McGuire bill targets ‘bed taxes’

The on-going local effort to rein in vacation rentals – or at least get them to pay their fair share – reached the state level last week when state Sen. Mike McGuire, whose district includes much of Sonoma Valley, introduced legislation in Sacramento to make it easier to collect so-called “bed taxes” on short-term renters.

The measure, Senate Bill 593 (SB 593), is titled the Thriving Communities and Sharing Economy Act, and according to McGuire the premise is simple: to “reinforce local laws already on the books.” It works by requiring online vacation rental businesses to disclose information – including the address of host rental, number of nights stayed, and amount paid by the visitor – to the cities and counties. They would then turn over the revenue for any collected local fees.

This requirement is virtually the same process that hotels, motels, inns, and any permitted lodging currently follow in reporting to local civic regulators, especially when making transactions online. This information would allow cities and counties to ensure that local laws are being followed.

Adding the local taxes or fees to the transaction within the payment process should be simple and would be effective, McGuire believes. “When you book a ticket on Travelocity, you pay for the flight or the hotel, and you pay the taxes when you check out,” said McGuire. “The airline or hotel forwards the taxes by law to the state, city or other government body; why should it be different for vacation rentals?”

Where cities or counties in the state don’t allow vacation rentals, McGuire’s bill is equally straightforward: “Where vacation rentals are illegal, the bill prohibits the online platforms from making the rental,” he said.

Collecting appropriate fees through the booking engine that Airbnb and other online short-term rental exchanges would put local laws regulating them into the equation, and not create additional rules or regulations except compliance.

McGuire, 34, draws on his local roots to explain his motivation in introducing the bill. ”Growing up here in Sonoma County, and in my time on the Board of Supervisors, I could see that locals really need help to assure that online corporations follow the laws just like the rest of us.” McGuire served four years as supervisor for the 4th District, following his six years on the Healdsburg City Council. He was elected to the state senate in 2014.

“Over 400 cities in California have local laws on the books regulating vacation rentals right now,” he told the Index-Tribune. “A lot of homeowners are simply trying to make ends meet. Meanwhile, the corporations have the means to make sure they pay local taxes.”

Airbnb might be valued as high as $20 billion, according to a recent report on Bloomberg News. Putting that high valuation and wide reach – Airbnb currently operates in 34,000 cities in 190 countries – in context with local community needs is one factor on McGuire’s proposal.

Many communities including Sonoma have fees and/or taxes on the books for overnight rentals, fees that are traceable and paid by hotels, motels and inns including B&Bs. In Sonoma’s case, these fees are a major source of income for the city – the annual income from the city’s Transient Occupancy Tax (TOT) last year was more than $3.3 million, according to City Manager Carol Giovanatto, or approximately 22 percent of the general fund.

But the so-called “sharing economy,” which includes car rentals and taxi services as well as vacation rentals, has opened the floodgates to “off-book” transactions through such services as Airbnb, VRBO (Vacation Rentals by Owner, a subsidiary of HomeAway) or just a Craigslist posting.

A city-wide survey contracted out to Muni Services in 2013 found 46 properties in violation of either business licenses, tax compliance or both, and an additional $40,000 in revenue was identified. The surveying agency is still on the job in Sonoma, according to Giovanatto, and makes twice-yearly reports.

Left uncovered by McGuire’s legislation are independent, one-to-one rentals as found on Craigslist. District Supervisor Susan Gorin has advocated for increased county oversight of vacation rentals, and has convinced both the county Permit and Resource Management Department to allocate more resources to tracking vacation rentals, and the county treasurer’s office to collect appropriate taxes and fees from them.

“We at the county are ensuring that those two functions are married to a certain extent,” said Gorin. “Sen. McGuire’s legislation would be extremely helpful to ensure that the county knows what properties are being advertised, the contact information for the property owner, and to assure our ability to ensure that they are permitted for vacation rentals and paying appropriate TOT.”

Airbnb’s head of Public Affairs, David Hantman, has said the company believes “very strongly that you should be allowed to rent out your own home whenever you want.” It’s an attitude that doesn’t sit well with many locals who have found their once-quiet residential neighborhoods plagued by weekend partiers, reduced parking and noise violations.

There have been a number of public forums where residents have complained about the impact of vacation rentals on their neighborhoods, including a February meeting at La Luz Center.

The nightmare scenario for many locals has been well-heeled out-of-towners buying homes in Sonoma as “second homes,” then renting them out as under-the-radar vacation rentals until they decide to move in – if they ever do.

Critics say this has at least three deleterious effects: driving up the cost of owning a home, removing of a rental home from the available market, and introducing temporary tourists to residential neighborhoods, visitors who have no investment in the neighborhood’s intrinsic values. Loss of city revenue is an additional, perhaps more quantifiable result.

A spokesperson for Airbnb responded to Index-Tribune inquires and pointed out, “We are collecting and remitting taxes in San Francisco and San Jose and having productive conversations with city officials around the world.” It was unclear if this meant they would support McGuire’s legislation, and he did not respond to that follow-up question. Their compliance with tax regulations in several jurisidctions came only after civil action, including lawsuits and legislation, were pursued.

“The sharing economy is here to stay and we should be working together on progressive rules that help regular Californians pay their bills and pursue their dreams,” the spokesperson added.

For many long-term residents with vacation renters moving in for the weekend, just getting a good night’s sleep would be enough.