Real Estate News

Advertising on Airbnb but not paying taxes? Host Compliance could catch you.

FILE - In this April 19, 2016 file photo, Airbnb co-founder and CEO Brian Chesky speaks during an announcement in San Francisco.
FILE - In this April 19, 2016 file photo, Airbnb co-founder and CEO Brian Chesky speaks during an announcement in San Francisco. AP

A San Francisco-based startup is offering a solution to a vexing problem for local governments – how to find and tax people renting their homes through online services such as Airbnb or HomeAway.

Host Compliance, whose newest client is Placer County, is designed to find such homeowners and enforce payment of transient occupancy taxes, or hotel taxes, which can be a large part of local tax revenue.

“We work with local governments … to essentially make sure all the vacation rentals that are offered play by the rules set by elected officials,” said Ulrik Binzer, founder and CEO of Host Compliance.

The company provides data on where the rentals are and how often they are rented to make sure everyone is paying their fair share, Binzer said.

Services such as Airbnb don’t provide exact addresses of rentals until an agreement is reached between host and guest. Binzer said his company’s method of figuring those addresses out is its “secret sauce,” a combination of analysts and algorithms that he said he couldn’t share.

Placer County, which approved a $248,000 contract with Host Compliance last week, collects $16.2 million a year in hotel taxes from 3,900 overnight lodging providers. The county estimates there are 4,625 short-term rentals advertised on Airbnb, VRBO, HomeAway or dozens of other sites.

“I, over the past couple of years particularly, have received a lot of complaints from folks about unregulated vacation rentals along these lines,” Placer County Supervisor Jennifer Montgomery said. “I hope it helps put some folks at ease about just this proliferation of vacation rentals and gives us a little bit more of an appropriate management tool.”

Erin Casey, senior management analyst with Placer County, said the county doesn’t know how many of those 4,625 rental operators are already registered and paying the tax to the county, which means staff can’t estimate how much revenue it’s missing out on. Host Compliance will identify all the properties online and the county will compare it to lists of hotel tax payments, she said.

Online vacation rental listings have increased more than 300 percent in the past five years, county staff members estimate, but tax revenue collected from vacation rentals has not increased accordingly – indicating that many short-term rental owners are not paying the tax.

Popular tourist destinations like Truckee, Los Angeles and Jackson, Wyo., use Host Compliance.

Kim Szczurek, administrative services director for the town of Truckee, said that since the Sierra Nevada destination hired Host Compliance in July, the company has identified 400 properties advertised online that aren’t registered.

“We’re in the process right now of sending out letters,” telling those owners to comply with the law, she said. After that, Host Compliance will look for properties that aren’t paying enough taxes to account for all of their guests.

Binzer sees Host Compliance as a vital component of the so-called sharing economy that ensures it works for everyone. If online rentals don’t follow the rules and don’t make good neighbors, community backlash can end up forcing a ban on services such as Airbnb, he said.

New York state recently approved up to $7,500 fines for owners illegally listing their apartments as short-term rentals, and San Diego is considering restrictions on short-term rentals.

The city of Sacramento passed ordinances in January requiring short-term renters to pay transient occupancy taxes, but the city does not use a service such as Host Compliance. The city’s revenue manager said resident complaints help find unregistered properties. Sacramento may consider hiring a service to find noncompliant properties, he said.

Sacramento County is in a similar position, a county spokeswoman said. Since regulations were adopted in late 2015, short-term renters have to get a vacation rental permit and pay the associated tax, but enforcement is currently limited to voluntary compliance and responding to neighbors’ complaints.

Ellen Garrison: 916-321-1920, @EllenGarrison