cite this presumption, it began its analysis by

 thoroughly addressing the County’s position. It analyzed the

 commercial classification statutes, as well as the definitions of

 “commercial property” and “mixed use property” in related

 materials. It considered the Assessor’s testimony, and the meaning

 of “overnight lodging” offered to the public.

¶9    Only after analyzing the County’s position did the Board

 consider whether the O’Neils had presented sufficient evidence to



                                     3
  prove that the Assessor’s classification of the property as

  “commercial” was incorrect. The Board found that, although the

  Assessor had classified the property as commercial “[b]ased on her

  research and conviction that the subject’s primary use was

  “lodging,” the O’Neils nevertheless presented sufficient evidence to

  prove that the primary use of the house was residential. In our

  view, the Board’s order demonstrates that it implicitly applied the

  presumption in favor of the County, and then found that the O’Neils

  had met their burden of proof. See id. (“[T]he determination

  whether that burden of proof has been met by competent evidence

  by the taxpayer is a question of fact for the [Board] to decide.”); see

  also Bd. of Assessment Appeals v. Sampson, 105 P.3d 198, 205,

  207 (Colo. 2005) (“A taxpayer who met [its] burden of proof also

  successfully rebutted the presumption of correctness. . . . [A]

  taxpayer is entitled to relief by demonstrating that the classification

  is incorrect.”).

                     B.   The Merits of the Board’s Decision

¶ 10    The Board has authority to review county tax assessments and

  decisions of boards of county commissioners. Gilpin Cty. Bd. of

  Equalization v. Russell, 941 P.2d 257, 261 (Colo. 1997); see §§ 39-2-


                                       4
  125(1), 39-8-108(1), C.R.S. 2016. Because the Board acts de novo

  in these proceedings, we review the propriety of the Board’s

  classification determination, and not that of the Assessor or the

  County. Johnston v. Park Cty. Bd. of Equalization, 979 P.2d 578,

  581 (Colo. App. 1999).

¶ 11   Because the Board’s property classification involves mixed

  questions of law and fact, it will be upheld on appeal if it (1) has a

  reasonable basis in law and (2) is supported by substantial evidence

  in the record. Home Depot USA, Inc. v. Pueblo Cty. Bd. of Comm’rs,

  50 P.3d 916, 920 (Colo. App. 2002).

¶ 12   At issue here is whether the O’Neils’ property should be

  classified as “residential” or “commercial.”3


  3 Although the County, in its brief, refers to several cases involving
  a third type (i.e., “mixed use”) of classification, it does not argue
  that the O’Neils’ property should be so classified. Such a
  classification appears to have been reserved for properties that,
  unlike the O’Neils’, have discrete or separate areas that can be
  simultaneously occupied or used for both commercial and
  residential purposes. See, e.g., 2 Assessors’ Reference Library § 6,
  at 6.27 (“Hotels and motels are classified, valued, and assessed as
  commercial property unless documentation exists to support a
  classification as mixed-use property. To be classified as a mixed-
  use property, the hotel or motel property owner and/or operator
  must be able to document the use of any portion of the property as
  residential property. Specifically, evidence of overnight
  accommodation that is leased or rented for thirty consecutive days

                                     5
                     1.    Reasonable Basis in Law

¶ 13   Section 39-1-102(14.5), C.R.S. 2016, defines “[r]esidential real

  property” as meaning “residential land and residential

  improvements.” Sections 39-1-102(14.4)(a) and 39-1-102(14.3), in

  turn, define “[r]esidential land” and “[r]esidential improvement,”

  respectively, as “a parcel or contiguous parcels of land under

  common ownership upon which residential improvements are

  located,” and “a building, or that portion of a building, designed for

  use predominantly as a place of residency by a person, a family, or

  families.”

¶ 14   The applicable statute does not define “commercial property.”

  The State Property Tax Administrator’s Assessors’ Reference Library

  (ARL) manuals — which are binding on all county assessors4 —

  define “[c]ommercial property” as “includ[ing] all lands,

  improvements, and personal property used as a commercial


  or longer by the same person or business entity must be
  provided.”); see also E.R. Southtech, Ltd. v. Arapahoe Cty. Bd. of
  Equalization, 972 P.2d 1057, 1058 (Colo. App. 1998) (classifying as
  mixed-use a rental complex “consisting of 10 separate buildings,
  each containing 12 housing units,” and taxing half used as a hotel
  as commercial, and half rented as apartments as residential).

