BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert Hertzberg, Chair
2015 - 2016 Regular
------------------------------------------------------------------
|Bill No: |SB 593 |Hearing |5/6/15 |
| | |Date: | |
|----------+---------------------------------+-----------+---------|
|Author: |McGuire |Tax Levy: |No |
|----------+---------------------------------+-----------+---------|
|Version: |4/29/15 |Fiscal: |No |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Weinberger |
|: | |
-----------------------------------------------------------------
RESIDENTIAL UNITS FOR TOURIST OR TRANSIENT USE: HOSTING
PLATFORMS
Requires "hosting platforms" that facilitate short-term rentals
of residential housing to report specified data about rentals
and comply with local ordinances relating to short-term rentals.
Background and Existing Law
State allows the legislative body of a city or county to levy a
tax on the privilege of occupying a room or rooms, or other
living space, in a hotel, inn, tourist home, motel or other
lodging unless the occupancy is for a period of more than 30
days. The tax is typically collected from consumers by lodging
providers. Revenues raised through local transient occupancy
taxes (TOTs) are most commonly deposited in local general funds
for general use. More than 400 cities and 55 counties levy a
TOT. According to data from the State Controller's Office, in
the 2011-12 fiscal year, TOTs generated more than $1.5 billion
in local government revenues, of which more than $1.2 billion
was for general use.
In recent years, Internet-based hosting platforms, like
Homeaway, VRBO and Airbnb, have facilitated increasing numbers
of short-term rentals of homes and rooms within residences. The
rapid growth in short-term rentals of residential properties has
generated concerns that these short-term residential rentals may
SB 593 (McGuire) 4/29/15 Page 2
of ?
increase housing costs, negatively affect surrounding
residential neighborhoods, and place increased demands on public
services while not generating local tax revenue to offset the
costs of those services.
In response to these concerns, some local government officials
want to improve enforcement of local TOT ordinances and other
local regulations that apply to rental transactions that are
facilitated through online hosting platforms. They want the
Legislature to require hosting platforms that facilitate rentals
of residential units for short-term occupancy to report
information about rental transactions and to collect and remit
TOT revenues from those rental transactions.
Proposed Law
Senate Bill 593 requires a hosting platform to report quarterly,
to a city or county that has not opted out of receiving the
report, all of the following information:
The address of each residential unit that was offered on
the operator's hosting platform for occupancy for tourist
or transient use and was occupied for that use during that
quarterly period.
The total number of nights that the residential unit was
occupied for tourist or transient use.
The amounts paid for the occupancy of that residential
unit.
SB 593 allows a city or county to impose and collect fines on an
operator of a hosting platform for failing to comply with the
reporting requirements and specifies limits on the amounts of
the fines.
SB 593 prohibits a hosting platform from facilitating the rental
of a residential unit offered for occupancy for tourist or
transient use if a city or county ordinance prohibits the
renting of that unit or offering of that unit, for occupancy for
tourist or transient use. SB 593 allows a city or county to
impose and collect fines on an operator of a hosting platform
for knowingly violating this prohibition and specifies limits on
the amounts of the fines.
SB 593 (McGuire) 4/29/15 Page 3
of ?
SB 593 requires the operator of a hosting platform to comply
with a local requirement that it must collect applicable
transient occupancy tax imposed by a local agency, and to remit
that tax to that agency.
Senate Bill 593 requires an operator of a hosting platform to
disclose, in the hosting platform agreement with an owner or
lessee of a residential unit, specified information about
insurance coverage for liabilities that may arise as a result of
the activities related to the hosting platform.
SB 593 requires an operator of a hosting platform to encourage
an owner or lessee who does not have the appropriate insurance
coverage to obtain the appropriate insurance coverage.
SB 593 defines a "hosting platform" as a marketplace created for
the primary purpose of facilitating the rental of a residential
unit offered for occupancy for tourist or transient use for
compensation to the owner or lessee of that unit and the
operator of the hosting platform derives revenues, including
booking fees or advertising revenues, from providing or
maintaining that marketplace. The bill directs that
"facilitating" includes the act of allowing the owner or lessee
of the residential unit to offer or advertise the residential
unit on the Internet Web site provided or maintained by the
operator.
