Sonoma County moves to better track Airbnb, vacation rentals (w/video)

Faced with up to $1.3 million in lost revenue, Sonoma County is looking to emulate the efforts of larger cities such as San Francisco and Portland, Ore., to capture hotel bed taxes from vacation rentals and bookings through services such as Airbnb.

San Francisco-based Airbnb - and other companies like it - have grown rapidly. The boutique online rental site allows homeowners to list private homes or rooms available for rent by out-of-town guests seeking temporary stays on the cheap. But Sonoma County and many cities say the largely unregulated marketplace is squeezing their coffers because many homeowners do not report transactions to tax officials.

In Sonoma County, the problem facing government officials is twofold. Officials don’t know exactly how many people are renting out rooms online, and the vast majority of property owners leasing their space aren’t paying bed taxes, which is required by county ordinance.

An audit presented at Tuesday’s Board of Supervisors meeting identified 267 properties listed on Airbnb, clustered mostly in tourist destinations along the Russian River and in popular wine regions surrounding Healdsburg and in the Sonoma Valley. But there are likely hundreds more unregistered or listed on other websites, potentially leaving millions of dollars in revenue unclaimed, county officials said. Revenues from the so-called Transient Occupancy Taxes go to the county’s general fund, but they pay for advertising and promotional activities, among other things.

Property owners who rent out their space temporarily - whether it’s a room on Airbnb or a house listed as a more traditional vacation rental - are required to register with the county tax collector’s office and pay a quarterly bed tax. The audit of tax revenues, however, reported that there are likely hundreds of owners operating illegally in unincorporated areas, and the county is losing between $500,000 and $1.3 million a year in general fund revenue.

“This is an extremely conservative estimate,” said David Sundstrom, the county auditor-controller-treasurer-tax collector, whose office conducted the audit. “When you don’t know where they are, that becomes a very big problem.”

Supervisors on Tuesday called on county planning officials and the tax collector’s office to track how many people are renting rooms through online marketplaces, and identify how many property owners are renting out their houses for vacation rentals.

In 2010, supervisors decided that existing rentals with up to six guest rooms, and including two structures, will require a basic $150 zoning permit. Discussions at the time spelled out rules for new rentals beginning in 2011. A zoning permit was limited to five guest rooms, and included up to two structures. Airbnb and other rental websites like it that rent individual rooms do not require a permit. All tourism-related rentals, however, are required to register with the county and pay bed taxes quarterly.

“We need to understand the scale and scope of the problem,” said Board Chairman David Rabbitt. “Are we talking about a few bad apples or are we talking about a broken system?”

To try to capture some of that lost revenue, the county has drafted a letter to Airbnb to request a similar tax-collecting arrangement to one that began Oct. 1 in San Francisco. The letter asks that Airbnb collect bed taxes on guest stays in unincorporated parts of the county and send revenue back to the county. Officials are also seeking more complete information about how many people are operating tourist rentals so they can compile registrations in a new database. Complaints would also be tracked.

“We’re looking at similar agreements in San Francisco and Portland,” said County Counsel Bruce Goldstein, who explained the letter but said he couldn’t release it due to a formality. “The goal is to have a partnership with Airbnb to ensure that the permit tax identification number is displayed on all advertisements, and ideally to have them collecting taxes then remitting them to the county.”

Planning officials have also responded to the need for better data. Last week, a new officer was hired to better enforce the county’s vacation rental ordinance. Juan de la Cruz, the code enforcement officer who was hired for a salary between $64,000 and $77,600 a year, will be responsible for addressing neighbors’ complaints, assuring rentals are operating with required permits and helping to ensure owners are registered on county tax rolls - efforts that will assist the county in its enforcement of existing rules.

Regulation of vacation rentals is increasingly important, county officials said, as the number of vacation properties rises rapidly with a rebounding economy and technological advances in online rental markets.

The number of vacation rentals nearly doubled since passage of the county’s ordinance in 2011. The planning department has issued 775 zoning permits for vacation rentals since new zoning rules went into place. Of those, 350 permits were issued for existing vacation rentals. The other half sprung up in three years. In addition to permits increasing for rentals, money paid to the county in the form of bed taxes is skyrocketing. By the end of 2013, 686 property owners were paying taxes for various types of overnight stays - at vacation rentals, hotels, campgrounds and bed and breakfast inns, for example. Revenue increased 11 percent in one year, for a total of $9.7 million in 2013.

Supervisors on Tuesday could only account anecdotally for what could be hundreds more property owners operating off the grid. They unanimously endorsed a resolution to start a six-month community engagement process aimed at addressing a host of issues to beef up enforcement of the vacation rental laws as well as collect additional tax money.

“There are some who follow the rules,” said Supervisor Mike McGuire, but said the county must “weed out any bad apples.”

At present, nearly 2,000 properties are properly registered with the county, officials said. Property management companies oversee about 1,500 of those rentals.

Roughly a half-dozen people came out to speak Tuesday about potential revisions to rules surrounding vacation rentals. Most voiced concern about the rentals’ effects on neighborhoods as opposed to the collection of taxes.

“There are compatibility issues,” said Mary Elliff, who lives on Limerick Lane near the city of Healdsburg. “The noise has increased, speeding has increased and it’s causing great stress and anxiety to homeowners on the road.”

McGuire said the county must ramp up enforcement and regulations for vacation property operators who do not adequately respond to complaints and who evade paying local taxes.

“The ordinance has had an overall positive impact on the county, but we need to stiffen up penalties after the first, second and third complaints,” he said.

Supervisor Shirlee Zane mentioned the idea of what she called a “sting operation” to go after vacation renters who don’t follow the rules.

“There’s still a lot of people out there who are not playing fairly,” Zane said. “The carrot is always a better way to go, but if the carrot doesn’t work, you have to talk about the stick.”

After hours of discussion, supervisors settled on a host of proposals to solve collection and enforcement issues. Some ideas include shifting the requirement of property owners to notify neighbors of a vacation rental in their area to the county planning department, requiring a property owner renting out their home to live within 60 miles rather than within 60 minutes of the home and requiring all rental operators to publicly list their tax identification number.

Deputy planning director Jenniffer Barrett, said, however, that much of the direction supervisors gave the planning department Tuesday is already required, including requirements to list tax information and restrictions on noise and traffic.

“We already require that; it’s just not done,” Barrett said. “What we’re talking about today is tweaks to the ordinance to make it more effective.”

Much of the problem is lack of enforcement, some said.

“We worked hard to address a lot of the issues we heard today during the initial planning of the vacation rental ordinance, like concerns over parking and noise,” said Rachel LaGrand, owner of Russian River Getaways, a property management company that operates about 90 vacation rentals in the county. “It’s just the lack of teeth in the current ordinance and lack of enforcement from PRMD.”

Barrett said the department has responded. She pointed out the hiring of the new code enforcement officer, initiations to partner with Airbnb and to launch community meetings over the next six months to address stakeholder concerns. Any changes to the current ordinance require Planning Commission approval before going back before the full Board of Supervisors.

You can reach Staff Writer Angela Hart at 526-8503 or angela.hart@pressdemocrat.com. On Twitter @ahartreports.

Editor’s note: An earlier version of this article incorrectly referred to the type of tax collected from hotel beds. It is the transient occupancy tax.