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Report: City missing out on Airbnb taxes as web bookings soar

SANTA FE, N.M. — City officials say they are negotiating with Airbnb as Santa Fe considers what to do about a new lodging landscape in “the sharing economy,” where possibly millions of dollars of tax revenue from tourism are avoiding the city’s grasp.

A recent report to the City Council says that, under a potential “voluntary collection agreement,” Airbnb would collect and remit city lodgers taxes from its hosts who offer short-term rentals on the booking website. A proposed deal is expected to be presented to the council within the next four months.

“The agreement will provide for an audit opportunity to ensure that all taxes are being properly collected and submitted” says the report from tourism director Randy Randall and Land Use director Lisa Martinez.

Meanwhile, one business owner is going after Airbnb on his own.

Bruce Kuehnle, who runs the Casa del Toro B&B, as well as Chapelle Street Casitas vacation rentals, has filed a lawsuit against Airbnb Inc., alleging that the website “facilitates the illegal rental of residential properties in Santa Fe.”

The suit filed last week says hosts offering accommodations through Airbnb are driving down rates and revenue for licensed businesses. Also, they aren’t “collecting and paying the applicable state and local taxes for rental income,” the suit states.

A recent study by Southwest Planning LLC commissioned by city government makes the same point, saying the city is losing up to $2.1 million in lodgers taxes annually from unlicensed short-term rentals, and that associated uncollected gross receipts taxes are between $524,893 and $2.5 million.

The staff report to City Council says that Southwest made some “aggressive assumptions” about how much money unlicensed short-term rentals actually make. But the city’s much more conservative estimates show that Santa Fe’s government coffers are missing out on $672,000 in lodgers taxes, $195,000 in license and permitting fees, and $797,000 in GRT revenue annually.

Randall and Martinez are recommending that the city do away with its limit of 350 short-term rental licenses and restrictions on how often a residential property owner can have lodgers.

The licensing requirements are now widely ignored, as is obvious by online postings on Airbnb and other sites, the city’s report confirms. Most owners “are simply operating without a permit,” the report states.

The City Council capped legal short-term rentals at 350 in 2008, responding to criticism that vacation rentals were turning some Santa Fe neighborhoods into open-air hotels. The staff report says there have been 93 “recorded complaints and violations.” Some Santa Feans have also argued that renting out homes to vacationers is driving up Santa Fe’s housing costs by adding value to those homes that are used for short-term rentals.

Randall and Martinez also suggest that Santa Fe:

⋄  Follow the lead of other tourist-heavy cities that have no limit on the number of short-term rental licenses, but require all short-term rentals to be registered and licensed.

⋄  Implement a “strict penalty structure” for unlicensed rentals, with $500 for a first offense and a $250-per-day add-on if hosts don’t get permits or otherwise comply with the ordinance within 14 days. The city would be authorized to file liens on property as an enforcement tool.

• Dedicate two employees to enforce the short-term rental requirements, paid from expected additional fee income.

The city report says that a search of Airbnb, craigslist and other websites found 2,699 short-term rentals listed for Santa Fe, although it’s unclear how many rentals are listed on multiple sites. The report uses a total of 600 unlicensed short-term rentals as a conservative estimate.

According to the report, the city collected $136,580 in short-term rental license and permit fees, on average $327 per permittee, as well as $465,502 in short-term rental lodgers taxes in fiscal year 2014-15.

‘Saturated market’

In his lawsuit, Kuehnle notes that he and other licensed lodging business operators have to register with state and city governments, and the IRS, have obtained taxpayer identification numbers and have to pay taxes on their rental revenue. The suit adds: “The proliferation of unlicensed rentals in the City of Santa Fe has saturated the market for short-term type rentals in violation of local ordinance.”

Without having to pay taxes – Santa Fe imposes a 7 percent lodgers tax on top of the 8.3125 gross receipts tax that includes portions for the state, county and city governments – Airbnb hosts “are able to rent their properties at a reduced rate,” which is causing loss of revenue for Kuehnle and other “legitimate renters,” the suit says.

The suit maintains that, although Airbnb offers an optional feature for retaining a portion of guest payments for purposes of paying applicable taxes, the booking website “does not undertake independent efforts to verify” that its hosts are paying required taxes.

Kuehnle alleges violations of the state Unfair Practices Act. His suit seeks an injunction to stop Airbnb operations in Santa Fe, and a court order that Airbnb and its local hosts “be required to provide accountings of rental income and pay appropriate state and local taxes.” The suit asks for damages equal to triple what licensed lodgers have lost “in diminution of rental value and for loss of rentals.”

Just last week, the Florida Department of Revenue announced an agreement under which Airbnb will begin collecting tourist tax revenue in 22 counties, shortly after the Palm Beach County tax collector sued Airbnb for unpaid taxes.

Arbnb tells potential hosts on its website that there can be local rules requiring permits or prohibiting short-term bookings. “These rules can be confusing,” the website says. “We are working with governments around the world to clarify these rules so that everyone has a clear understanding of what the laws are.”