The failure of many short-term rental hosts to pay hotel occupancy taxes likely will cost the City of San Antonio at least $2.4 million this year in lost revenue, according to a Rivard Report analysis.
Most of those untaxed nights replace stays in traditional hotels or bed-and-breakfasts that do pay the hotel occupancy tax; the collection system was, after all, set up to accommodate them.
Now the City is looking into ways to close the tax gap in a system that did not anticipate the technological disruption of short-term rental platforms. One big step could be making it easier for hosts to pay local taxes online.
While setting up a short-term rental is as easy as downloading an app from Airbnb or HomeAway, local taxes must be paid by phone or in person, and many hosts don’t know that if they are renting out a house, apartment, or room in their home they are subject to the hotel occupancy tax.
No official enforcement mechanism exists to collect local hotel occupancy taxes; the City relies on hosts to self-report and pay.
“The City is currently developing an online process for STR registration,” City Finance Director Troy Elliott said.
Out of the more than 2,000 short-term rentals in San Antonio tracked on AirDNA, an analytics firm that compiles data on Airbnb properties, only about 14 percent of property owners or hosts are registered with the City to pay local hotel occupancy taxes, according to the City’s Finance Department. Far fewer pay the tax, which City officials and stakeholders casually call the “HOT,” each month.
Cities across the nation and world are “playing catch-up,” said Carl Davis, research director of the Washington, D.C.-based Institute on Taxation and Economic Policy, a research organization. “[They are] trying to recoup taxes that, were it not for Airbnb [and other platforms], would have been collected from a hotel stay.”
Collectively, hosts should have paid more than $255,000 in local taxes in February alone, based on almost $2.4 million in revenue collected by Airbnb hosts that month, according to AirDNA. Information regarding other short-term rental platforms is not publicly available, so these estimates are likely conservative.
While there were 290 rentals registered to pay the local tax in February, 82 submitted payments to the City totaling $18,000. Hosts only have to pay the tax when a room or home is rented, so it is possible that those who did not pay did not have customers.
The City started tracking levy revenue from short-term rentals, or STRs, in October 2017.
“From October 2017 to February 2018 [five months], the City has collected approximately $114,600 from the 290 STRs currently on the HOT roll and located within city limits,” Elliott said. “The City has not fully projected the amount of HOT from all of the estimated STRs currently operating in the city.”
In October 2017, when 124 STRs were registered and 76 paid hotel occupancy taxes, the City collected a total of $18,300, Elliot said. He attributed the increase in registered rentals to additional outreach the City made to hosts who were paying the state occupancy tax, but not the local occupancy tax.
Elliott said that the City uses various methods for identifying and contacting properties that should be paying the tax and plans to hire a firm to help identify and estimate revenues for STR hosts who fail to pay.
AirDNA tracks rentals and revenues from Airbnb listings. Such data from HomeAway is not publicly available, and there is considerable overlap of platforms as many hosts use a combination of Airbnb, HomeAway, or others to market their listings.
Airbnb hosts raked in an estimated $600,000 in revenue on the platform during the NCAA Men’s Final Four two weeks ago, according to a company news release, almost half of Airbnb’s average monthly average. While those guests undoubtedly contributed to the estimated $185 million in economic impact to the city during the event, the City didn’t collect most of the HOT it was due from hosts. According to AirDNA data, host revenue spiked in March to more than $4.6 million – and that includes only half the duration of the Final Four, which culminated in the championship game April 2. Data for April is not yet available.
But hotels paid their taxes, Liza Barratachea, president and CEO of the San Antonio Hotel and Lodging Association, told the Rivard Report. Her organization wants to see a “level playing field” for the hospitality industry and collecting the hotel occupancy tax from STR hosts would be a good first step, she said.
“They are making money and charging people for a service,” Barratachea said. “They should be paying the HOT.”
Councilman Robert Treviño (D1), whose downtown and near-Northside district has the most short-term rentals, is ferrying new legislation through City Council and says the City could take a more proactive approach to collecting the tax.
The hotel occupancy tax rate for 2018 is 16.75 percent: the State of Texas gets 6 percent, the City gets 7 percent, the Convention Center gets 2 percent, and Bexar County gets 1.75 percent, which the City collects on its behalf.
The local levies, collected on the 20th of each month, are used to fund Visit San Antonio, the former City department-turned-nonprofit charged with promoting tourism; the Convention and Sports Facilities Department; public art; cultural programs; and historical preservation activities.
A hospitality industry economic impact report says the tax brought in $78.9 million to the City in 2015. Visit San Antonio receives 35 percent of those revenues.
“From an everyday life impact, the tourism industry [via the hotel occupancy tax] saves the average homeowner $1,200 in property taxes per year,” Dave Krupinski, chief operating officer for Visit San Antonio, said in an email to the Rivard Report. “It would benefit the city and its residents to see reasonable legislation to bring short-term rentals into the HOT framework to continue growing the marketing of the destination and quality of life.”
