The California Constitution authorizes a county or city to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws. Existing law also authorizes a city, county, or city and county to impose a transient occupancy tax upon occupancies of lodgings of no more than 30 days.

The California Constitution authorizes a county or city to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.

This bill would require an operator of a hosting platform, as defined, to report specified information quarterly to the city, county, or city and county. The bill would authorize a city, county, or city and county, by ordinance, to opt out from receiving reports and to subsequently opt back in, with 90 days advance notice of that ordinance to the operator of a hosting platform and to impose a fine or penalty on an operator that fails to provide the report, as specified. The bill would prohibit an operator of a hosting platform from facilitating the rental of a residential unit offered for occupancy for tourist or transient use, if such a use of that residential unit, or the offering of that residential unit for such a use, is prohibited by an ordinance of the city, county, or city and county in which that residential unit is located. The bill would authorize a city, county, or city and county, by ordinance, to establish a fine or penalty on an operator of a hosting platform, as specified, for a knowing violation of this provision. The bill would authorize a city, county, or city and county to require an operator of a hosting platform to collect and remit applicable local transient occupancy tax.

The California Constitution authorizes a county or city to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.

This bill would require an operator of a hosting platform, as defined, to report specified information quarterly to the city, county, or city and county. The bill would authorize a city, county, or city and county, by ordinance, to opt out from receiving reports and to subsequently opt back in, with 90 days advance notice of that ordinance to the operator of a hosting platform and to impose a fine or penalty on an operator that fails to provide the report, as specified. The bill would prohibit an operator of a hosting platform from facilitating the rental of a residential unit offered for occupancy for tourist or transient use, if such a use of that residential unit, or the offering of that residential unit for such a use, is prohibited by an ordinance of the city, county, or city and county in which that residential unit is located. The bill would authorize a city, county, or city and county, by ordinance, to establish a fine or penalty on an operator of a hosting platform, as specified, for a knowing violation of this provision. The bill would also authorize a city, county, or city and county to require an operator of a hosting platform to collect and remit applicable local transient occupancy tax.

The Motor Vehicle Fuel Tax Law, which imposes a tax on motor vehicle fuel removed from a refinery or terminal rack in this state, or entered into this state, or sold in this state, requires that every supplier, industrial user, pipeline operator, train operator, and vessel operator be licensed by the State Board of Equalization for purposes of that law. That law requires, before revoking any license, the board to notify the licensee to show cause, within 10 days after the notice is given, why his or her license should not be revoked, and requires the board to allow the person the opportunity to show cause for why the license should not be revoked.

This bill would instead require that cause to be shown in writing and within 14 days after the notice is given.

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

RESIDENTIAL UNITS FOR TOURIST OR TRANSIENT USE: HOSTING PLATFORMS

Requires “hosting platforms” that facilitate short-term rentals of residential housing to report specified data about rentals and comply with local ordinances relating to short-term rentals.

Background and Existing Law

State allows the legislative body of a city or county to levy a tax on the privilege of occupying a room or rooms, or other living space, in a hotel, inn, tourist home, motel or other lodging unless the occupancy is for a period of more than 30 days. The tax is typically collected from consumers by lodging providers. Revenues raised through local transient occupancy taxes (TOTs) are most commonly deposited in local general funds for general use. More than 400 cities and 55 counties levy a TOT. According to data from the State Controller’s Office, in the 2011-12 fiscal year, TOTs generated more than $1.5 billion in local government revenues, of which more than $1.2 billion was for general use.

In recent years, Internet-based hosting platforms, like Homeaway, VRBO and Airbnb, have facilitated increasing numbers of short-term rentals of homes and rooms within residences. The rapid growth in short-term rentals of residential properties has generated concerns, that these short-term residential rentals may increase housing costs, negatively affect surrounding residential neighborhoods, and place increased demands on public services while not generating local tax revenue to offset the costs of those services.

