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Developing a short-term rental ordinance

Oct 18, 2021 11:21:46 AM

Advice for municipalities looking to regulate this thriving market

The short-term rental market is taking off across America. Big cities, small towns—treehouses, even. 

Local governments should consider whether rules and regulations should be put into place to manage this industry—and bring in additional funds for the community through registration fees or transient occupancy taxes.

In many communities, laws simply have not kept up with this changing market development. This guide gives community leaders some food for thought when starting the ordinance development process for short-term rental.

Interested in learning all about short-term rental platforms, regulation, administration of transient occupancy taxes, and tax compliance technology? Visit Localgov's short-term rental guide

Questions to Ask 

Why do you want an ordinance?

Be clear as to why your community needs these rules and regulations. Perhaps there’s a growing housing shortage and a perception that short-term rentals are part of the problem. Or maybe there’s already a nuisance problem. And there’s the incremental revenue to consider.

How will your tax overlap with county or state taxes? Is this permissible?

Consult with neighboring municipalities, as well as other relevant taxing bodies to determine how your ordinance can apply.

What is the licensing process like?

Outline how the process works, such as whether inspections, maps or photos, or other documentation is necessary. Consider if short-term rental hosts should also be required to get a business license. Finally, decide on an application fee, review process, and timeline for approval.

Do you want to require short-term rentals to comply with existing hotel-motel laws?

Established hoteliers will lobby for short-term rentals to be regulated just as rigorously as traditional hotels, motels, and inns are. Short-term rental hosts and vacation rental platforms contend that these rentals are not similar to traditional accommodations and shouldn’t be regulated as such. Choose your own path, and be ready for pushback on either side.

What rate will your tax be?

It is common for taxes on short-term rentals to range from 10-15%. Just as with hotels and motels, taxable fees also include cleaning or pet fees, damage penalties, etc. Many hosts also offer extras such as minibars or amenities packages, rentals of cribs or car seats. These may also be subject to your municipality’s taxes and are easy to overlook by hosts.

How frequently must hosts remit taxes?

Some municipalities require monthly remittance, while others work on a quarterly or seasonal system. Also outline how often hosts need to re-register. Is it a rolling system or is there a fixed annual date for renewal?

How do hosts pay taxes and get in compliance with laws?

Make it easy on your hosts and offer an online solution for registration and remittance to help them get in compliance from the comfort of their home/business. The Localgov tax-and-fee administration platform also save municipal staff time and hassle, versus opening envelopes and processing paper checks. 

What are the guidelines for operation—and how will you handle problems?

Your ordinance should also establish parameters regarding operational challenges, such as quiet hours, parking permits, and other regulations. Consult with well-regarded short-term rental hosts to get an on-the-ground perspective on this key issue.

What are the penalties for failing to register, remit taxes, or in the case of repeated nuisance?

Establish a hotline so neighbors can report short-term rentals causing issues in the community, such as parking problems, litter, late-night parties, etc.. Clearly outline remittance terms and any penalty fees.

Factors to Consider

Length of stay

Develop guidelines around maximum stays. Some municipalities cap this by renter, for example, 14 or 30 days. Other communities place a maximum on how many days per year a property may be rented.

Zones and license caps

When starting out to regulate short-term rentals, some communities have chosen to introduce a pilot zone where this type of accommodate is permissible, such as an area convenient for tourists already or more dense neighborhoods. But some cities ban short-term rental completely in historic or architecturally significant areas. Frequently, there will be a total numbers of short-term rental licenses available at all. 

Type of property

Social media is full of shots of cool short-term rentals, from tiny homes tucked in the forest to minimalist apartments in high-rises. However, some communities wish to regulate what’s allowable as a short-term rental, precluding rentals of trailers, campers, and non-traditional units.

Residency requirements

Communities may place mandates on who may let out property for short-term rental, restricting licenses to owners who live on the property. Others mandate that hosts must live locally or have a local property manager. This may put community members at ease that they will have recourse if the short-term rental vacation cottage next door goes off the rails. 

Ordinance Development Services

Azavar has worked with municipalities to review, develop, and refine short-term rental ordinances. Our local-government experts work with your legal and financial team to craft and customize regulations that are smart for the market—and your community.

Ready to talk? So are we. Click here to schedule a call or demo with our team.