Court overturns Santa Barbara coastal vacation rental ban

A California appeals court has overturned a Santa Barbara law banning most short-term rentals from coastal areas of the city.

In 2015, the city passed a law stating that “all vacation rentals or home shares that are not zoned and permitted as hotels, motels or bed and breakfasts are in violation of the Municipal Code,” which effectively prohibited them from the coastal area. Vacation rental property manager Theo Kracke filed a lawsuit challenging the new rules.

In 2019,  a superior court judge ruled in the case that Santa Barbara must allow vacation rentals in the coastal zone. The recent ruling by the Second Appellate District Court upholds the lower court’s decision.

The California Coastal Commission had supported the property owner’s suit, saying that the ban violated the California Coastal Act, which requires affordable accommodations to be available to the public in the coastal zone. Before the 2015 law, 114 short-term rental properties operated in the city’s coastal zone. Currently, only six are located there. Short-term rentals are allowed in commercial areas zoned for hotels.

In the latest ruling, Judge Steven Perren said that regulation of short-term vacation rentals in the coastal zone must be decided by both cities and the Coastal Commission and that Santa Barbara should have consulted with the commission on its rules.

Santa Barbara Mayor Cathy Murillo said that city leaders would meet soon to decide what to do next in light of the ruling.

As short-term rentals have grown in popularity, the Coastal Commission has become more involved in local regulation of them, often supporting short-term rentals as essential to public access. Both Long Beach and Huntington Beach recently passed short-term rental laws that still need to be approved by the commission.

In 2020, the commission approved Laguna Beach’s short-term rental law, which bans new short-term rental units in residential neighborhoods, but allows residential properties in commercial areas to operate as vacation rentals. That same year, a Los Angeles Superior Court judge ruled that Manhattan Beach’s short-term rental law, which banned short-term rentals in residential areas of the coastal zone, violated the California Coastal Act.

Santa Barbara had allowed short-term rentals in the coastal zone and collected lodging taxes on them for years before the 2015 ban. Operators of Santa Barbara commercial lodging establishments are required to register with the city for Transient Occupancy Tax (TOT), collect the tax from guests, and pay the tax to the city monthly.

While Airbnb and Vrbo collect local lodging taxes on behalf of their hosts at the time of booking in some California cities, neither marketplace collects taxes for hosts in Santa Barbara, so hosts are responsible for TOT compliance on their own.

MyLodgeTax can help automate and simplify tax compliance for hosts. For more on lodging taxes in California, see our state Vacation Rental Tax Guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.