In response to these concerns, some local government officials want to improve enforcement of local TOT ordinances and other local regulations that apply to rental transactions that are facilitated through online hosting platforms. They want the Legislature to require hosting platforms that facilitate rentals of residential units for short-term occupancy to report information about rental transactions and to collect and remit TOT revenues from those rental transactions.

Proposed Law

Senate Bill 593 requires a hosting platform to report quarterly, to a city or county that has not opted out of receiving the report, all of the following information:

• The address of each residential unit that was offered on the operator’s hosting platform for occupancy for tourist or transient use and was occupied for that use during that quarterly period.

• The total number of nights that the residential unit was occupied for tourist or transient use.

• The amounts paid for the occupancy of that residential unit.

SB 593 allows a city or county to impose and collect fines on an operator of a hosting platform for failing to comply with the reporting requirements and specifies limits on the amounts of the fines.

SB 593 prohibits a hosting platform from facilitating the rental of a residential unit offered for occupancy for tourist or transient use, if a city or county ordinance prohibits the renting of that unit or offering of that unit for occupancy for tourist or transient use. SB 593 allows a city or county to impose and collect fines on an operator of a hosting platform for knowingly violating this prohibition and specifies limits on the amounts of the fines.

SB 593 requires the operator of a hosting platform to comply with a local requirement that it must collect applicable transient occupancy tax imposed by a local agency, and to remit that tax to that agency.

SB 593 defines a “hosting platform” as a marketplace created for the primary purpose of facilitating the rental of a residential unit offered for occupancy, for tourist or transient use for compensation to the owner or lessee of that unit and the operator of the hosting platform derives revenues, including booking fees or advertising revenues, from providing or maintaining that marketplace. The bill directs that “facilitating” includes the act of allowing the owner or lessee of the residential unit to offer or advertise the residential unit on the Internet Web site provided or maintained by the operator.

SB 593 defines “residential unit” as a dwelling unit in a private residence, including a single-family residence, an apartment or other leased premises, a residential condominium unit, or any other residential real estate improvement. “Residential unit” does not include individual guest rooms, condominium units, timeshare units, cabins, or similar guest accommodations rented to transient guests in a hotel, inn, or similar transient lodging establishment operated by an innkeeper, as defined in state law.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. Recent growth in short-term rentals of residential units, which has been made possible by online hosting platforms, is having powerful effects in communities throughout California. Increased and undisclosed tourist traffic alters neighborhood character, creating additional demands on local public service providers. The increase in short-term vacation rentals reduces the availability of already scarce affordable housing in many communities. Online hosting platforms receive revenues from short-term rental transactions that are of not permitted by local ordinances. And in many communities, neither the hosts who make residences available for occupancy for fewer than 30 days nor the hosting platforms collect and remit applicable transient occupancy taxes. In communities where vacation rentals are legal, SB 593 will help local governments collect transient occupancy taxes. The additional revenues recovered pursuant to the bill’s provisions will be vital for local governments’ efforts to respond to and mitigate short-term vacation rentals’ local impacts. Additionally, by increasing TOT compliance, SB 593 will help enforce a level playing field in the vacation rental marketplace, ensuring that hosting platforms don’t gain unfair pricing advantages as a result of hosts’ nonpayment of taxes. In communities that prohibit short-term rentals, SB 593 will improve property owners and renters’ compliance with local laws, providing local residents and their elected representatives more tools to exert control over local land uses to ensure that they reflect local priorities.

2. Burdensome. The rapid growth of online businesses that facilitate short-term rentals of residential units is a testament to the value that these online services offer, both to property owners and renters who make their residences available for rent and to the travelers who stay in these accommodations. While enforcing local laws is undeniably important, enforcement efforts should avoid placing unnecessary burdens on emerging business models. SB 593’s reporting requirements place additional administrative burdens on hosting platform operators that do not apply to some other short-term lodging providers. The reporting requirements also raise privacy concerns about whether government should compel online businesses to report specific transactions data, about their customers without any specific limitations on the use of that data. The bill’s requirement that hosting platforms must enforce local prohibitions against renting residential units for short-term occupancy also shifts some local code enforcement responsibilities from local government officials onto a narrow subset of vacation rental businesses. Legislators should consider other approaches to support local efforts to collect revenues and enforce ordinances that don’t disproportionately place burdens on some online businesses.

