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Limiting short-term property rentals: tax issues in the debate

Federal and state tax laws are not the only laws affecting taxpayers. Local tax laws are important as well, especially in jurisdictions with specific issues that go beyond property taxes or sales taxes.

Taxpayers in at least one California city, for example, are facing possible legislation on the use of short-term property rental sites. San Francisco is considering a local ordinance that would not only tax rental income from such sites. It would also impose the city’s hotel tax, which is a hefty 14 percent. 

The premise behind the possible legislation is that popular short-term property rental websites such as Airbnb facilitate a form of tax evasion. But is this really the case?

It’s true that many people in urban areas rent out their apartments or houses. In areas where property values are high, this can be a lucrative source of income for these people.

It’s also true Airbnb and similar sites make it quite easy to do these deals. Online sites have helped make peer-to-peer rentals increasingly popular.

But San Francisco and other cities are sensing a possible source of tax revenue in these transactions. In part, this may be because of lobbying pressure from the hotel industry. Like bricks-and-mortar retailers who resent online competitors, the hotel industry claims it is at a competitive disadvantage against short-term rentals involving no hotel tax.

To be sure, hotel taxes are not the only issue at stake in possible legislation on short-term rentals. Local zoning laws may apply as well. In any case, the debate over limitations on short-term property rentals appears to have only just begun. And taxes will be an important part of that debate.

Source: "US Taxman Puts Foot in the Door of Holiday Rental Apartments," CNBC, April Dembosky, May 28, 2013