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Santa Monica Could Explore Collecting Hotel Taxes for Short-Stay Rentals, Officials Say

Santa Monica Real Estate Company, Roque and Mark

Pacific Park, Santa Monica Pier

Harding Larmore Kutcher & Kozal, LLP  law firm
Harding, Larmore
Kutcher & Kozal, LLP

By Niki Cervantes
Staff Writer

April 8, 2015 -- With tens of millions of dollars collected each year in hotel taxes, Santa Monica officials are looking closely at the estimated 1,700 units now being rented as illegal short-term vacation rentals that don’t pay the taxes levied on traditional hotels, motels, inns and bed-and-breakfast establishments.

They need look no further than Malibu, though, to see how other municipalities are handling similar situations.

Airbnb, one of the most popular sites for such rentals, has agreed to begin charging Malibu’s 12 percent hotel tax on April 20 on behalf of the residents there who rent their homes for short-term stays, the Los Angeles Times reported.

That development is of great interest in neighboring Santa Monica. The beachside city has seen a sudden jump in such short-stay rentals as part of an increasingly popular “sharing economy,” where owners rent something they are not using to a stranger using peer-to-peer services.

“The City is very interested in Airbnb and the shared economy,” said Debbie Lee, communications and public affairs officer for the City.

A rapidly growing number of rooms in Santa Monica are being rented without charging the 14 percent tax the City levies on hotels and other such services to help pay for municipal services and promote tourism. The City collected $42 million in hotel taxes in 2013 alone.

The increasingly popular practice of renting rooms or other space short-term has led to numerous complaints by residents about traffic, noise and other activity in what are otherwise quiet residential areas, Councilmember Pam O’Connor told the Lookout.

The City expects to have received between 200 and 225 complaints by the time the fiscal year ends in June, mostly from neighbors, City officials said.

 “I don’t think the shared economy is going away,” Councilmember O’Connor said. “The question is how do you regulate it?”

Collecting hotel taxes is one of several ideas the City Council will be discussing, she said.

Tourism is a huge business in Santa Monica, which attracts an estimated 7.3 visitors a year from outside Los Angeles County, according to the Santa Monica Convention and Visitors Bureau (SMCVB). Tourism is tied to 12,908 jobs and generates an estimated $1.63 billion a year, according to the CVB.

In Malibu’s case, the City Council last year authorized officials to issue subpoenas to websites that advertised short-term rentals for Airbnb and similar businesses, according to the LA Times.

That prompted Airbnb to begin negotiations on hotel taxes, and Malibu expects to collect about $450,000 in transient occupancy taxes this year, the Times reported.

Santa Monica has seen tremendous growth in short-term rentals arranged through businesses like Airbnb, according to City officials. (“Steep Rise in Illegal Vacation Rentals in Santa Monica Worries City Officials,” March 20, 2015)  

Los Angeles is also now trying to decide how to handle the growth of short-term vacation rentals.

Airbnb collects taxes in Washington D.C., Portland, San Francisco, San Jose and Chicago.

In Santa Monica, the sudden spike in such rentals coincides with a high demand for housing, according to City officials.

Affordable housing has been particularly hard hit, especially since the abolishment of redevelopment agencies across the state. Those monies were the primary source of affordable housing, and now officials are scrambling to find alternatives.

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