SB 593 defines "residential unit" as a dwelling unit in a
private residence, including a single-family residence, an
apartment or other leased premises, a residential condominium
unit, or any other residential real estate improvement.
"Residential unit" does not include individual guest rooms,
condominium units, timeshare units, cabins, or similar guest
accommodations rented to transient guests in a hotel, inn, or
similar transient lodging establishment operated by an
innkeeper, as defined in state law.
State Revenue Impact
No estimate.
SB 593 (McGuire) 4/29/15 Page 4
of ?
Comments
1. Purpose of the bill. Recent growth in short-term rentals of
residential units, which has been made possible by online
hosting platforms, is having powerful effects in communities
throughout California. Increased and undisclosed tourist
traffic alters neighborhood character, creating additional
demands on local public service providers. The increase in
short-term vacation rentals reduces the availability of already
scarce affordable housing in many communities. Online hosting
platforms receive revenues from short-term rental transactions
that are of not permitted by local ordinances. And in many
communities, neither the hosts who make residences available for
occupancy for fewer than 30 days nor the hosting platforms
collect and remit applicable transient occupancy taxes. In
communities where vacation rentals are legal, SB 593 will help
local governments collect transient occupancy taxes. The
additional revenues recovered pursuant to the bill's provisions
will be vital for local governments' efforts to respond to and
mitigate short-term vacation rentals' local impacts.
Additionally, by increasing TOT compliance, SB 593 will help
enforce a level playing field in the vacation rental
marketplace, ensuring that hosting platforms don't gain unfair
pricing advantages as a result of hosts' nonpayment of taxes.
In communities that prohibit short-term rentals, SB 593 will
improve property owners and renters' compliance with local laws,
providing local residents and their elected representatives more
tools to exert control over local land uses to ensure that they
reflect local priorities.
2. Burdensome . The rapid growth of online businesses that
facilitate short-term rentals of residential units is a
testament to the value that these online services offer both to
property owners and renters who make their residences available
for rent and to the travelers who stay in these accommodations.
While enforcing local laws is undeniably important, enforcement
efforts should avoid placing unnecessary burdens on emerging
business models. SB 593's reporting requirements place
additional administrative burdens on hosting platform operators
that do not apply to some other short-term lodging providers.
The reporting requirements also raise privacy concerns about
whether government should compel online businesses to report
specific transactions data about their customers without any
specific limitations on the use of that data. The bill's
SB 593 (McGuire) 4/29/15 Page 5
of ?
requirement that hosting platforms must enforce local
prohibitions against renting residential units for short-term
occupancy also shifts some local code enforcement
responsibilities from local government officials onto a narrow
subset of vacation rental businesses. Legislators should
consider other approaches to support local efforts to collect
revenues and enforce ordinances that don't disproportionately
place burdens on some online businesses.
3. New approaches for a new economy . To create a level playing
field for both established short-term lodging providers and new
"sharing economy" platforms, local governments' approach to
regulating the business of renting residential units for
short-term occupancy must evolve to reflect the rapidly changing
realities of new Internet-based business models. Unlike
brick-and-mortar lodging operators like hotels, not all online
hosting platforms participate directly in each rental
transaction completed by a property owner or renter who lists a
residential unit through the hosting platform. As a result,
local governments will need to find other ways to enforce TOT
collection and compliance with local ordinances. One approach
might be to require property owners and renters to register and
report income from rental transactions and to require the
hosting platforms to notify owners and renters of these
registration and reporting obligations. Similarly, local
governments could be required to identify, through a public
clearinghouse, geographic locations in which bans on short-term
rentals are in effect, providing hosting platforms with an
official, consistent basis on which to accept or deny listings
from property owners or renters in particular locations.
