BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1102 (McGuire) - Transient occupancy taxes: hosting
platforms
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|Version: April 6, 2016 |Policy Vote: GOV. & F. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 9, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1102 would create an alternative method for
collecting transient occupancy taxes on certain rental
transactions for residential units that are offered for
short-term rental through an online platform.
Fiscal
Impact: The State Controller's Office (SCO) indicates that it
could incur ongoing costs of roughly $800,000 to implement the
SB 1102 (McGuire) Page 1 of
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provisions of the bill. The bill would authorize SCO to
ultimately recover those costs directly from the online
platforms.
Background: Current law allows 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 such local transient occupancy taxes
(TOTs) are typically available for general use. Of California's
482 cities and 58 counties, 411 cities and 55 counties levy a
TOT. According to SCO data, TOTs generated more than $1.9
billion in local government revenues in 2013-14. As of March 1,
2015, the City of Anaheim had the largest TOT (15 percent),
while the lowest was in the City of Bell (3.5 percent). The
median TOT was 10 percent.
In recent years, Internet-based hosting platforms have
facilitated increasing numbers of short-term rentals of both
homes and rooms within residences. Although business models
vary, a platform generally facilitates rental transactions in
which an "operator," who owns, holds a lease for, or manages
property, makes the property available for short-term occupancy
in exchange for compensation by a "guest." The rapid growth in
short-term rentals of residential properties has generated
concerns that these short-term residential rentals may (1)
increase housing costs, (2) negatively affect surrounding
residential neighborhoods, and (3) increase demand for public
services while generating insufficient local tax revenue to
offset the increased costs. Under the online short-term rental
platforms' business model, individual operators, who cannot be
easily identified by a local tax collector, must remit the
appropriate amount of TOT revenues due on their rental
transactions to a city or county. Many city and county
officials suspect that some operators' failure to comply with
local TOT laws results in a substantial tax gap.
To improve their ability to enforce the collection of taxes
levied pursuant to local TOT ordinances on transaction
facilitated by platforms, some large charter cities have
individually negotiated tax collection agreements with companies
that operate the platforms. These agreements establish terms
under which the platforms, on behalf of the operator who makes a
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unit available for rent through the platform, collect and remit
to local governments taxes due. However, negotiating individual
agreements in each California jurisdiction that imposes a TOT
generates increased administrative costs for both public
agencies and private companies. Individual agreements also may
result in a patchwork of inconsistent TOT collection practices
throughout the State.
Proposed Law:
This bill would establish a program in which a platform that
elects to participate (a "collecting platform") collects and
remits TOT revenues that are due on specified rental
transactions that the platform facilitates in any city or county
except for a city or county that elects not to participate in
the program (referred to as a "collecting jurisdiction").
Specifically, the bill would do, among other things, the
following:
Establish statutory requirements for a collecting
platform to collect and remit TOT revenues to cities and
counties under specified conditions. The bill would
require, by July 1, 2017, that every collecting platform
must collect, on behalf of an operator, the amount of any
tax levied pursuant to state laws authorizing local TOTs on
every rental transaction that is facilitated by a
collecting platform for a residential unit that is offered
for occupancy for tourist or transient use for compensation
to the operator. A collecting platform would not be
required to collect tax if a unit is located within a
collecting jurisdiction. Finally, the bill would require a
collecting platform to remit the amount to the city,
county, or city and county that levied the tax pursuant to
applicable requirements of local ordinances governing the
tax.
Establish the process by which platforms can elect to
participate and local governments can elect not to
participate in the program. Specifically the bill would
require SCO, by March 1, 2017, to develop and notice
specified information, including the following:
SB 1102 (McGuire) Page 3 of
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o Procedures that a platform must use to notify
SCO if the platform elects to become a collecting
platform.
o Procedures that a city, county, or city and
county must use to notify SCO if the city, county, or
city and county elects to become a collecting
jurisdiction.
Direct the following:
o A platform may elect to become a collecting
platform by using the procedures developed by SCO to
notify it of the platform's election no later than
April 30, 2017.
o A city, county, or city and county may elect
to become a collecting jurisdiction by using the
procedures developed by SCO to notify the it of the
city's, county's, or city and county's election no
later than April 30, 2017. The city council or board
of supervisors of the city, county, or city and county
must approve the notice in a public hearing before
submitting the notice to SCO.
Require SCO, no later than May 31, 2017, to publicly
identify (using its internet site) each platform and each
city, county, or city and county that has provided it a
notice.
Require that a platform that elects to become a
collecting platform, or a local government that elects to
become a collecting jurisdiction, may discontinue being a
collecting platform or collecting jurisdiction effective
July 1, 2020 if it provides notice to SCO one year in
advance, pursuant to procedures that SCO must develop and
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publicly notice.
Allow a platform that did not elect to become a
collecting platform on July 1, 2017 to elect to become a
collecting platform by using the procedures developed by
SCO to notify it of the platform's election, subject to
specified conditions.
Require, beginning on January 1, 2017, and by December
31 of each year thereafter, SCO to review or audit a
collecting platform's collection and remittance of tax
revenue. For each collecting platform reviewed or audited,
SCO must submit a report, as specified, to each city,
county, or city and county in which the collecting platform
collected and remitted taxes.
Require SCO, when requested by a city, county, or city
and county that is not a collecting jurisdiction, to permit
any duly authorized officer or employee of that city,
county, or city and county to examine the records of SCO
pertaining to the audit or review of collections by a
platform within that city, county, or city and county, as
specified.
Allow a platform, city, county, or city and county to
appeal any audit findings identified in a review or audit
reported by providing a notice of appeal to the
Controller's General Counsel and specifies the manner in
which the appeal process must be conducted.
Permit SCO to recover the reasonable costs, measured by
the Controller's standard rate, of an audit from the
audited or reviewed collecting platform.
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Staff
Comments: SCO estimates that conducting the audits and
distributing the results to cities would cost $800,000, assuming
four platforms opt-in. As previously noted, the bill permits SCO
to recover those costs directly from the platforms. However, the
initial audit will be performed in 2017-18. The cost recovery
would likely begin the following fiscal year.
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