Sen. Mike McGuire’s bill would require reporting by vacation rental companies

North Coast Sen. Mike McGuire is taking aim at online vacation rental businesses such as Airbnb through proposed legislation that could reap millions of dollars for cities and counties in uncollected bed taxes. Critics have slammed the move as government overreach and a threat to the so-called sharing economy.

Senate Bill 539, unveiled Wednesday, is an attempt to get online vacation rental companies to disclose the extent of their business so that it can be taxed. The bill also would give local governments greater ability to track vacation rentals and enforce local ordinances that seek to regulate them.

“This legislation is simple,” said McGuire, D-Healdsburg. “It makes online vacation rental businesses follow local laws just like the rest of us.”

But critics said the bill would be bad for business and for innovation.

“While consumer protections are generally a great thing, consumers shouldn’t be fooled by this barely veiled, anti-competitive threat to innovative marketplaces,” Mike Montgomery, executive director of CALinnovates, a group that advocates for the technology and startup sector.

San Francisco-based Airbnb - and other companies like it - allow homeowners to list private homes or rooms available for rent by guests seeking short-term stays. But Sonoma County and many cities say the largely unregulated marketplace is sidestepping their hotel-bed tax coffers because many property owners do not report the transactions to tax officials.

Under McGuire’s bill, local jurisdictions could require vacation rental companies to disclose rental location, number of overnight stays and revenue from booking, all for the purpose of collecting bed taxes.

Such information could be forwarded to local tax collectors, who could send remittances to homeowners requiring them to pay the proper amount of bed taxes. The bill gives local governments discretion on whether or not they take that step.

Another option under the bill would be for the vacation rental companies to remit taxes at time of booking.

McGuire said companies such as Airbnb, Vacation Rental By Owner - or VRBO - and HomeAway leave it up to homeowners to decide whether to disclose such information. That loophole, McGuire said, has allowed the business to continue unlawfully in places such as Healdsburg, which enacted a ban on short-term vacation rentals outside the downtown area.

Since August, Healdsburg has spent about $48,000 tracking down vacation rentals based on complaints. City officials project annual expenses, including staff and legal expenses, at about $64,000.

Neighborhoods concerns, about loud parties, traffic and other problems tied to vacation rentals, meanwhile, are on the rise in cities and rural pockets across Sonoma County.

“The sharing economy is all of us sharing in the prosperity of our local communities,” McGuire said.

Airbnb officials, in a written statement Wednesday, did not directly address the new legislation but said the company has helped “countless Californians” pay their bills while delivering “tremendous economic benefits to communities around the state.” It also said that it asks hosts to follow local laws and that it has begun collecting and remitting taxes in several cities, including San Francisco, San Jose and Portland, Ore.

McGuire, however, said less than 7 percent of hosts in San Francisco have followed the ordinance that requires them to register with the city. He said Sonoma County has had to spend in excess of $200,000 in an attempt to track down rentals where owners are not paying the bed taxes required under the county’s ordinance.

Petaluma is weighing an ordinance that would require vacation rental hosts to obtain a permit and notify neighbors. Limits would be placed on the number of guests and the number of days a whole house can be rented. The city estimates it stands to collect $85,000 annually in permit fees and taxes under the proposed regulations.

Sonoma County supervisors last fall outlined possible tweaks to rules pertaining to vacation rentals. Current limits allow vacation rentals with up to five guest rooms in most zoning districts.

Through October 2014, the county issued 775 zoning permits for vacation rentals, with estimated 425 of those issued for new vacation rentals after the county ordinance took effect in 2011.

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. But an audit of tax revenues 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.

Supervisor Efren Carrillo, who represents the west county, where vacation rentals have been a particularly hot-button issue, made the case Wednesday that McGuire’s bill strikes the right balance when it comes to regulating the industry.

“Vacation rentals as a whole are an important part of the tourist-related economy,” Carrillo said. “But the playing field needs to be level so that all enterprises serving visitors are justly regulated with the appropriate taxes collected.”

Larry Heiges, who lives with his wife, Victoria, in the Vineyard Valley View subdivision near Geyserville, said the community could use more tools to regulate vacation rentals, which he labeled a “nuisance and invasive.”

“The ability to more closely identify and locate where these places are helps local communities protect themselves,” he said.

He said Vineyard Valley’s governing board a week ago filed a lawsuit against a San Francisco couple who rent out a home they own in the subdivision. The suit alleges the practice is causing emotional distress for neighbors and violates the community’s covenants by operating a commercial activity in a residential setting.

The county weighed in last year by sending a letter to Airbnb requesting a similar tax-collecting arrangement to one that began Oct. 1 in San Francisco. The letter asked that Airbnb collect bed taxes on guest stays in unincorporated parts of the county and send revenue back to the county.

County Counsel Bruce Goldstein said Wednesday the company has not been “responsive” to the letter, nor the county’s request to meet to address the county’s concerns. He said legislation such as that proposed by McGuire represents a “critical tool to bring the online companies marketing short-term rental homes into compliance and insure an equal playing field in the rental market.”

You can reach Staff Writer Derek Moore at 521-5336 or derek.moore@pressdemocrat.com. On Twitter @deadlinederek.