3. New approaches for a new economy. To create a level playing field for both established short-term lodging providers and new “sharing economy” platforms, local governments’ approach to regulating the business of renting residential units for short-term occupancy, must evolve to reflect the rapidly changing realities of new Internet-based business models. Unlike brick-and-mortar lodging operators like hotels, not all online hosting platforms participate directly in each rental transaction completed by a property owner or renter who lists a residential unit through the hosting platform. As a result, local governments will need to find other ways to enforce TOT collection and compliance with local ordinances. One approach might be to require property owners and renters to register and report income from rental transactions and to require the hosting platforms to notify owners and renters of these registration and reporting obligations. Similarly, local governments could be required to identify, through a public clearinghouse, geographic locations in which bans on short-term rentals are in effect, providing hosting platforms with an official, consistent basis on which to accept or deny listings from property owners or renters in particular locations.

4. Definition of hosting platform. SB 593 requires that a hosting platform must provide local governments with quarterly reports of specified information about individual rental transactions. However, the bill’s definition of a hosting platform seems to include businesses that don’t receive revenues or information about rentals on a per-transaction basis. Under the bill’s definition, a hosting platform includes a business that derives revenues solely from advertising the availability of a residential unit for short-term rental. It is unclear how such a business, which effectively functions only as a listing service without any direct involvement in executing individual rental transactions, could reasonably be expected to comply with the bill’s data reporting and tax collection requirements. The Committee may wish to consider amending SB 593 to clarify the definition of a “hosting platform” to include only those businesses that receive revenues from, or are directly involved in executing, individual rental transactions.

5. Related bills. Senate Bill 761 (Hall) requires an operator of an online platform or Internet Web site that facilitates the rental of real property located in California for short-term occupancy to provide a specified notice to tenants about potential violations of their rental contracts or leases. Assembly Bill 1220 (Harper) would prohibit a city or county from levying a tax on the privilege of occupying a residential short-term rental unit.

6. Double-referral. The Senate Transportation & Housing Committee considered SB 593 at its hearing on April 21 and approved the bill on the vote of 8-0. The Senate Rules Committee then referred the bill the Senate Governance & Finance Committee, which has jurisdiction over bills relating to local governments’ powers and local revenues, including transient occupancy taxes.

Support and Opposition

(5/7/15)

