How Short-Term Rental Owners Can Prepare for and Manage Regulatory Changes

With travel picking up again in fits and starts, short-term rental hosts are fully engaged to capitalize on the excitement. But in the rush to attain some semblance of new normalcy, it’s important that owners take a moment to understand new efforts to enforce marketplace legislation around lodging, lest they trip into the myriad regulatory and compliance-related potholes that are popping up nationwide.

The Long Arm of the Law

In 2020, Airbnb became a target for state and local governments throughout the United States as state lawmakers claimed the online marketplace was failing to collect and remit billions of dollars in taxes. Throughout the year, states including California, Georgia and Illinois, set to work on marketplace legislation that would clamp down on short-term rental platforms such as Airbnb and Vrbo.

State and local governments continue to enact marketplace legislation, with each taxing jurisdiction taking different approaches in terms of responsibility, applicability, classification and fines for failing to comply. Enforcement can come down straight through the marketplace, and compliance with licensing, registration and remittance is being more highly scrutinized than ever.

Further obscuring these laws is a difference in overall approach, sometimes making it unclear whether the laws apply to short-term rentals at all. Some states have taken a direct approach, first deployed by Massachusetts, that utilized a registry of rental units and requires all “rental intermediaries” (lodging marketplaces) to collect and remit occupancy tax.

Others take more roundabout approaches, such as applying the South Dakota v. Wayfair ruling – chiefly concerned with taxing online marketplaces such as Amazon – to short-term lodging platforms by designating them as “marketplace facilitators.” Yet another method has been to change the definition of “innkeeper” to also include outside facilitators of lodging services, hoisting responsibility for collecting hotel taxes onto Airbnb and similar platforms.

Within this shifting legal landscape, many states are placing the burden of enforcing unlicensed properties on marketplace platforms. In many cases, the licenses required by these states are brand new, resulting in platforms being fined for their users lacking licenses they may not even know about.

Regardless of the method used, this legislative trend shows no signs of letting up. Keeping up with the onslaught of legislation at the state level is taxing enough, but there are still more layers that are sure to leave short-term rental operators flummoxed.

Across City Lines

Tax remittance isn’t the only front that short-term rentals are battling on right now. Recently, cities across the U.S. have been passing local laws placing limits and other regulations upon short-term rentals. One trending example of late has been “Good Neighbor Policies” – largely anti-party house legislation. These local policies throw yet another wrench into standard compliance practices.

Unlike the marketplace legislation, which typically stays consistent at least within any given state, these local laws can vary from municipality to municipality, placing the onus on owners and marketplaces alike, to ensure operations stay compliant across city lines. Examples of recent legislation against short-term rentals at the city level include:

● San Diego: California’s Short-Term Residential Occupancy ordinance, which limits short-term rentals to 1 percent of the city’s housing stock and creates a mandatory license for vacation rentals that limits owners to one rental property within the city.

● Atlanta: Georgia’s recent ordinance requires renters to acquire permits, take responsibility for any violations on the property and collect the state’s hotel-motel tax.

● Atlantic City: New Jersey’s ordinance requiring a similar permit to Atlanta while also defining specific areas within the city where short-term rentals can operate. Also of note, while hosts within Atlantic City will have taxes collected for them by rental platforms, hosts in the rest of New Jersey are responsible for collecting those taxes on their own.

Playing Catch-Up

As regulations on short-term rentals grow in popularity at both the state and local levels, jurisdictions are trying to keep up with the field’s continuously evolving trends.

It’s unrealistic to expect owners to keep up with these rapidly changing regulations on their own. Modern, cloud-based technology tools can pave the road for automated compliance, allowing hosts and businesses to focus on the quality of their operation rather than the newest ordinance or state law they might accidentally violate.

Legislation and regulation in this field aren’t going to slow down any time soon. It’s up to hosts to make sure they’re taking compliance seriously and carefully navigating today’s increasingly complicated regulatory minefield.

 

Photo by Konstantinos Eleftheriadis

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