Why Montana's Property Tax Reform Worked (and Colorado's Didn't)
The Takeaway: Montana's 2025 property tax reform succeeded by creating a "Homestead" rate that cuts taxes for residents while shifting burden to second-home owners. Colorado's 2024 attempt failed because it tried to reclassify short-term rentals as commercial properties — a 400% overnight tax hike that triggered massive opposition. The difference? Montana did the homework. Colorado swung for the fences.
The Question That Started This
Montana just cut taxes for 80% of its residents by making out-of-staters pay more. Colorado tried something similar and it blew up in committee. Why can't we figure this out?
Earlier this month, I came across Montana's new property tax policy, implemented at the beginning of this year. Their "two-tier" system treats primary residents differently than second home owners and investors. Like all things Montana, the approach seemed sensible. Being the sensible, logical person I am, I wondered, "Why hasn't Colorado done THAT?"
That question led to a deep-dive research project with Gemini, resulting in a fascinating (to me, anyway) 4,000-word comparative analysis and an interactive dashboard. The short answer is: Colorado sorta tried, but failed.
What Montana Got Right
Montana's reform (HB 231 / SB 542) creates a clear distinction:
- Homesteads (7+ months of occupancy): taxed at 0.76%–1.1%
- Non-Qualified properties (second homes, STRs): taxed at 1.9%
That resulted in 80% of Montana homeowners getting a tax cut. The tax burden shifted to non-resident owners — the people who (and this first part is key) don't vote there, but also don't send their kids to the local schools yet still drive up local property values. It also didn’t hurt that most of the losers in Montana aren’t voting residents, whereas a meaningful share of STR owners in Colorado are.
The political framing seems brilliant to me. "Keep Montana Montana." It wasn't a tax hike — it was a removal of a state subsidy for non-residents. Outsiders.
What Colorado Got Wrong
Colorado's 2024 bill (SB24-033) took a different approach: reclassify short-term rentals as "commercial lodging." On paper, reasonable. In practice, catastrophic.
The scope of this analysis does not cover the Gallagher Amendment's impact on this state, but because of it, the jump from residential to commercial meant a 416% tax increase overnight. A $1M condo in Breckenridge would go from ~$5,400/year to ~$22,300/year.
The opposition mobilized instantly. The bill died 6-1 in committee.
This feels like a pattern in Colorado policy. We swing too far in one direction with "good intentions" but without the analysis to anticipate an impossible-to-support outcome — and the opposition that comes with that. The short-sightedness also ignored the vacant second homes we are all too familiar with.
The Intent Gap
While the differences in mechanics are obvious, the difference in intent is a bit less so.
Montana defended its residents from the impending tax hikes by rebalancing. The "Non-Qualified" rate subsidized the "Homestead" cut and kept the total pot roughly the same but shielded locals from the hit.
Colorado went on offense. By reclassifying STRs as commercial, they weren't just shifting the burden; they were attempting to create a massive new revenue stream. It not only attacked local homeowners by labeling their properties as hotels, but it also did nothing to offset the increases we are already feeling. Looked at under this lens, it felt like a cash grab with nothing for locals to grab onto to support it.
Colorado Is Trying... But Missing the Point
I need to be fair and question whether or not I'm doing what I am accusing someone else of doing. Have Colorado's continued attempts been as misguided as I assumed, and have they tried to do what Montana did?
I'll let you decide. Since the failure of SB24-033, the legislature has taken a few more swings:
- HB24-1299 tried a slightly softer version of the same "reclassify STRs as commercial" approach. Same structural problem. Same opposition. Same result.
- HB25-1111 (February 2025) proposed expanding homestead exemptions, but only for seniors and veterans. It failed too, and honestly, it was always too narrow to matter. Feel-good policy aimed at sympathetic groups, but not the universal resident protection Montana achieved.
- The Property Tax Commission was created to study the problem. It issued recommendations and sunsetted in late 2024. I can't find evidence it moved the needle.
So yeah, they're "trying." But so far, not the true Montana-style homestead tier within the residential class, available to all primary residents.
Is the Comparison Fair?
I struggled with the comparison until I understood what the tension was caused by.
The initial research framed the difference between the two states as a structural constraint: Montana dealt with a spread between 1.35% (residential) and 1.89% (commercial), while Colorado navigates a chasm between 6.7% and 27.9%. That comparison is useful for explaining why Colorado's specific approach was doomed from the get. The 400% property tax jump from reclassification was a canyon too wide.
Montana's gap is narrow enough to be considered negligible: their commercial and non-qualified residential rates are nearly identical at ~1.9%.
The "genius" — if you will — of Montana's move is that they didn't try to drag STRs across their (albeit far narrower) canyon to commercial. They just created a new tier, which ALSO let them scoop up second homes into the non-qualified rate. They said: If you live here, you get the Homestead discount (0.76%). If you don't, you pay the standard rate (1.9%).
Pushing STRs out of residential and into commercial, as SB24-033 attempted, was politically radioactive and punished the wrong people, instead of helping the right people.
This isn't a structural constraint but a conceptual one. Colorado keeps trying to punish non-residents by reclassifying them. Montana rewarded residents by creating a new category for them. The "punishment" of non-residents is simply the absence of the benefit. Framing was everything.
So What Now?
I don't have the answer here. I'm not a tax policy expert — I'm a real estate broker and pub owner who got curious about why Colorado keeps tripping over its own feet on this issue.
But I love the dashboard because I can see the math clearly. And what it shows is that the conversation in Colorado has been stuck on the wrong axis.
We keep asking: "How do we tax STRs more?"
Montana asked: "How do we tax residents less?"
Those can feel like the same question. They're not.
Maybe we can't replicate Montana's reform exactly. But we need to stop getting lost in the technical weeds. This is framed as a tax debate, but it’s really another piece of how we keep where we live livable for locals. If you think I've missed the mark—or if you see a solution I don't—I want to hear it
→ Explore the interactive dashboard — a visual breakdown of how the two states approached reform, including an impact simulator. For the full 4,000-word research paper — including bill numbers, rate tables, and implementation details — read "The Great Divergence."
Chris Heinz is a commercial and residential real estate broker with C&E Real Estate, focused in Western Colorado. He's also a 15-year operator of Grind in Glenwood Springs.
