Proposal to Tax Short-Term Rentals in California Stalls

State Senate Bill 584, a proposal to tax short-term rentals like Airbnb as a way of raising funds for desperately-needed affordable housing projects, won’t be going any further this legislative season. Here are the highlights.

Senate Bill 584

Monique Limón, a Santa Barbara Democrat, introduced the bill, which would impose a 15% tax on short-term rentals beginning in 2025. The statewide surcharge, an addition to local transient occupancy taxes already charged in many California communities, was estimated to bring in some $150 million annually, funds that would be used to build or rehabilitate low- and middle-income housing.

Bill 584 had its supporters. It was sponsored by the State Building and Construction Trades Council, primarily because it would require specific wage and labor standards for its projects. Of course, the bill also had its fair share of opponents, including Airbnb. The platform argued that it would put its hosts at a disadvantage to California hotels and “hurt the local tourism economy.” Airbnb sent an email in May to its hosts encouraging them to contact local lawmakers and express their opposition to the bill. Regardless, it passed the California Senate on May 31 with the bare minimum of necessary votes. But in early July, Limón pulled the bill from consideration.

According to her office, the senator lacked the time necessary to resolve a disagreement that arose with the Assembly housing committee relating to the aforementioned wage and labor standards. 

Gone for Now?

Limón says she plans to bring the measure back next year, likely with revisions. The senator says she’s open to reducing the proposed tax rate or possibly exempting small operators, while still ensuring the bill will raise enough money to make it worthwhile.

In a statement to the press, Limon said, “While the bill is part of a desired and needed conversation about the impact short term rentals have on our housing market, it is clear this bill could benefit from more time to continue discussions at the state and local level to understand the underlying issues the legislative process has uncovered.”

My Take

Regulations can vary dramatically from one locality to another. There’s El Dorado county on Lake Tahoe, where short term permits are required and new ones are essentially not available. There’s San Diego, which recently set a law requiring permits for short-term housing (STH) and created a lottery system for said permits with far fewer being issued than the existing supply of STH rentals. And then there’s Sonoma County, where restrictions on short-term rentals include limits on the number of days a property can be rented out per year. Now the state is taking on the already contentious issue. 

If you are considering a purchase of a second vacation home with the intent of renting it out as a short-term rental, just know the laws can change quickly and may have a profound impact on your ability to produce income. Senate Bill 584 in California serves as a perfect example of how quickly that environment for profitability can change. My strong recommendation for any owner looking to buy a second home is make sure you can afford it without short-term rental income first, since the winds of change are likely to shift during any longer term ownership in one way or another—and most likely not in the owner’s favor. 

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