Seattle City Council passes new tax on short-term vacation rentals

The Seattle City Council has passed a new short-term vacation rentals tax that levies a tax of $14 per night on hosts who rent out their entire homes and an $8 per night for those who only rent out part of their homes.

While the tax was part of larger legislation aiming to more tightly regulate short-term vacation rentals, only the tax part was passed Monday. The short-term rental regulation package was sponsored by Seattle’s current mayor, Tim Burgess, who will serve as mayor until Nov. 28, when newly elected Mayor Jenny Durkan will step in.

Previously, Burgess said he would prefer a tax on short-term rentals to a proposed employee head tax in order to raise funds to fight homelessness. Burgess opposed a proposal that would place an annual tax of about $100 on each employee for companies making $5 million or more in annual gross revenue. The proposal would affect about 10 percent of companies in Seattle and raise around $20 million to $24 million per year. The revenues would be used to fund more services and housing for the homeless.

Burgess said he would rather tax and regulate short-term vacation rentals, such as those rented through platforms like HomeAway and Airbnb, to raise extra money to combat homelessness.

The new regulations could have a big impact on vacation rental owners. In addition to the newly instituted tax on short-term vacation rentals, the rest of the legislation proposes new restrictions on such rentals due to concerns about the availability of affordable housing in the city.

Currently, short-term rental operators are required to have a business license and collect and remit a 9.6 percent sales tax on the cost of short-term accommodations, which are defined as stays of 29 days or fewer.

Under the proposed rules, operators who provide short-term rentals would be required to get a short-term rental operator’s license, costing $75 per year, in addition to the business license.

Operators would also be limited to renting out only two units in the city for short-term rentals, with exemptions for certain operators already offering short-term rentals as of Sept. 30 in the Downtown, Uptown, and South Lake Union neighborhoods. Operators in First Hill and Capitol Hill would get the same exemption if they have been offering short-term rentals in multifamily buildings constructed after 2012 with five or fewer units. The exemption would allow those operators up to four short-term rental units.

The proposal would also require platforms such as Airbnb that operate within the city to have a short-term rental platform license and require their operator customers to have short-term rental licenses. Platforms would also be required to provide information to the city on the number of short-term rentals and number of nights rented out on the platform.

Currently, Airbnb collects all state and local retail sales tax, any special hotel/motel taxes, and convention and trade center taxes from its hosts in Washington state, according to an agreement with the state Department of Revenue. Rental operators who use other platforms are still responsible for managing accommodation taxes themselves.

It’s important for rental operators to know that although the proposed increase in the lodging tax rate would be paid by their renters — not out of operators’ pockets — the property owner is responsible for enforcing collection of the increased tax. That includes charging and collecting the right tax amount and remitting the tax to the proper jurisdictions on a monthly or quarterly basis.