Tax and accounting professionals are familiar with the catchphrase, “crime doesn’t pay,” so as your clients’ trusted advisor, you need to help them understand the ins and outs of short-term rentals with regard to tax and compliance issues.
More specifically, if you missed the recent story of the San Francisco couple who had to pay the city $2.25 million over a chain of illegal Airbnb short-term rentals, you need to know its implications for your property-owning clients. The settlement also prohibited them from operating any short-term rentals for at least seven years.
The party in question, Darren and Valerie Lee, own and/or manage 17 buildings in San Francisco and it wasn’t the first time they were in hot water with the city. The couple previously settled another short-term rental case in 2014 when they evicted tenants to convert a property from long-term to short-term rentals.
The Lees settled for $276,000 and agreed, at that time, to stop offering short-term rentals. According to the city attorney’s office, they violated that injunction thousands of times. When investigators visited the properties the latest time around, they said it was clear the landlords were making an effort to make the units look lived-in by long-term tenants — although identical props and placements were used in each. The Lees also used the same IP address for Airbnb accounts for several of the listings.
Although few cities have short-term rental laws as strict as San Francisco, more and more cities have their eye on how to regulate these types of thorny issues, reap tax revenues from the growing industry and enforce the rules. In fact, in early 2018 San Francisco implemented one of the toughest short-term rental laws in the country, resulting in thousands of listings dropping off Airbnb:
The law prohibits Airbnb, HomeAway and other short-term rental platforms from including listings on their sites that aren’t registered with the city.
In order to be allowed to list their properties on short-term rental platforms, San Francisco hosts must register as a business entity with the city’s treasurer and tax collector, and register with the City of San Francisco’s Office of Short-Term Rentals for a certified host certificate, which is good for two years. Hosts are largely prohibited from having more than one listing.
Hosts must also be permanent residents, defined as living in the short-term rental unit for at least 275 nights a year. New residents must have lived in their unit for at least 60 days before applying to become a short-term rental host.
Hosts are prohibited from renting out their property for short terms for more than 90 nights per year while not present overnight, and they cannot make more in a month in short-term rental fees than what they pay in monthly rent.
Short-term rental hosts must also collect San Francisco’s 14 percent lodging tax from guests. Airbnb has an agreement with San Francisco to collect this tax on behalf of its hosts. However, hosts using any other short-term rental platforms, such as HomeAway or VRBO, are responsible for collecting and remitting all local lodging taxes themselves. California doesn’t have a statewide lodging tax.
In short, even if you or your clients are not in the Bay Area, other local governments likely have their own set of rules and regulations. Help your property owner clients cut through the red tape and assist them with on-point advice to help them comply.
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts and endeavors to make complex sales tax laws more digestible for both experts and laypeople.