Support: American Federation of State, County, and Municipal Employees, AFL-CIO; American Hotel and Lodging Association; Asian American Hotel Owners Association; American Insurance Association; Association of California Insurance Companies; Andaz West Hollywood General Manager Lin Schatz; Association for Los Angeles Deputy Sheriffs; City of Big Bear Lake; Borrego Springs Chamber of Commerce & Visitors Bureau; California Apartment Association; California Association of Boutique and Breakfast Inns; California Association of County Treasurers and Tax Collectors; California Apartment Association; California Association of Code Enforcement Officers; California College and University Police Chiefs Association; California Narcotics Officers Association; California Police Chiefs Association; California Hotel and Lodging Association; California Labor Federation; California Professional Firefighters; California State Association of Counties; California Teamsters Public Affairs Council; Contra Cost County Treasurer-Tax Collector Russell Watts; Paul Desterman, Mindy Desterman; El Dorado County Treasurer-Tax Collector C.L. Raffety; Douglas Engmann; Fairmont San Jose General Manager Kelley Cosgrove; Hilton Los Angeles/Universal City General Manager Mark Davis; Hotel Association of Los Angeles; Hotel Council of San Francisco; Humboldt County Convention and Visitors Bureau; International Faith Based Coalition; League of California Cities; Long Beach Firefighter Association; Los Angeles Alliance for a New Economy; Los Angeles Police Protective League; Town of Mammoth Lakes; Marin County Council of Mayors and Councilmembers; Marriot Courtyard in Larkspur General Manager Sam Pahlavan; Denise McNicol; Mendocino County Board of Supervisors; Mendocino County Treasurer-Tax Collector Shari Schapmire; Mono County Board of Supervisors; Ashok Mukherje; National Association of Mutual Insurance Companies; Neighbors for Overnight Oversight; Jenny Oaks; Pacific Association of Domestic Insurance Companies; Riverside Sheriffs Association; Rural County Representatives of California; Sacramento Hotel Association; San Diego County Hotel-Motel Association; San Franciscans for Reasonable Growth; San Luis Obispo County Auditor-Controller-Treasurer-Tax Collector James Erb; San Mateo County Central Labor Council; Santa Cruz County Convention and Visitors Council; Service Employees International Union; ShareBetter San Francisco; Sierra County Auditor-Treasurer-Tax Collector Van Maddox; Siskiyou County Treasurer-Tax Collector Wayne Hammar; Sonoma County Auditor-Controller-Tax Collector David Sundstrom; Sonoma County Board of Supervisors; City of Thousand Oaks; Tulare County Auditor-Controller-Treasurer-Tax Collector Rita Woodard; Tuolumne County Treasurer-Tax Collector Shelley Piech; UNITE-HERE, AFL-CIO; United Firefighter of Los Angeles City, Local #112; Natasha Yankoffski.

Opposition: Airbnb; Consumer Watchdog; Internet Association, TechNet.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert Hertzberg, Chair

2015 - 2016 Regular

RESIDENTIAL UNITS FOR TOURIST OR TRANSIENT USE: HOSTING PLATFORMS

Requires “hosting platforms” that facilitate short-term rentals of residential housing to report specified data about rentals and comply with local ordinances relating to short-term rentals.

Background and Existing Law

State allows the legislative body of a city or county to levy a tax on the privilege of occupying a room or rooms, or other living space, in a hotel, inn, tourist home, motel or other lodging unless the occupancy is for a period of more than 30 days. The tax is typically collected from consumers by lodging providers. Revenues raised through local transient occupancy taxes (TOTs) are most commonly deposited in local general funds for general use. More than 400 cities and 55 counties levy a TOT. According to data from the State Controller’s Office, in the 2011-12 fiscal year, TOTs generated more than $1.5 billion in local government revenues, of which more than $1.2 billion was for general use.

In recent years, Internet-based hosting platforms, like Homeaway, VRBO and Airbnb, have facilitated increasing numbers of short-term rentals of homes and rooms within residences. The rapid growth in short-term rentals of residential properties has generated concerns that these short-term residential rentals may increase housing costs, negatively affect surrounding residential neighborhoods, and place increased demands on public services while not generating local tax revenue to offset the costs of those services.

In response to these concerns, some local government officials want to improve enforcement of local TOT ordinances and other local regulations that apply to rental transactions that are facilitated through online hosting platforms. They want the Legislature to require hosting platforms that facilitate rentals of residential units for short-term occupancy to report information about rental transactions and to collect and remit TOT revenues from those rental transactions.

Proposed Law

Senate Bill 593 requires a hosting platform to report quarterly, to a city or county that has not opted out of receiving the report, all of the following information:

• The address of each residential unit that was offered on the operator’s hosting platform for occupancy for tourist or transient use and was occupied for that use during that quarterly period.

• The total number of nights that the residential unit was occupied for tourist or transient use.

• The amounts paid for the occupancy of that residential unit.

SB 593 allows a city or county to impose and collect fines on an operator of a hosting platform for failing to comply with the reporting requirements and specifies limits on the amounts of the fines.

SB 593 prohibits a hosting platform from facilitating the rental of a residential unit offered for occupancy for tourist or transient use if a city or county ordinance prohibits the renting of that unit or offering of that unit, for occupancy for tourist or transient use. SB 593 allows a city or county to impose and collect fines on an operator of a hosting platform for knowingly violating this prohibition and specifies limits on the amounts of the fines.

