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Lack of oversight on short-term rentals costing Austin tax revenue
Friday, February 25, 2011 by Josh Rosenblatt
Austin could be losing up to $300,000 in tax revenue every year due to deficiencies in the way the city keeps track of short-term vacation rental properties, according to a report to the Council Audit and Finance Committee.
That finding was the result of an audit conducted by the Office of the City Auditor to determine if the city has processes in place to ensure that short-term vacation rental properties are registered with the city and paying Hotel Occupancy Taxes.
City Code requires that lodging providers collect a 9 percent Hotel Occupancy Tax from occupants and remit the tax to the City Controller’s Office. That goes for private homes rented to vacationers as well. “Any recompense over $2 a day for a room of any kind requires payment of Hotel Occupancy Taxes,” Assistant City Auditor Russ Needler told the committee on Tuesday
According to staff figures, Hotel Occupancy Tax revenues were estimated at nearly $40 million for FY2010 and are budgeted at nearly $41 million for FY2011.
The Office of the City Auditor has been conducting reviews of Hotel Occupancy Tax collection since 2005, but this was the first review to include short-term vacation rental properties, which, the auditor’s report says, “are a relatively new enterprise that results from the high demand for short-term lodging in the City of Austin.”
The audit team’s findings weren’t encouraging. Evidence “strongly suggests that there are short term vacation rentals operating in Austin that are not paying HOT as required by City ordinance.” A review of listings on a worldwide vacation rental advertising Web site showed more than 200 available properties listed in the city. Meanwhile, only about 80 owners of short-term vacation rental properties have registered with the city, according to the Controller’s Office.
Needler told the committee that his team’s “very back-of-the-napkin” estimate of the revenue lost from these non-compliant properties is somewhere between $100,000 and $300,000 annually.” Tax revenues related to these properties will be the subject of a subsequent report,” Needler said. That report will be contingent upon the Office of the City Auditor identifying and contacting property owners advertising on that vacation rental Web site and through other outlets.
Additionally, the audit team made three recommendations to the committee:
· Occupancy Tax form easier to find and work with major vacation rental marketing companies to provide links to the site;
· The Controller’s Office should coordinate efforts with other city departments; and
· The Controller’s Office should update the current Hotel Occupancy Tax ordinance to clarify that it applies to short-term vacation rental properties.
The committee members were all in support of the team’s recommendations, but Council Member Sheryl Cole wanted to know if it would be legally possible to make funds generated from penalties levied on those who fail to pay taxes on short-term vacation rentals a “dedicated tax for something that we in particular want, not necessarily tied as stringently as state law does to tourism.”
By law, the revenue generated from Hotel Occupancy Taxes benefits four specific activities: the Austin Convention Center Department, venue projects, tourism and promotion, and cultural arts.
But City Attorney Kathleen Buchanan said that dedicating penalty funds generated from vacation properties to other programs might be possible.
“I believe that legally we would have a mechanism in place where we could earmark or divert penalty amounts related to that tax to other purposes, whereas the tax itself would be much more restricted as per state law,” she said.
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