AirBnB and other informal services through which homeowners rent out their homes have remained largely unregulated by the same agencies and rules that govern hotels. But as those rental have grown in numbers (and market share), so has grown cities' interest in taxing them.
Last Friday, the city of Bend issued a press release announcing it will conduct an audit of rental properties like AirBnB. The audit comes on the heels of the announcement that the city will ask residents to approve an increase on the Transient Room Tax (TRT) from 9 to 11 percent in November.
The press release explained that the audit is an effort to increase awareness and compliance with the TRT code."
This week we give a Glass Slipper to the city of Bend for its efforts to formalize tax enforcement for these rentals, even though those rules blister a bit.
The decision to more comprehensively include AirBnB within the TRT seems to have crept slyly into the city's tax enforcement. During recent council discussions about increasing the TRT from 9 to 11 percent, such informal rentals were mentioned only in passing, so the press release and the city's full-court press against AirBnB come as a bit of a surprise.
In plain language the press release announced: "The City has contracted with an independent firm, MuniServices, specializing in tax compliance audits for local governments, to perform a compliance audit and establish a comprehensive list of vacation rentals currently out of compliance with the TRT code."
(MuniServices is a massive California-based company that explains its services as "municipal revenue enhancement," which, let's be fair, is something like calling a loan shark's services "revenue promotion.")
Regardless: Certainly the current statutory language permits the city to collect taxes from residents who earn money from short-term rentals. And we don't argue with the incentive and fairness to tax this business activity. While there is no certain estimate about the scope of this "industry," a quick computation estimates it brings in $2 million annually. Already nearly 200 residents have registered with the city and pay taxes on their rentals - roughly the same number advertising on AirBnB. Assuming this is half the number of residents earning money from short-term rentals, and most of these earn $5,000 to $10,000 annually from their rentals, the bottom line is the city has an opportunity to collect roughly $200,000 each year from private rentals‚ - the equivalent of two full-time employees.
What we do caution is that the city uses the TRT not as a clampdown, but to regulate. When best utilized, tax codes can serve as incentives for behavior that benefits a community. Just as the federal tax structure provides generous deductions for mortgage interest payments — which, in turn, encourage home ownership and more stable neighborhoods throughout the country — the TRT can help strengthen the local economy and culture.
But if simply treated as a blunt instrument to extort tax revenue, this push to fully flex the TRT will fail to develop an important part of Bend's hospitality culture and support hundreds of residents with additional income.
For a city like Bend, informal lodging in private residences offers an additional and welcoming option for visitors — one that is especially friendly and woven into the city's neighborhoods. And given the recent lessons from the housing bust, when scores of residents went under water on their mortgages, recognizing this revenue potential for homeowners is simply kind: Income from occasional vacation rentals can supplement income and help homeowners pay their mortgages.
We applaud city officials for formalizing the city's recognition of AirBnB, but caution that they do it right.