Back in September 2015, the city council discussed the issue of short-term rentals via internet platforms, specifically Airbnb. At that time, the council decided not to create additional regulations, but instead directed staff to work with Airbnb and the public and return at a later date.
Staff reports that, while a public forum has yet to occur, the city staff and city attorney’s office have worked with Airbnb on a draft agreement for them to pay transient occupancy tax to the city.
Transient Occupancy Tax (TOT) in Davis is 12 percent of the cost of a room night. Staff writes, “It is unknown how many Airbnb rentals there are in Davis or how many room nights are used each year.
As of this report “the Airbnb website showed 266 rentals with an average price of $79. If each of those locations rented out for 20 room nights per year, the revenue to the City would be approximately $50,000.”
In addition, “if Airbnb hosts apply for a business license, additional revenues will flow to the City. These revenues will, like the TOT, range from $13 per host upward depending on gross receipts.”
However, staff reports, “the City does not have access to data to know the locations or the average number of room nights through Airbnb in Davis.” This is critical because, “The Municipal Code already requires a short term rental like those facilitated by Airbnb to pay transient occupancy tax (TOT), but the City has no way to know locations, terms and usage of such properties without the assistance of the online platform, hence the need for an agreement with Airbnb to provide the required TOT.”
Staff notes that the proposed agreement still would not provide the city additional information about individual properties as “no location, rental nights or prices are disclosed.”
However, “It does, however, provide that Airbnb will collect and remit to the City the 12% transient occupancy tax, in the same manner as existing brick and mortar hotels in Davis.”
Staff is recommending that the council authorize the city manager to execute the agreement. In addition, staff recommends that the city’s policy should be to require a business license for anyone who rents out a room for a short-term rental. Similar to any home-based business, a business license allows the city to know where in residential areas business activity is taking place and to collect the appropriate tax for revenue generated through that for-profit enterprise.
A business license is currently required for traditional hotels and for single-family homes that are used as rental units. A business license is based on gross receipts, so the more a host makes, the higher the business license tax. A host would pay $13 per year, up to $10,000 gross receipts and a sliding scale beyond that (the total cost for gross receipts up to $30,000 would be $25).
According to a draft of the agreement, beginning on the “effective date” Airbnb would agree “to commence collecting and remitting TOT on behalf of Hosts, pursuant to the terms of this Agreement, at the applicable rate, on Taxable Booking Transactions. Airbnb would have no obligation or liability to collect TOT for any transaction prior to the Effective Date.”
Further, “Airbnb agrees reasonably to report aggregate information on the tax return form prescribed by the Taxing Jurisdiction, including an aggregate of gross receipts, exemptions and adjustments, and taxable receipts of all TOT that is subject to the provisions of this Agreement.”
Airbnb “agrees contractually to assume liability for any failure to report, collect and/or remit the correct amount of TOT, including, but not limited to, penalties and interest, lawfully and properly imposed in compliance with the Code.”
The city would have the ability “to audit Airbnb on the basis of TOT returns and supporting documentation, and agrees not to directly or indirectly audit any individual Guest or Host relating to Taxable Booking Transactions unless and until an audit of Airbnb by the Taxing Jurisdiction has been exhausted with the matter unresolved.”
—David M. Greenwald reporting