  4 See Huddleston v. Grand Cty. Bd. of Equalization, 913 P.2d 15, 17
  (Colo. 1996).

                                     6
  enterprise.” 2 Div. of Prop. Taxation, Dep’t of Local Affairs,

  Assessors’ Reference Library § 6, at 6.27 (rev. Jan. 2017). Although

  the manuals do not define the term “commercial,” a division of this

  court has recognized that “[t]he ordinary meaning of ‘commerce’

  includes both activities ‘having profit as a primary aim’ and other

  ‘dealings between individuals or groups in society.’” Mission Viejo

  Co. v. Douglas Cty. Bd. of Equalization, 881 P.2d 462, 466 (Colo.

  App. 1994) (quoting Webster’s Third New International Dictionary

  456 (1986)). The “commercial” nature of property does not depend

  on its profitability. Id.; see also Manor Vail Condo. Ass’n v. Bd. of

  Equalization, 956 P.2d 654, 657 (Colo. App. 1998) (in determining

  whether property should be classified as “commercial,” “the

  profitability of the property is not controlling”).

¶ 15   Whether property is classified “residential” or “commercial,”

  then, depends, respectively, on whether it was “designed for use

  predominantly as a place of residency” or whether it was used for

  activities “having profit as a primary aim” or “other dealings

  between individuals or groups in society.”

¶ 16   In making this determination, we consider several factors — to

  wit, the use for which the property was originally designed; the


                                      7
  current, actual use of the property; zoning and any other applicable

  use restrictions; and the reasonable future use of the property. See

  Mission Viejo, 881 P.2d at 465 (listing the last three factors); see

  also 3 Div. of Prop. Taxation, Dep’t of Local Affairs, Assessors’

  Reference Library § 2, at 2.3 (rev. Jan. 2017) (listing the “primary

  criteria for classification” including current use, zoning and use

  restrictions, probable use, and future use); 2 Assessors’ Reference

  Library § 6, at 6.1 (stating that “the use for which improvements

  were constructed” can also be considered in classifying property).

¶ 17    In this case, the Board determined that the proper

  classification of the property was “residential” because its

  “predominant and actual use was as a second home.” The Board

  based this conclusion on the following circumstances:

        The property was designed for use predominantly as a

         residence.

        The site was purchased and the home was built for personal

         use.

        The O’Neils’ intent was to use the property as a second home

         and as an inheritance for their sons.




                                     8
        The decision to allow short-term rentals was made to offset

         expenses and to share the outdoor experience with visitors.

        Even though the property was made available much of the

         year, most of the rental activity occurred in the summer

         months.

        The O’Neil family itself used the property when possible.

¶ 18    In our view, the Board’s determination has a “reasonable basis

  in law,” inasmuch as it is based on the relevant factors of original

  intended use of the property, its actual current use, and its

  reasonable future use.

                   2.   Substantial Evidence in the Record

¶ 19    The Board’s decision is also supported by substantial evidence

  — the testimony of James E. O’Neil. “Substantial evidence is that

  which is probative, credible, and competent, such that it warrants a

  reasonable belief in the existence of a particular fact without regard

  to contradictory testimony or inference.” City of Loveland Police

  Dep’t v. Indus. Claim Appeals Office, 141 P.3d 943, 950 (Colo. App.

  2006).5


  5 We evaluate the “substantial evidence” issue in this manner
  largely because the evaluation of the credibility of the witnesses and

                                     9
¶ 20   In the Board hearing, O’Neil testified that the property was

  built as a vacation home for the family and to pass on to its sons.

  The O’Neil family went there “as much as possible,” which included

  “two or three dozen times . . . for a long weekend, or a week” in

  2012, and two weeks in 2013. O’Neil testified that “we would go up

  there with our family, our dogs, whatever, and just enjoy it, even

  during the winter months.” Even though the property was

  advertised most of the year as available for rent on VRBO, O’Neil

  described the property as “rented only during the summer months”

  and vacant most of the time.

¶ 21   O’Neil further testified that when the house was listed for rent

  on VRBO, the primary intended use of the property did not change

  to generating income. He explained that the money earned from

  renting was “to provide upkeep to the house . . . while we shared it

  with other people” and that “it might help supplement some of the

  things, such as upkeep and maintenance.” He stated that “it was

  nice that people would pay to use, so that we could provide cleaning



  the weight, probative value, and sufficiency of all the evidence are
  matters solely within the factfinding province of the Board.
  Gyurman v. Weld Cty. Bd. of Equalization, 851 P.2d 307, 310 (Colo.
  App. 1993).

