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Paul Zimmerman

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Taxing Times May Be Ahead for Online Vacation Rental Sites

In recent years, online vacation rental sites have made great inroads into the hospitality industry. Given their infancy and business model, however, they have gone largely unregulated, particularly when it comes to taxes.

The issue arises when one compares the classic hotel model with the new online model. Historically, the duty to collect and remit transient occupancy taxes has been placed on the hotels themselves. In that regard, hotels are required to register with local governments so that their room rentals and taxes can be tracked and audited. Online models, however, have largely avoided these taxes since they serve merely as a broker (i.e., they take a cut from both the host and guest), leaving the tax duties to the host and guest. But given that the host and guest are typically not professional businesses, they often do not comply with local laws and, in turn, transient occupancy taxes are neither paid nor remitted.

Through his introduction of Senate Bill 593, California Senator Mike McGuire seeks to change all that. Introduced in February 2015, the bill would require online vacation rental sites to report certain booking information on a quarterly basis, including the address of each property that was offered and rented during the quarter, the total number of nights the property was rented, and the amounts paid for the occupancy. In addition, the Bill would prohibit the facilitating of a rental if it was prohibited by the city or county in which it was located, and would further require the online vacation rental site to collect the applicable transient occupancy tax if requested by the city or county. 

Not surprisingly, the Bill has been met with strident opposition. One online vacation rental site in particular slammed the proposal, arguing that it violated fundamental privacy protections historically afforded to Californians and, to that end, would “hand over broad swaths of confidential, personal information to bureaucrats who will sift through it in search of potential violations of local planning and zoning laws.” Other groups have echoed similar sentiments, including the Internet Association and Consumer Watchdog.

Despite the opposition, Senate Bill 593 is progressing along. This past Tuesday, April 21st, it passed its first committee on an 8-0 vote. In that regard, M&R will continue to track the Bill’s progress and its potential impact on the online vacation rental business model.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.