The Seattle City Council has approved the taxation and regulation of short-term rentals within the city

Emotions around housing run high in Seattle, where real estate and rental prices have skyrocketed. With a median home price of $725,000 — 80 percent higher than it was in 2012 — the city has the dubious distinction of having the “hottest housing market in the country.” Rents are also rising at an alarming rate, with a two-bedroom apartment typically renting for more than $2,000.

Compounding the housing crunch is the fact that Seattle’s short-term rentals have been multiplying like mushrooms on a soggy lawn, as this snapshot of Airbnb rentals from 2013 and 2015 reveals. In 2016, Puget Sound Sage forecasted that more than 1,600 long-term housing units in Seattle could be turned into short-term rentals by 2019 unless the city intervenes. It warned this could lead to a “high risk of displacement.”

While the city doesn’t want to prohibit short-term rentals, it does see the need to regulate the industry. To that end, the Seattle City Council has been fine-tuning a proposal to help “preserve the availability of long-term rentals while allowing the economic opportunity that short-term rentals offer residents of Seattle.” After much deliberation, it has settled on a plan that regulates and taxes Seattle’s short-term rentals, defined as those rented for fewer than 30 days. It also imposes licensing requirements and limits the number of short-term rentals one individual may operate.

Under the plan, operators of short-term rentals must obtain a short-term rental operator license that “permits an operator to offer or provide a maximum of one dwelling unit, or portion thereof, for short term rental use, or a maximum of two dwelling units if one of the units is the operator’s primary residence.”

There are exceptions for operators in business prior to Sept. 30, 2017:

• Those with a short-term rental in the Downtown Urban Center, south of Olive Way and north of Cherry Street, may continue to operate those units. These operators may offer a maximum of two dwelling units, if one is their primary residence.
• Those with a short-term rental in any dwelling units within a multifamily building constructed after 2012 that contains no more than five dwelling units and is located in the First Hill/Capitol Hill Urban Center may continue to operate those units. They may offer a maximum of two dwelling units, provided one is their primary residence.
• Those with a short-term rental outside of the above locations may license and operate up to two dwelling units for short-term rental use. Upon renewal of the license (after a year), the operator may license and operate a third dwelling unit if it is the operator’s primary residence.

Platform companies such as Airbnb, HomeAway, and VRBO would need a license to operate in Seattle. The proposal suggests a per-night fee of $2, paid quarterly. However, it asks the Department of Finance and Administration to review the fee structure and recommend modifications, if need be. See Council Bill 119081 for more details.

In addition to being regulated, short-term rentals in Seattle will be taxed.

The council initially considered a flat $10 per night tax, then moved to $10 per night for a whole unit and $5 per night for a private or shared room. However, it decided on a tax of $8 per night per shared or private room, and $14 per night for an entire unit.

The tax, which won’t take effect until Jan. 1, 2019, is expected to bring in approximately $7 million annually. Revenue will help fund efforts to curb displacement. The city will also look into imposing an additional fee to cover its administrative costs.

Seattle isn’t the only city grappling with regulating the short-term rentals that exploded with the birth of Airbnb and similar platforms. Los Angeles, Pacific Grove, Redwood City, and San Diego are among other cities struggling to determine how best to handle them.

Learn more about short-term rental taxes and how tax automation software can help facilitate compliance at MyLodgeTax.