                                    10
  services, and upkeep on the home, and all the necessary things.

  But, as you can easily see, we showed quite a loss on every year

  that we rented.”

¶ 22   Finally, O’Neil related that the property is located in a

  “Residential Zone District” and subject to a restrictive covenant

  prohibiting it from being used for “commercial” purposes.

¶ 23   Based on this evidence, the Board in our view reasonably

  determined that the intended and actual use of the property was

  predominantly residential rather than commercial in nature. See

  Houston v. Wilson Mesa Ranch Homeowners Ass’n, 2015 COA 113,

  ¶¶ 19, 24 (finding that, for purposes of a restrictive covenant on a

  home listed on VRBO, “mere temporary or short-term use of a

  residence [by vacation renters] does not preclude that use from

  being ‘residential’ . . . [and] that receipt of income does not

  transform residential use of property into commercial use”).6


  6The County’s reliance on Farny v. Board of Equalization, 985 P.2d
  106 (Colo. App. 1999), and E.R. Southtech, 972 P.2d 1057, for a
  different conclusion, is misplaced.

  In Farny, a division of this court upheld a Board ruling that a
  mountain cabin qualified for residential classification when the
  owners actually used it as a place of residence approximately
  twenty-five days every year and it was at least “minimally suitable”

                                     11
                 3.   The County’s Contrary Assertions

¶ 24   We reject the County’s assertion that the Board misapplied the

  law in determining the current, actual use of the property. In its

  view, this factor must be determined by comparing the number of

  days the property was actually rented out (or available for rental) to

  the number of days it was actually occupied by the O’Neils as a

  second or vacation home. The O’Neils, the County points out,

  rented out the home more than they occupied it themselves,7 and

  they made the house available for rent for most of the year.



  for such residential purposes, despite lacking electricity and
  plumbing. 985 P.2d at 108, 110. The cabin in Farny, like the
  O’Neils’ home, was designed and intended for residential use.

  In Southtech, the tax classification related to a rental complex
  “consisting of 10 separate buildings, each containing 12 housing
  units” that were rented for both short-term and long-term
  accommodations. 972 P.2d at 1058. Over the Board of
  Equalization’s objection, the Board of Assessment Appeals ordered
  the mixed-use property to be classified as 50% residential and 50%
  commercial. Id. Unlike the O’Neils’ property, however, the property
  in Southtech was a large complex operating partially as a hotel and
  partially as apartment rentals, not a single-family residence used by
  its owners for vacations and rented occasionally.

  7 James O’Neil estimated that the home was rented to others for 70
  to 75 days in 2012 and for “most of the summer” in 2013. He
  estimated that his family used the home “approximately 30 to 40
  days” in 2012 and 14 days in 2013. Although the County asserts
  that evidence of “estimated approximate use” cannot be considered

                                    12
¶ 25   The County cites us to no authority, nor have we found any,

  equating “actual use” simply to the number of days “actually”

  occupied for one purpose or another. Indeed, the law would appear

  to be otherwise. See Farny v. Bd. of Equalization, 985 P.2d 106,

  108, 110 (Colo. App. 1999) (classifying cabin as “residential” when

  only used by the owners twenty-five days of the year because it was

  “devoted to or intended for” use as a residence). As to the

  “availability” of the property, when the property is not actually

  occupied, it is essentially available for either rental or residential

  purposes. The Board recognized this when it found, for example,

  that, although the property was made available for rental most of

  the time, it was only actually rented for 70 to 75 days in 2012,

  which “means that the property was a residence for approximately

  290-295 days whether or not it was occupied during this time.”

¶ 26   We perceive no unreasonable application of the law in the

  Board’s refusal to characterize the property’s use as “commercial”

  instead of “residential” during the time the property was

  unoccupied. In the first instance, “homes which stand empty for a



  competent evidence of “actual use,” it cites no authority in support
  of that proposition.

                                     13
  period of time would not lose their residential classification simply

  because they were not ‘actually’ being used as a residence.” Mission

  Viejo, 881 P.2d at 465. In the second instance, to classify a

  vacation home as commercial for days it was empty, but listed as

  available for rent on the Internet, would undermine the purpose of

  the “residential” tax classification — which is to “grant homeowners

  a modicum of tax relief.” Vail Assocs., Inc. v. Bd. of Assessment

  Appeals, 765 P.2d 593, 594-95 (Colo. App. 1988).

¶ 27   Thus, we conclude that it was reasonable for the Board to

  count the days the property was empty as “residential” use,

  regardless of its availability as a rental.

