• Northern California: Cities Address Transient Occupancy Tax in Airbnb Home Vacation Rentals
  • May 21, 2014
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • Within the last month, both Berkeley and San Francisco have addressed issues related to the application of a transient occupancy tax, commonly referred to as a “hotel tax,” on rentals made through home hosting sites such as Airbnb, HomeAway Inc., and Vacation Rentals by Owner. For those unfamiliar with these hosting sites, permanent residents of various properties (homeowners and lease tenants alike) provide their homes for rental to tourists and visitors for periods where the permanent residents would be away from their homes or have a spare room for rent. The sites charge a small fee and the residents collect the rental payments.


    As of May 1, 2014, Airbnb had over 1,000 residence listings in Berkeley, while Vacation Rentals by Owner and HomeAway Inc. each had 117 and 125 respectively. On April 29, 2014, Berkeley’s city council voted to have the city manager draft a policy which would require the hosting site companies to pay the transient occupancy tax, which is currently set at 12 percent for rental periods less than 30 days. Furthermore, Berkeley’s 2014-15 budget projects a two percent increase in the transient occupancy tax collections from fiscal year 2014 to fiscal year 2016. However, this projection could greatly increase if Airbnb and other hosting sites begin collecting such transient occupancy tax.

    Berkeley’s city council is recommending that Airbnb follow the lead of other cities in requesting that Airbnb voluntarily collect and remit transient occupancy taxes in Berkeley. Airbnb has stated that it will begin a pilot program in June to voluntarily collect and remit transient occupancy taxes in San Francisco, New York City, and Portland, Oregon. In fact, New York City was among the first cities to challenge the legality of these hosting site arrangements, as previously covered in the April 24, 2014 edition of the Multistate Tax Update.

    San Francisco

    On April 15, 2014, San Francisco introduced legislation which provides for exceptions in its current housing law to allow residents to offer their primary residences as short-term residential rentals and utilize hosting sites like Airbnb. The legislation proposal provides that the permanent residents must comply with certain requirements in order for them to be permitted to offer their primary residence as a short-term residential rental. These requirements include, among others, the following:

    1. Occupying the unit themselves for no less than 275 days per year;

    2. Maintaining records for two years illustrating their compliance with the law;

    3. Collecting and remitting transient occupancy taxes;

    4. Maintaining homeowner’s or renter’s insurance coverage for at least $150,000 in damage per incident, or ensuring that the hosting site provides for this insurance coverage;

    5. Registering and maintaining registration on the Short-Term Residential Rental Registry before offering their unit for use as a short-term residential rental; and

    If the unit is subject to rent control, charging rent that is not higher than the rent the primary resident pays to his landlord per month.

    However, the proposal clarifies that the proposed exception to permit short-term residential rentals does not confer a right to lease, sublease, or otherwise offer a residence for short-term residential rental if such use is not otherwise allowed by law, a homeowners association agreement or requirements, a rental agreement, or any other applicable restriction, requirement, or enforceable agreement.

    The proposed legislation provides that if owners are found to have violated the terms of the law for short-term residential rentals, then they can be subject to various penalties, including: $1,000 per rental day not in compliance with the law, misdemeanor offense punishable by a $1,000 fine and/or up to a six-month prison sentence, or a one-year prohibition from listing the residence on any housing platform site.

    The proposed legislation includes a requirement that the housing platform sites provide notice to the residents providing the rentals of the applicable laws and their obligation to collect and remit the transient occupancy taxes.

    The proposal is currently being reviewed by the San Francisco Board of Supervisors Land Use and Economic Development Committee.