SB 593 requires the operator of a hosting platform to comply with a local requirement that it must collect applicable transient occupancy tax imposed by a local agency, and to remit that tax to that agency.

Senate Bill 593 requires an operator of a hosting platform to disclose, in the hosting platform agreement with an owner or lessee of a residential unit, specified information about insurance coverage for liabilities that may arise as a result of the activities related to the hosting platform.

SB 593 requires an operator of a hosting platform to encourage an owner or lessee who does not have the appropriate insurance coverage to obtain the appropriate insurance coverage.

SB 593 defines a “hosting platform” as a marketplace created for the primary purpose of facilitating the rental of a residential unit offered for occupancy for tourist or transient use for compensation to the owner or lessee of that unit and the operator of the hosting platform derives revenues, including booking fees or advertising revenues, from providing or maintaining that marketplace. The bill directs that “facilitating” includes the act of allowing the owner or lessee of the residential unit to offer or advertise the residential unit on the Internet Web site provided or maintained by the operator.

SB 593 defines “residential unit” as a dwelling unit in a private residence, including a single-family residence, an apartment or other leased premises, a residential condominium unit, or any other residential real estate improvement. “Residential unit” does not include individual guest rooms, condominium units, timeshare units, cabins, or similar guest accommodations rented to transient guests in a hotel, inn, or similar transient lodging establishment operated by an innkeeper, as defined in state law.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. Recent growth in short-term rentals of residential units, which has been made possible by online hosting platforms, is having powerful effects in communities throughout California. Increased and undisclosed tourist traffic alters neighborhood character, creating additional demands on local public service providers. The increase in short-term vacation rentals reduces the availability of already scarce affordable housing in many communities. Online hosting platforms receive revenues from short-term rental transactions that are of not permitted by local ordinances. And in many communities, neither the hosts who make residences available for occupancy for fewer than 30 days nor the hosting platforms collect and remit applicable transient occupancy taxes. In communities where vacation rentals are legal, SB 593 will help local governments collect transient occupancy taxes. The additional revenues recovered pursuant to the bill’s provisions will be vital for local governments’ efforts to respond to and mitigate short-term vacation rentals’ local impacts. Additionally, by increasing TOT compliance, SB 593 will help enforce a level playing field in the vacation rental marketplace, ensuring that hosting platforms don’t gain unfair pricing advantages as a result of hosts’ nonpayment of taxes. In communities that prohibit short-term rentals, SB 593 will improve property owners and renters’ compliance with local laws, providing local residents and their elected representatives more tools to exert control over local land uses to ensure that they reflect local priorities.

2. Burdensome. The rapid growth of online businesses that facilitate short-term rentals of residential units is a testament to the value that these online services offer both to property owners and renters who make their residences available for rent and to the travelers who stay in these accommodations. While enforcing local laws is undeniably important, enforcement efforts should avoid placing unnecessary burdens on emerging business models. SB 593’s reporting requirements place additional administrative burdens on hosting platform operators that do not apply to some other short-term lodging providers. The reporting requirements also raise privacy concerns about whether government should compel online businesses to report specific transactions data about their customers without any specific limitations on the use of that data. The bill’s requirement that hosting platforms must enforce local prohibitions against renting residential units for short-term occupancy also shifts some local code enforcement responsibilities from local government officials onto a narrow subset of vacation rental businesses. Legislators should consider other approaches to support local efforts to collect revenues and enforce ordinances that don’t disproportionately place burdens on some online businesses.