Charlotte Kerr Jorgensen, who served on the 23-member short-term rental task force that worked with City staff for more than a year on a proposed ordinance to regulate STRs, has an Airbnb listing at her home in Olmos Park Terrace. Before the task force was created, she told the Rivard Report, “almost nobody knew you had to pay hotel occupancy taxes.”
And the City hasn’t made it easy to pay them – for hotel operators or short-term rental hosts.
“There’s absolutely no technology in place,” Jorgensen said, adding that HOT payments are accepted only in person or over the phone. Hosts must either email or fax paperwork to the Finance Department or physically submit it.
Jorgensen and Barratachea, who also served on the STR task force, said that agreement emerged that short-term rental hosts should pay the local tax, although there was some discussion that such a requirement would amount to a double tax on homeowners, who already pay property taxes.
“Hotels pay property taxes, too,” Barratachea said.
However, some hotel developers enjoy City-funded incentive packages that includes fee waivers and tax rebates, for which single-family homeowners are not eligible.
A lot of hosts would willingly pay the HOT, Jorgensen said, but don’t because it would necessitate an increase in rates to cover the costs while other hosts could continue not paying and undercut them. Other hosts fear being liable for back taxes, she added.
That is a legitimate concern, according to the Finance Department.
State and local laws apply penalties and interest to delinquent HOT, Elliott said. A 5 percent penalty is applied to monthly taxes that are 30 days late and another 5 percent applied after 60 days. Interest is also applied at an annual rate of 10 percent. Failure to pay could be classified as a Class C misdemeanor, he said.
Amnesty for back taxes seems unlikely. Asked if back tax forgiveness was being considered as an option, Elliot said in an email: “We anticipate that the City’s policies will address the application of penalty and interest on STR delinquent HOT.”
Airbnb reached a deal in 2017 with the Texas State Comptroller to forgive back taxes for hosts for the state HOT and automatically pay the 6 percent tax for hosts. The San Francisco-based company has more than 340 similar agreements with jurisdictions around the world. It’s willing to work with City officials on an occupancy tax agreement here, said Laura Spanjian, Airbnb’s public policy director for Texas.
“With more San Antonio residents using Airbnb to pay the bills, we look forward to working with city leaders on clear, fair rules that address community concerns while allowing all residents to participate equally in homesharing,” Spanjian said.
But conversations about regulations and hotel occupancy tax collection should take place separately, Davis said. Research from the Institute on Taxation and Economic Policy shows that Airbnb has “dangled tax collection as part of a broader negotiation package regarding regulations that local lawmakers might be looking to put in place.”
In other words, Airbnb’s automatic tax collection from hosts could be used as a kind of bargaining chip for less onerous requirements.
“Taxes shouldn’t help them score lighter regulation,” Davis said, but having a more centralized system for collecting local taxes through short-term rental platforms is a better solution than local agencies “chasing down hosts” one-by-one.
“But you have to sympathize with the hosts that may not have understood local laws,” he said, noting that short-term rental platforms have put their hosts in “a tough spot.”
A random search on Austin-based HomeAway’s website lists more than 1,400 local rentals, including traditional bed-and-breakfasts and some hotels. The company has acquired VRBO, VacationRentals.com, and several other platforms, and officials say they have a better track record than Airbnb when it comes to tax compliance.
“Our model is a little bit different,” said Ashley Hodgini, government affairs manager for HomeAway’s southeast region. HomeAway and VRBO do not offer owner-occupied listings such as rooms within a single-family home, she said. Instead, the listings are usually second homes or homes owned by professional investors who are well aware of tax laws.
“We have much higher compliance from our owners and managers than the rest of the [short-term rental] population,” Hodgini said. And HomeAway would consider some kind of agreement that would let it pay taxes on behalf of owners. “We’re certainly open to having a discussion with the city and the state about those issues.
“The fewer barriers that you have to compliance, the more likely they [hosts and owners] are to comply,” Hodgini said.
During the Council meeting earlier this month, Mayor Ron Nirenberg directed City staff to continue researching policy options before presenting proposed regulations to the Council’s five-member Governance Committee and to the full Council. Treviño also will be meeting with his Council colleagues to formulate an ordinance that can satisfy the disparate experiences residents in different parts of the city have with short-term rentals. Entire blocks in historic neighborhoods are being taken over by short-term rentals, while residents in other neighborhoods would welcome a short-term neighbor in an otherwise vacant home.
That policy work will likely take months, not weeks, Treviño told the Rivard Report. In the meantime, most of the City’s tax revenue from short-term rentals is lost.
“If we think this is going to take too much longer, we would probably move with some kind of directive to make sure that [those payments are] getting done,” Treviño said, noting that reinforcement of existing rules – such as paying the HOT – could help while the ordinance is being crafted. “Maybe that becomes the strategy to eat the elephant – one bite at a time.”
This story was originally published on April 23, 2018.