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Here are 3 ways state lawmakers could disrupt (or shore up) short-term rentals in Texas this session

Friday, March 29, 2019 by Andrew Weber, KUT

For years, short-term rentals – the rooms, cottages, condos and homes on apps like Airbnb and HomeAway – have been the subject of lawsuits and hand-wringing on the part of regulators and people looking to rent out properties.

Texas lawmakers haven’t yet figured out how to regulate them, but a handful of bills have been filed this session to clear up the rules – and maybe even cut cities like Austin out of the regulatory framework altogether.

Here are three ways the state could do that.

Collect Hotel Occupancy Taxes

These (seemingly) noncontroversial proposals making their way through both the Texas House and Senate would set up a statewide system for taxing short-term rentals.

Cities collect both state and municipal taxes on short-term rentals. In Austin, for example, STR operators pay a 6 percent state tax on a listing and a 9 percent tax to the city.

But the state has a deal with companies like Airbnb and HomeAway to include that in a listing’s price. People renting through those services have that state tax already included in their itemized receipt.

Cities have to go it alone in collecting their taxes, and it’s not necessarily the easiest thing to do, administratively speaking, says Bennett Sandlin, executive director of the Texas Municipal League.

“Everybody kind of agrees the tax is due. It’s just hard to collect for a city acting alone … it takes a lot of administrative nightmare and sometimes things slip through the cracks,” Sandlin said. “So, we see these bills as putting a level playing field” by including city taxes in a listing price.

These bills would allow the comptroller to collect both state and city taxes (and county, if a county has a tax) on an Airbnb or HomeAway property. The comptroller’s office would then deposit that money into a city’s or county’s coffers once a month.

Ban the Bans

The more controversial bills this session come from state Rep. Angie Chen Button and state Sen. Pat Fallon, respectively. The bills would, simply put, ban a city (like Austin) from restricting which kinds of properties qualify as STRs. They would do so by defining a short-term rental and stipulating that they can operate “regardless of whether a unit is the primary residence of the unit owner.”

That would end what opponents call a “patchwork” of city laws. A big sticking point in that fight is how cities restrict properties that are rented out by owners who don’t necessarily live at these properties. Austin and San Antonio restrict those properties – known as Type 2 properties – but in different ways.

Austin is trying to get rid of them, reasoning there’s a glut of these properties in residential neighborhoods and they often elicit complaints from neighbors. San Antonio allows for Type 2 properties, but has put a cap on how many can be rented – 12.5 percent on a single residential block. (That’s about one rental on a block of 10 houses.)

Philip Minardi, director of policy and communications for Austin-based HomeAway, says the proposals would close a gap in regulation.

“At the local level in Texas, there really is this gulf between cities like Austin and cities like San Antonio,” he said. “And what we’re trying to do, what we’re trying to support this legislative session is bills … that take the lessons that were learned in San Antonio, take lessons that weren’t learned in Austin – and address this industry (and) set some guardrails at the state level.”

The two bills would eliminate the ability to restrict Type 2 properties. HomeAway and a handful of other rental operators started an industry group to back the bills last week.

Proponents say – and they’ve gone to court over this a lot in the past five or so years – this would protect owners’ property rights. They own the property and can do whatever they want with it.

Austin attorney Patrick Sutton has represented property owners in hundreds of cases, by his estimation, including one that went before the Texas Supreme Court last year. He says rules like Austin’s prioritize the rights of people who rent their own homes, while punishing investors operating STRs. On top of that, he says, the reasoning behind the city’s ban is based on an assumption that these places are going to attract bad actors who may make too much noise or steal parking spots.

“There are lots of behaviors that are obnoxious or offensive that the cities can – and should – regulate,” Sutton said. “But what they can’t do is just take away someone’s property right because of the potential that occupants of a property might misbehave.”

Opponents like Sandlin say the rules would bind the hands of cities and allow party houses to flourish.

“There’s plenty of investor-owned (properties) that are responsible,” Sandlin said. “It’s just that subset of the subset that aren’t being very good neighbors and they’re essentially acting like party hotels in a residential subdivision.”

Leave It to HOAs

A House bill would allow a homeowners association or condo board to regulate short-term rentals.

This issue came up in San Antonio in 2014, when an HOA said a property owner violated restrictions on using his home for commercial purposes by running a short-term rental. The case went before the Texas Supreme Court, which sided with the property owner last May. Sutton, who represented the plaintiff in that case, says the bill would effectively allow an HOA to ban STRs, but that the bill is, technically, unnecessary.

An HOA board can amend its charter to restrict STRs, for example, if its rules allow amendments. If it doesn’t have that amendment-making ability, it would need approval from 100 percent of property owners.

“In general, this looks like a response to the panic of the HOAs based on the misunderstanding of (the case),” Sutton said.

This story was produced as part of the Austin Monitor’s reporting partnership with KUT. Photo by Jorge Sanhueza-Lyon/KUT.

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