BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                           Senator Robert Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |SB 593                           |Hearing    |5/6/15   |
          |          |                                 |Date:      |         |
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          |Author:   |McGuire                          |Tax Levy:  |No       |
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          |Version:  |4/29/15                          |Fiscal:    |No       |
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          |Consultant|Weinberger                                            |
          |:         |                                                      |
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               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  







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          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.








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          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.










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           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  








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          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  








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          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  








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          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.



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