Regulation Vacation: City collects taxes from unlawful Airbnbs

Becca Dobberfuhl has a name for her Bouldin Creek home.

“It’s all this rusty, rusty, rusty color,” she said. “And the house is a modern house and it has a box-like look to it so we call it the ‘Rusty Box.’”

Users of short-term rental company Airbnb can pay to stay in the “Rusty Box” while Dobberfuhl and her family are out of town. Last year, Dobberfuhl estimates she made $6,000 renting out her home. The extra income goes to help pay the family’s property taxes.

“$6,000 is about half of our property taxes,” said Dobberfuhl.

Four times a year, Dobberfuhl logs online and pays a 9 percent tax on the money she makes from having a short-term rental. (She also pays 6 percent to the state, though currently Airbnb collects that tax and remits it to the state.) This tax is called Hotel Occupancy Tax. Short-term rental operators are also required to have a license from the city, which needs to be renewed annually.

In June, Dobberfuhl came home to a city violation in her mailbox, telling her she had been operating without a license, despite paying taxes on her short-term rental income. It’s the first she’d heard from the city’s Code Department, which oversees short-term rental licensing, in nearly two years.

In November 2014, Dobberfuhl’s father passed away a week after her short-term rental license expired and she failed to send in her renewal paperwork. But having a master’s in city planning and being a self-identified rule follower, Dobberfuhl tried to set her license straight. She called the city and applied for a new license.

“I sent all the paperwork in and then never heard anything,” said Dobberfuhl. “We went along our way of renting our property out and paying our taxes.”

According to city documents, Dobberfuhl was granted a license in late 2014 – though she says she never got a hard copy. When it came time to renew in late 2015, Dobberfuhl said she never got a notice, and it slipped her mind. Meanwhile, she continued to get email reminders from the City Controller’s Office, which handles tax collection, about paying her short-term rental taxes. She received these notices during the months she was not licensed to operate.

The city collected nearly $900 in taxes from Dobberfuhl while she had an unlicensed short-term rental. She said she thinks the system’s broken.

“Ultimately, if the city’s goal is to one regulate this and two to collect fees, they should monitor,” said Dobberfuhl. “It doesn’t seem like it would be that difficult to have a list of everyone in the city who actually pays taxes and everyone in the city who’s licensed. The two departments should coordinate. It doesn’t seem that complicated.”

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‘That’s extremely surprising to me.’

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According to an analysis of city data, KUT found that since 2016 the city of Austin has collected $576,860.14 in taxes from 420 unlicensed short-term rental properties. This includes owners who continued to pay taxes after their license expired, owners who had no license during this time, and owners who paid taxes between licenses (like Dobberfuhl, who is now relicensed). This accounts for nearly 14 percent of the city’s total short-term rental tax collection over the same time period.

“That’s extremely surprising to me,” said Mayor Pro Tem Kathie Tovo. Tovo has been a proponent of stricter short-term rental regulations and upped enforcement. “That concerns me that we’re receiving the taxes, so we’re aware they’re operating as short-term rentals, but not following up and pursuing the fact that they don’t have a license.”

In 2012, the city began requiring all short-term rental owners to have a license. Three years later, the city tightened short-term rental regulations by setting occupation limits, curfews and other restrictions.

The issue appears to be a lack of communication between the Controller’s Office and the Code Department.

“I guess when I got to this department, I didn’t realize there was a lack of communication between our two departments,” said Maria Stuart, a manager with the Controller’s Office. “The main reason is that we’re two separate departments and their licenses are recorded in a separate system than ours.”

Marcus Elliott, a division manager with the Code Department, confirmed this.

“Earlier this year the city Controller’s Office and myself began a series of conversations that we talked about pursuing people that were paying taxes but didn’t actually have a license,” he said. “Those talks kind of dropped off based on priorities that each of us had.” Elliott said he believes this communication will restart sometime “in the near future.”

Elliott also emphasized the fact that his department is complaint-driven, and does not currently have the resources to proactively go after unlicensed short-term rental owners. A proposed budget for the city’s upcoming fiscal year includes additional funding and staffing for the city’s Code Department, a portion of which would be used to up short-term rental enforcement.

But Tovo said this should already be happening to some degree.

