How Short-Term Rental Owners Can Prepare for and Manage Regulatory Changes
With travel resumed in spurts, short-term rental hosts are fully engaged to capitalize on the excitement. But in the rush to achieve some semblance of a new normal, it’s important that homeowners take a moment to understand the new efforts to enforce market accommodation laws, lest they fall into the trap of falling into the cracks. myriad of regulatory and compliance potholes emerging nationwide.
The long arm of the law
In 2020, Airbnb became a target for state and local governments across the United States, with state lawmakers saying the online marketplace neither collects nor remits billions of dollars in taxes. Throughout the year, states like California, Georgia and Illinois set out to work on market legislation that would crack down on short-term rental platforms like Airbnb and Vrbo.
State and local governments continue to enact market legislation, with each tax jurisdiction taking different approaches to liability, enforceability, classification, and fines for non-compliance. Enforcement can be done directly in the marketplace, and compliance with licenses, registration and payments is more closely scrutinized than ever.
Obfuscating these laws further is a difference in the overall approach, which sometimes makes it difficult to know if the laws apply to short-term rentals. Some states took a straightforward approach, first deployed by Massachusetts, that used a rental unit registry and required all “rental intermediaries” (accommodation markets) to collect and remit occupancy tax.
Others take more roundabout approaches, such as the application of South Dakota v. Wayfair – mainly linked to the taxation of online markets such as Amazon – to short-term hosting platforms by designating them as “market facilitators”. Yet another approach has been to change the definition of “innkeeper” to also include external facilitators of accommodation services, shifting responsibility for collecting hotel taxes to Airbnb and similar platforms.
In this changing legal landscape, many states are placing the burden of enforcing unauthorized properties on market platforms. In many cases, the licenses required by these states are brand new, resulting in platform fines for their users without licenses they may not even know about.
Whichever method is used, this legislative trend shows no sign of slowing down. Keeping up with the onslaught of state-level legislation is quite taxing, but there are even more layers that are sure to leave short-term rental operators bewildered.
Across the city lines
Paying taxes isn’t the only front that short-term rentals are battling right now. Recently, cities in the United States have passed local laws imposing limits and other regulations on short-term rentals. One example of a trend lately is “good neighbor policies” – largely anti-party domestic legislation. These local policies throw another key into standard compliance practices.
Unlike market law, which generally remains consistent at least within a given state, these local laws can vary from municipality to municipality, imposing on owners and markets the responsibility of ensuring that operations remain compliant across regulations. city limits. Examples of recent legislation against short-term rental at the city level include:
● San Diego: California Short-Term Residential Occupancy Ordinance, which limits short-term rentals to 1% of the city’s housing stock and creates a compulsory license for vacation rentals that limits owners to a single rental property in the city .
● Atlanta: Georgia’s recent ordinance requires tenants to obtain permits, take responsibility for any trespassing, and collect state hotel-motel tax.
● Atlantic City: New Jersey ordinance requiring a permit similar to Atlanta’s while defining specific areas in the city where short-term rentals may operate. Also note, while Atlantic City hosts will have taxes collected for them by rental platforms, hosts in the rest of New Jersey are responsible for collecting these taxes themselves.
As short-term rental regulations gain popularity nationally and locally, jurisdictions are trying to keep up with ever-changing trends in the field.
It is unrealistic to expect homeowners themselves to follow these rapidly changing regulations. Modern cloud-based technology tools can pave the way for automated compliance, allowing hosts and businesses to focus on how well they run rather than the latest ordinance or state law they might accidentally break. .
Legislation and regulations in this area are not going to slow down any time soon. It’s up to hosts to ensure they take compliance seriously and navigate prudently in today’s increasingly complex regulatory minefield.
Photo by Konstantinos Eleftheriadis
Pam Knudsen is Senior Director of Compliance at Avalara, leading the hosting tax team and the sales and usage returns experience / reconciliation team. She is a leading voice in vacation rental tax compliance and regulation, in addition to bringing extensive experience in software / SaaS technologies as well as ERP systems. Pam joined Avalara in 2012.