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Report: Santa Fe losing out on $3.8M in short-term rental taxes

SANTA FE – Santa Fe is missing out on about $3.8 million in lodgers and gross receipts taxes annually due to non-compliance issues having to do with short-term rental units, according to a report released Wednesday by Homewise, Inc., a nonprofit that helps low- and middle-income families become homeowners.

The report, titled “Short Term Rentals and Access to Housing in Santa Fe” and conducted by Corrales-based O’Donnell Economics & Strategy, recommends that the city do more to enforce the laws on the books and educate short-term rental (STR) hosts about their obligation to pay both lodgers and gross receipt taxes.

“At minimum, the city should enforce its registration requirements for short-term rentals, should require them to contribute their fair share of taxes, and dedicate the added gross receipt taxes to the city’s Affordable Housing Trust Fund,” Mike Loftin, CEO of Homewise, said in a news release.

The trust fund is a repository for development fees that are used to provide various forms of housing assistance.

The report says that the number of STRs skyrocketed from roughly 300 to 1,444 in four years from 2015 through 2018 — a 380% increase — due largely to the proliferation of platforms like Airbnb. About 40% of the total STR units are managed by hosts who are not registered with the city, as required by ordinance.

Because so many STR hosts are not in compliance with the city’s ordinance, the Santa Fe is missing out on about $2.2 million each year from lodgers taxes and another $1.6 million in uncollected gross receipt taxes, the report says.

The city’s ordinance covering STRs imposes a fine of $500 on violators and increases to $250 per day if the situation is not corrected within two weeks.

Other highlights from the report, produced with funding from the Thornburg Foundation, indicate: While 80% of hosts rent just one property, more than 100 short-term rental hosts list two or more properties for rent.

n Just 15 hosts account for 381 units, or more than one-quarter of the total supply of short-term rentals.

n The Santa Fe market generated more than $54 million in revenue in 2018, an average of nearly $84,000 per host.

n About 15% of single-family homes listed on Santa Fe County tax rolls are owned by people who live out of state.

In addition, the report notes that out-of-state property owners can take advantage of a state law intended to help low- and moderate-income homeowners by placing a 3% cap on annual home valuation increases for taxation purposes. The tax savings can be used by out-of-state residents to subsidize the purchase of a second home or short-term rental.

In addition to stepping up enforcement and working to educate landlords about their obligation to pay lodgers and gross receipt taxes, the report recommends that the cap on taxable valuation increases be limited to owner-occupied homes and rescinding property tax breaks for second homes. It also says the city should reduce regulatory barriers to building accessory dwelling units like casitas, including removing the requirement that people who rent out ADUs must live in another home on the same property.

Through a city spokeswoman, Mayor Alan Webber acknowledged the city needs to do a better job with enforcement and educating the public.

He said one thing the city may do is design the short-term rental permit form to help facilitate enforcement. The report suggests that the city can improve compliance for paying GRT by asking short-term rental hosts to supply a tax identification number when they register. It also notes that the applicants are not required to provide their primary address.

Webber said the City Council may also re-examine the penalties for violations and consider what other punitive measures could be introduced.