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Friday, August 18, 2017 by Lisa Dreher

Taxes from unregistered short-term rentals sit unused

Millions of dollars in tax revenue from unregistered short-term rental properties sits unused because the city cannot collect it, according to Visitor Impact Task Force Chair James Russell.

In 2016, City Council passed an ordinance to phase out Type 2 short-term rentals, properties that owners rent out without living there and for less than 30 days a year. Russell said the temporary ban preventing more registration for Type 2 STR licenses has left many STRs unregistered, meaning they still pay Hotel Occupancy Tax but those taxes are not collected by the city.

“Short-term rentals was an interesting conversation,” Russell said at Tuesday’s City Council work session. “We were briefed on the amount of money that that the city currently collects from short-term rentals, because short-term rentals also had to pay Hotel Occupancy Tax, and there was a sentiment that it seemed very low for Austin being such a popular short-term rental town.”

Russell said that Airbnb has $6 million in HOT revenue sitting around, prompting Mayor Pro Tem Kathie Tovo to question how he got that number. Russell said he spoke directly with Airbnb outside of task force work. The task force recommends cities collect payment directly from short-term rental companies like Airbnb and HomeAway, rather than from short-term rental property owners.

“It’s not connected to a property owner, so push came to shove and essentially that was the uncollected money from unregistered STRs,” Russell said.

Guests of hotels, vacation rentals, short-term rentals and other similar buildings pay the hotel tax used to fund operations and long-term projects. Nine percent of the HOT goes to the city, made up of 7 percent from the occupancy tax and 2 percent for venue projects. State law requires another 6 percent go to the state for operations, making for a 15 percent overall tax rate, which the task force proposes the city raise by 2 percent for projects such as expanding the Austin Convention Center and funding for commercial music and historic preservation.

In May, Airbnb agreed with the state to collect the HOT on behalf of guests to remit to the state, which Russell said would simplify the process. Tovo said she has heard similar complaints and mentioned her past proposed amendment to allow companies to directly remit the taxes.

“I’ve been thinking this has come up, I don’t know why, like maybe six times in the last couple of weeks in various conversations I’ve had, this issue of the remitting of taxes,” Tovo said. “I think it would help for all kinds of reasons, it’s not going to suddenly make registered and make legal short-term rentals that are operating outside the boundaries of city laws.”

Tovo was one of the nine Council members who approved the 2016 ordinance to place a moratorium on STR Type 2s.

This story has been corrected. Russell did not specifically address Type 2 STRs in his comments, as was originally reported.

Photo by Pictures of Money made available through a Creative Commons license.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Hotel Occupancy Tax: A tax on the rental of a room in a hotel or other rental properties (including apartments) that cost 6 percent of the cost of a room.

short term rentals: Properties rented for fewer than 30 days.

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