Will Short-Term Rentals Impact Your Lodging Tax Income?

Will Short Term Rentals Impact Your Lodging Tax Income?

Instead of staying at a hotel, more and more vacationers and travelers are choosing to stay in short-term rentals they find through online rental services like Airbnb, HomeAway, VRBO, FlipKey, and others. Just as Uber and Lyft are rewriting the rules of the taxi industry, these Short Term Rental (STR) companies are rewriting the rules of the hospitality industry. Their business models are disruptive and their services offered continue to evolve at a dizzying pace. STRs provide an alternative to expensive hotels in some cities and add to accommodations in other communities where there are not enough hotel rooms to support demand.

In many cases with these new online STR concepts, sales and lodging taxes are not being remitted which would provide vital funds for DMO marketing and promotional activities. It can be argued that these taxes on short-term rentals would be new dollars, but a bigger fear is that the STR industry as a whole is eroding the traditional hospitality industry – leading to declining yet inaccurate overall occupancy numbers and to shrinking DMO budgets. And this is a trend that’s not going away any time soon.

  • According to the Short Term Rental Advocacy Center (STRAC), rentals for 30 days or less is a growing market with 52% of travelers planning to stay in a short-term rental, up from 44% in 2013.
  • Short-term rentals represent a $115 billion annual market in the U.S. — more than 10% of the traditional U.S. hotel room supply.
  • According to CBRE Research, there are 1.2 million vacation rentals in the U.S.
  • According to a recent report, Barclays predicts that Airbnb’s growth in bookings could triple in size over the next year, which puts the company on track to outgrow the largest hotel companies within the next few years. The report projects that by the end of 2016, the room-sharing platform could increase its bookings to 129 million room nights per year. Airbnb currently makes up as much as 17.2% of hotel room supply in New York, 11.9% in Paris, and 10.4% in London.

Short-term rentals aren’t new. For years people have rented out vacation homes and private residences on a short-stay basis, largely without regulation, taxes or anyone really paying attention. But the advent of these new websites that make the process more convenient for the consumer and the renter has put a spotlight on both longstanding and new forms of short-term rentals. And some revenue-starved DMOs are starting to pay closer attention. According to the San Diego Union-Tribune, a recent study commissioned by two trade groups revealed that there were surprisingly more short-term rentals than previously realized in the San Diego market. And the other surprise was the quantity of “shared units,” those where property owners or tenants offered bedrooms or other spaces while living there as well. All of this raises the issue of unfair competition and has the real potential to negatively impact hotel business, steering consumers’ money (along with their bed taxes) to STR lodging alternatives.

In some larger markets, however, things have recently begun to change. Agreements are in place for taxes to be paid by Airbnb guests in nearly two dozen cities, including Philadelphia, San Francisco, Chicago, and Washington D.C.

So for now, the still-evolving short-term rental industry has presented an array of unanswered questions. Which leads me to ask you, do you know what the impact of growing short-term rentals is on your DMO?

Posted in DMO Challenges, Lodging Tax, Vacation Rentals Tags