¶ 28   Nor was the Board’s determination fatally undermined by two

  other, uncontested, circumstances in the record — to wit, (1) the

  O’Neils’ primary residence was in New Mexico and (2) the O’Neils

  paid sales and lodging taxes and obtained a special use permit for

  the VRBO rental.

¶ 29   The criteria for classifying property for tax purposes concern

  the characteristics and use of the property, not where the owner

  lives or works. See 3 Assessors’ Reference Library § 2, at 2.3. A




                                      14
  second home does not cease to be residential for property tax

  purposes because it is unoccupied more than it is used.

¶ 30   Further, the O’Neils’ payment of sales and lodging taxes, and

  acquisition of a special permit allowing short-term rentals, did not

  dictate that the property be classified “commercial” because those

  payments, in and of themselves, say nothing about the

  predominant intent or usage of property.8

¶ 31   Finally, we reject, as unpersuasive, the County’s attempt to

  analogize the O’Neils’ use of their property to that of owners of

  hotels, motels, and bed and breakfasts (B&Bs), all of which have

  been classified in the ARL or county ordinance as “commercial”

  properties.9 The O’Neils’ offering of their house for occasional rent,


  8 We disagree with the County’s assertion that the Board dismissed
  these matters as irrelevant to its decision. Although the Board said
  they did not “affect the classification” of the property, we read this
  remark as intimating only that they did not undermine the Board’s
  conclusion that the O’Neils predominantly used the property for
  residential, not commercial, purposes.

  9 See 2 Assessors’ Reference Library § 6, at 6.27-6.28 (“Hotels and
  motels are classified, valued, and assessed as commercial property
  . . . . Bed and breakfast properties are unique mixed-use
  properties . . .[with] [c]ommercial lodging area[s] . . . defined as . . .
  guest room[s] . . . offered for the exclusive use of paying guests on a
  nightly or weekly basis.”); see also Conejos County Land Use Code
  § 2.100 (defining “overnight lodging” as “[a] facility or structure

                                      15
  while retaining the right to use it as a second home themselves, is

  distinctly different than running a hotel, motel, or B&B.

¶ 32   “Hotels and motels” are defined in the statute as

  “improvements . . . that are used by a business establishment

  primarily to provide lodging, camping, or personal care or health

  facilities to the general public and that are predominantly used on

  an overnight or weekly basis.” § 39-1-102(5.5)(a). Unlike hotels

  and motels, the O’Neils’ intent was not profit, but to cover the costs

  of maintaining the property. And, unlike hotels or motels, the

  O’Neils did not make their home available to the “general public”:

  they would not simply rent to someone who was willing to pay the

  fee; instead, they “screen[ed]” potential renters to make sure they

  were the type to be trusted with the house. Additionally, the O’Neils

  visited the property for their own vacations when they wished, and

  they could at any time decline to rent, which is more consistent

  with sharing their home as opposed to transforming it into a hotel.




  offering lodging accommodations on a daily basis to the general
  public . . . includ[ing] such uses as hotel or motel, resort lodge,
  conference center, guest ranch, bed and breakfast or a commercial
  boarding house”).

                                    16
¶ 33   Finally, the O’Neils’ property is not like a B&B, which,

  according to the ARL, has “unique mixed-use properties” and must

  meet the following criteria: (1) the innkeeper must reside in the

  establishment or directly next to it; (2) at least one meal must be

  provided at no additional charge; and (3) the establishment has no

  more than thirteen sleeping rooms available for guests. See 2

  Assessors’ Reference Library § 6, at 6.27-6.28. The O’Neils did not

  use their property in this fashion.

                             III.   Conclusion

¶ 34   In sum, we perceive no legal error on the part of the Board in

  classifying the O’Neils’ property as residential for the 2012 and

  2013 tax years. Cf. Slaby v. Mountain River Estates Residential

  Ass’n, 100 So. 3d 569, 579-80 (Ala. Civ. App. 2012) (restrictive

  covenant case) (“[N]either [the] financial benefit nor the

  advertisement of the property or the remittance of a lodging tax

  transforms the nature of the use of the property from residential to

  commercial . . . .”); Russell v. Donaldson, 731 S.E.2d 535, 538 (N.C.

  Ct. App. 2012) (holding that restrictive covenants for residential

  development stating “[n]o lots shall be used for business or

  commercial purposes” did not prohibit short-term vacation rentals).


                                     17
¶ 35   The order is affirmed.

       JUDGE J. JONES and JUDGE BERGER concur.




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