3. New approaches for a new economy. To create a level playing field for both established short-term lodging providers and new “sharing economy” platforms, local governments’ approach to regulating the business of renting residential units for short-term occupancy must evolve to reflect the rapidly changing realities of new Internet-based business models. Unlike brick-and-mortar lodging operators like hotels, not all online hosting platforms participate directly in each rental transaction completed by a property owner or renter who lists a residential unit through the hosting platform. As a result, local governments will need to find other ways to enforce TOT collection and compliance with local ordinances. One approach might be to require property owners and renters to register and report income from rental transactions and to require the hosting platforms to notify owners and renters of these registration and reporting obligations. Similarly, local governments could be required to identify, through a public clearinghouse, geographic locations in which bans on short-term rentals are in effect, providing hosting platforms with an official, consistent basis on which to accept or deny listings from property owners or renters in particular locations.

4. Definition of hosting platform. SB 593’s requires that a hosting platform must provide local governments with quarterly reports of specified information about individual rental transactions. However, the bill’s definition of a hosting platform seems to include businesses that don’t receive revenues or information about rentals on a per-transaction basis. Under the bill’s definition, a hosting platform includes a business that derives revenues solely from advertising the availability of a residential unit for short-term rental. It is unclear, how such a business, which effectively functions only as a listing service without any direct involvement in executing individual rental transactions, could reasonably be expected to comply with the bill’s data reporting and tax collection requirements. The Committee may wish to consider amending SB 593 to clarify the definition of a “hosting platform” to include only those businesses that receive revenues from, or are directly involved in executing, individual rental transactions.

5. Insurance disclosure. SB 593 requires that a hosting platform’s agreement with a property owner or renter must disclose specified information about insurance coverage. The bill requires a hosting platform to encourage a property owner or renter who lacks appropriate insurance coverage to obtain appropriate coverage. The bill does not define what constitutes “appropriate” insurance coverage and does not specify how a hosting platform operator is supposed to obtain information about a property owner or renter’s insurance coverage in order to determine whether it is appropriate coverage. The bill also does not specify what specific actions a hosting platform must take to “encourage” a property owner or renter to obtain appropriate coverage. To help hosting platform operators comply with the intent of this ambiguous requirement, the Committee may wish to consider amending SB 593 to define appropriate insurance coverage, specify how a hosting platform must determine whether a property owner or renter has appropriate coverage, and clarify what actions must be taken to encourage the acquisition of appropriate coverage.

6. Related bills. Senate Bill 761 (Hall) requires an operator of an online platform or Internet Web site that facilitates the rental of real property located in California for short-term occupancy to provide a specified notice to tenants about potential violations of their rental contracts or leases. Assembly Bill 1220 (Harper) would prohibit a city or county from levying a tax on the privilege of occupying a residential short-term rental unit.

7. Double referral. The Senate Transportation & Housing Committee considered SB 593 at its hearing on April 21 and approved the bill on the vote of 8-0. The Senate Rules Committee then referred the bill the Senate Governance & Finance Committee, which has jurisdiction over bills relating to local governments’ powers and local revenues, including transient occupancy taxes.

Support and Opposition

(4/30/15)

Support: American Federation of State, County, and Municipal Employees, AFL-CIO; Asian American Hotel Owners Association; Association of California Insurance Companies; Association for Los Angeles Deputy Sheriffs; California Association of Boutique and Breakfast Inns; California Association of County Treasurers and Tax Collectors; California Apartment Association; California Association of Code Enforcement Officers; California College and University Police Chiefs Association; California Narcotics Officers Association; California Police Chiefs Association; California Hotel and Lodging Association; California Labor Federation; California Professional Firefighters; California State Association of Counties; California Teamsters Public Affairs Council; Contra Cost County Treasurer-Tax Collector Russell Watts; Paul Desterman, Mindy Desterman; El Dorado County Treasurer-Tax Collcetor C.L. Raffety; Humboldt County Convention and Visitors Bureau; Los Angeles Alliance for a New Economy; Los Angeles Police Protective League; Marin County Council of Mayors and Councilmembers; Denise McNicol; Mendocino County Treasurer-Tax Collector Shari Schapmire; Mono County Board of Supervisors; Ashok Mukherje; Neighbors for Overnight Oversight; Jenny Oaks; Sam Pahlavan; Riverside Sheriffs Association; Rural County Representatives of California; Santa Cruz County Convention and Visitors Council; ShareBetter San Francisco; Sierra County Auditor-Treasurer-Tax Collector Van Maddox; Siskiyou County Treasurer-Tax Collector Wayne Hammar; Sonoma County Auditor-Controller-Tax Collector David Sundstrom; Sonoma County Board of Supervisors; Tuolumne County Treasurer-Tax Collector Shelley Piech; UNITE-HERE, AFL-CIO.