“It is both surprising to me and disappointing that with as much time and attention as we’ve focused on the issue of short-term rentals that we would have that kind of disconnect,” said Tovo.

Tovo said she doesn’t necessarily have an issue with the city collecting taxes from unlicensed short-term rentals. Elliott agreed.

“From a standpoint of a profit, there’s no profit on this,” he said. Per state law, the city’s HOT revenue can only be used to fund tourism-related items, such as an expansion of the Austin Convention Center or the cultural arts. “What we’re doing is trying to collect a fee and taxes for what’s being done. It’s a cost of service.”

In some cases, owners were fined by the city for operating without a license while also paying taxes to the city. Since 2016, the Code Department has fined three property owners collectively more than $1,100. At the time they were cited, the owners had paid taxes on their rental income to the city.

But at the very least, the city has tried to avoid publicly collecting taxes from unlicensed short-term rental owners.

On Tuesday, City Council members heard from the Visitor Impact Task Force on the group’s final recommendations for how the city should spend its pot of HOT revenue. The chair, James Russell, said he believes the city should allow Airbnb to collect taxes on its behalf, like the state does. This could bring in more revenue – by Airbnb’s count, $6 million more.

But, Russell said, he foresaw this being an issue.

“We currently collect Hotel Occupancy Tax from registered short-term rentals, not unregistered short-term rentals,” he stated, falsely. “I know that we have an ordinance on short-term rentals and I know that our collection process speaks probably directly to that ordinance. But $6 million of hotel tax on the table is a lot.”

Tovo has said she would support allowing Airbnb to collect taxes on the city’s behalf, but only if the company provided an address-by-address breakdown of tax payments. According to city staff, Airbnb has said it cannot provide this level of specificity.

“(We need to be able to) make sure that properties are submitting their taxes,” said Tovo. “So the lump sum method would probably not be adequate from the city’s standpoint.”

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No notice to renew

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Interviews with more than a dozen short-term rental operators who had paid taxes while unlicensed produced one similar thread: Many had gotten reminders to pay their taxes, but never a reminder to renew their licenses. I surprised at least five people with news that they were currently unlicensed – including a couple who had just paid $2,000 in taxes to the city.

One woman said she continues to get reminders to pay her taxes even though she no longer rents out her space as a short-term rental; there’s a long-term renter living there now.

After falling behind, Elliott said the Code Department revamped its renewal notice process in late 2016.

“(It’s) just based on resources. Previous years when we had 400 licenses, we could do that no problem,” said Elliott. (At the end of the first 2017 quarter, nearly 1,300 properties paid taxes to the city.) “But as the program began to grow, we had different priorities and the renewal notices weren’t sent out.”

Plus, said Elliott, it’s on the property owner to keep up with renewal. The city’s reminders are simply courtesy. Tovo agreed.

“It is (the owner’s) responsibility to make sure that their license is renewed in a timely fashion and kept up-to-date,” said Tovo. “That being said, it certainly is a conversation I’m going to have with the Austin Code Department about what their process is. Are they sending out reminder notices?”

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‘I haven’t gotten a complaint about that.’

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When she retired from her career as a therapist, Beverly Voss decided to convert her in-home office where she saw clients into a room she could rent on Airbnb.

“I’m on Social Security,” said Voss, who receives about $1,700 a month from the government. “And so that would just no way pay my living expenses and my (property) taxes. Airbnb is huge for me. It’s how I get by.”

Voss is currently unlicensed. She went to renew her license in 2015, but was told she was missing a document from her application. She emailed it, but misspelled the city email address. She said she was informed of the mistake months later, at which point she could no longer renew and had to start a new short-term rental application. A new application costs $443 – nearly twice the amount of a renewal application. Voss said she tried to appeal, but was told the city had no process for that.

Voss said she knows she messed up.

“I take responsibility for what I miss and if I mess up an email address. But I think the city needs to do their part too. Especially since they continue to take my taxes. I haven’t gotten a complaint about that,” she said, laughing.

When asked if she thought a city licensing for short-term rentals was a useful program, she hesitated.

“I hadn’t thought about that,” she said. “I suppose it is … I think having some kind of a licensure is probably a good idea in terms of having some accountability. But it needs to be humane and clear.”

This story was produced as part of the Austin Monitor’s reporting partnership with KUT. Photo by Gabriel Cristóver Pérez/KUT.

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