4. Definition of hosting platform . SB 593's requires that a
hosting platform must provide local governments with quarterly
reports of specified information about individual rental
transactions. However, the bill's definition of a hosting
platform seems to include businesses that don't receive revenues
or information about rentals on a per-transaction basis. Under
the bill's definition, a hosting platform includes a business
that derives revenues solely from advertising the availability
of a residential unit for short-term rental. It is unclear, how
such a business, which effectively functions only as a listing
service without any direct involvement in executing individual
rental transactions, could reasonably be expected to comply with
the bill's data reporting and tax collection requirements. The
SB 593 (McGuire) 4/29/15 Page 6
of ?
Committee may wish to consider amending SB 593 to clarify the
definition of a "hosting platform" to include only those
businesses that receive revenues from, or are directly involved
in executing, individual rental transactions.
5. Insurance disclosure . SB 593 requires that a hosting
platform's agreement with a property owner or renter must
disclose specified information about insurance coverage. The
bill requires a hosting platform to encourage a property owner
or renter who lacks appropriate insurance coverage to obtain
appropriate coverage. The bill does not define what constitutes
"appropriate" insurance coverage and does not specify how a
hosting platform operator is supposed to obtain information
about a property owner or renter's insurance coverage in order
to determine whether it is appropriate coverage. The bill also
does not specify what specific actions a hosting platform must
take to "encourage" a property owner or renter to obtain
appropriate coverage. To help hosting platform operators comply
with the intent of this ambiguous requirement, the Committee may
wish to consider amending SB 593 to define appropriate insurance
coverage, specify how a hosting platform must determine whether
a property owner or renter has appropriate coverage, and clarify
what actions must be taken to encourage the acquisition of
appropriate coverage.
6. Related bills . Senate Bill 761 (Hall) requires an operator
of an online platform or Internet Web site that facilitates the
rental of real property located in California for short-term
occupancy to provide a specified notice to tenants about
potential violations of their rental contracts or leases.
Assembly Bill 1220 (Harper) would prohibit a city or county from
levying a tax on the privilege of occupying a residential
short-term rental unit.
7. Double referral . The Senate Transportation & Housing
Committee considered SB 593 at its hearing on April 21 and
approved the bill on the vote of 8-0. The Senate Rules
Committee then referred the bill the Senate Governance & Finance
Committee, which has jurisdiction over bills relating to local
governments' powers and local revenues, including transient
occupancy taxes.
Support and
SB 593 (McGuire) 4/29/15 Page 7
of ?
Opposition (4/30/15)
Support : American Federation of State, County, and Municipal
Employees, AFL-CIO; Asian American Hotel Owners Association;
Association of California Insurance Companies; Association for
Los Angeles Deputy Sheriffs; California Association of Boutique
and Breakfast Inns; California Association of County Treasurers
and Tax Collectors; California Apartment Association; California
Association of Code Enforcement Officers; California College and
University Police Chiefs Association; California Narcotics
Officers Association; California Police Chiefs Association;
California Hotel and Lodging Association; California Labor
Federation; California Professional Firefighters; California
State Association of Counties; California Teamsters Public
Affairs Council; Contra Cost County Treasurer-Tax Collector
Russell Watts; Paul Desterman, Mindy Desterman; El Dorado County
Treasurer-Tax Collcetor C.L. Raffety; Humboldt County Convention
and Visitors Bureau; Los Angeles Alliance for a New Economy; Los
Angeles Police Protective League; Marin County Council of Mayors
and Councilmembers; Denise McNicol; Mendocino County
Treasurer-Tax Collector Shari Schapmire; Mono County Board of
Supervisors; Ashok Mukherje; Neighbors for Overnight Oversight;
Jenny Oaks; Sam Pahlavan; Riverside Sheriffs Association; Rural
County Representatives of California; Santa Cruz County
Convention and Visitors Council; ShareBetter San Francisco;
Sierra County Auditor-Treasurer-Tax Collector Van Maddox;
Siskiyou County Treasurer-Tax Collector Wayne Hammar; Sonoma
County Auditor-Controller-Tax Collector David Sundstrom; Sonoma
County Board of Supervisors; Tuolumne County Treasurer-Tax
Collector Shelley Piech; UNITE-HERE, AFL-CIO.
Opposition : Airbnb; Consumer Watchdog; Internet Association.
-- END --