Opposition: Airbnb; Consumer Watchdog; Internet Association.

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SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2015 - 2016 Regular

Bill No: SB 593 Hearing Date: 4/21/2015

SUBJECT: Residential units for tourist or transient use: hosting platforms

DIGEST: This bill 1) requires electronic “hosting platforms” (e.g., Airbnb) to regularly report the addresses of, nights of use at, and revenues obtained by residences that were leased through the platform; 2) prohibits the hosting platforms from offering properties if prohibited by law; and 3) requires the platforms to collect and remit any applicable transient occupancy tax if requested by the local government.

ANALYSIS:

Renting a home or room has never been easier because of the rise of several internet platforms. VRBO and Homeaway have for years been a source of vacation rental listings. More recently, Airbnb has expanded the availability of rentals to include individual rooms as well as homes, encouraging many property owners and renters to join the rental market.

Existing law authorizes cities and counties to levy occupancy taxes for the privilege of occupying rooms in hotels, inns, homes or other lodging.

This bill:

Requires the hosting platforms to report quarterly to the city or county the following:

• The address of each property that was offered and rented during the quarter

• The total number of nights the property was rented

• The amounts paid for the occupancy

Prohibits the hosting platform from facilitating the rental of a property if such rental is prohibited by the city or county.

Authorizes a city or county to establish civil fines on the hosting platforms of up to $1,000 for a first day of violation, $2,000 for a second day of violation, and $5,000 for subsequent days of violation of these provisions. The platform must be given written notice of the violation and 30 days to correct the violation before a fine may be imposed.

Requires the hosting platform to collect the applicable transient occupancy tax if requested by the city or county.

COMMENTS:

1. Purpose of the bill. The author believes that online vacation rental businesses, described as hosting platforms in the bill and exemplified by Airbnb and VRBO, force cities to bear the costs and burdens of their operation. Increased and undisclosed tourist traffic alters neighborhood character, creating additional demands on public safety. The author contends that the hosting platforms frequently ignore local government prohibitions on the renting of residences for less than 30 days and fail to collect and remit applicable transient occupancy taxes. Moreover, the increase in short-term vacation rentals reduces the availability of already scarce affordable housing.

2. Business is taking off. Founded in 2008, Airbnb, a California company based in San Francisco, claims to have served over 25 million guests with growth of almost three times compared to 2013, according to one estimate. (Airbnb was originally founded as AirBed and Breakfast, giving an indication of its roots as a bedroom-sharing service.) Homeaway, another online vacation rental company, had over 1 million listings at the end of 2014, 17% more than 2013. The growth in online vacation rentals has created growing pains, particularly in Los Angeles and San Francisco. Supporters are concerned about unfair competition with hotels, the loss of housing, and short-term vacation rentals arising in residential neighborhoods. But the benefits to vacationers and individuals renting out their homes and apartments are undeniable, attested to by the remarkable growth of these businesses.

3. Level playing field. Some parties raise concerns about fair competition in that properties rented through the online hosting platforms often don’t assess the hotel tax, which can be 10% or more. To the extent that traditional hotel rentals are lost to lodging rented through the hosting platforms, cities will suffer revenue losses.

4. Loss of housing stock. Relatively new concerns have arisen over the effect of these vacation rentals on the character of neighborhoods and the availability of housing. The Los Angeles Alliance for a New Economy (LAANE), a nonprofit, asserts that Airbnb has taken more than 7,300 units out of the rental market, turning them into vacation rentals. In Venice, 12.5% of all housing units have become Airbnb units, without public approval.¹ Late last year San Francisco approved an ordinance legalizing short-term rentals with restrictions while reinforcing its prohibition against the conversion of residential housing into full-time de facto hotels. Many cities restrict or bar short-term rentals of less than 30 days.

5. A hotel in every neighborhood. While the increasingly widespread availability of short-term rentals has given vacationers more choices, it can burden neighborhoods with unwanted guests. Cities can control where hotels are placed, and neighbors can have input when a residential usage is changed to a commercial usage, but short-term vacation rentals can pop up anywhere without oversight or regulation. Public safety officials may have more difficulty finding a responsible party to deal with a problem tenant in a short-term rental than a tenant in traditional lodging.

6. The hub of the wheel. This bill recognizes the hosting platform as the center of the vacation rental universe, connecting renters with properties. From the perspective of a local government that wishes to collect its hotel taxes and regulate which properties are available for short-term rentals, it is certainly convenient to do so as the hosting platform has complete knowledge of which properties are rented, when they’re rented and how much they’re rented for. Denying a property access to the platform literally takes the property off the market, a very effective compliance tool.

7. Opponents’ concerns. Airbnb objects to being used to enforce legal obligations on the individuals making properties available on their site, known as hosts. It believes it is an invasion of privacy to reveal information about its hosts, particularly with no limitation on how that information is used. There may be alternative ways to accomplish the goals of this bill which reduce the obligations on the hosting platforms:

• Who is offering? An alternative to making the hosting platform provide the rental information is for the local governments to go onto the hosting platform and search for properties in their jurisdiction. This should be a relatively simple search.

• How much are they making? The best way to ensure accurate information about how much and how many days a property was rented for would seem to be by getting it from the hosting platform. Such information could be obtained directly from the host, but there are obvious incentives for fudging the numbers.

• Enforcing local restrictions. Cities impose varying restrictions on short-term rentals, from prohibition to no restriction at all. When a city prohibits short-term rentals, it is easy to identify violators on the hosting platform. The most effective way to enforce the prohibition would be for the platform to bar the listing.

When a city allows a specific number of rental days, it is harder to know when there is a violation, because a property could be made available on multiple hosting platforms and through more traditional rental mechanisms. But the city could aggregate the information obtained from the platforms. At that point the city could identify violators and enforce its rules through the platforms to bar the listing. There is precedent for using an intermediary to enforce the law: The California Public Utilities Commission can require telephone companies to disconnect service from moving companies who violate their regulations.

• Collecting the hotel tax. Airbnb has negotiated agreements with several cities, including San Francisco, San Jose, and Malibu, to collect and remit hotel taxes. Other negotiations are in progress. Airbnb is concerned that the bill language may impose a tax liability upon it.

8. The sharing economy. New internet-based business models are challenging and disrupting traditional businesses. These new models are often ill-fitted to existing laws and regulations. The impacts and consequences of these new business models are not yet fully realized. This bill attempts to reconcile the benefits from one of these new business models with the effects on competitors and community values.

9. Double referral. If this bill is successful, it should be referred to the Rules Committee where a referral to the Governance and Finance Committee will be considered.

Related Legislation:

SB 761 (Hall) — Requires the hosting platform to provide notice to renters subleasing their property that they may be in violation of their lease.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

POSITIONS: (Communicated to the committee before noon on Wednesday,

April 15, 2015.)

SUPPORT:

California Association of Boutique and Breakfast Inns

California Association of Code Enforcement Officers

California Hotel and Lodging Association

California Police Chiefs Association

California Professional Firefighters

California State Association of Counties

California Teamsters Public Affairs Council

Neighbors for Overnight Oversight

Rural County Representatives of California

Santa Cruz county Conference and Visitors Council

UNITE-HERE, AFL-CIO

OPPOSITION:

Airbnb

Internet Association

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