State of the state: California short-term rental laws

In this series of blog posts, we offer an overview of the short-term rental (STR) lodging tax obligations for certain states, along with the latest rules on STR operations.

The Golden State offers a prime locale for short-term rentals, with tourist destinations that range from iconic beaches and desert enclaves to wine country, ski resorts, and famous wilderness areas.

Generally, the state government leaves it up to local authorities to set rules for short-term rentals, and that applies to lodging taxes as well.

California doesn’t have a statewide lodging tax (although that may not be the case forever). However, California law allows cities and counties to levy transient occupancy tax (TOT) on accommodations that are rented out for 30 days or less — and many of them do.

California short-term rental operators may be required to register with local tax authorities, collect TOT from guests, and file TOT returns. The exact requirements are specific to each city or county.

Some vacation rental marketplaces, such as Airbnb and Vrbo, collect local TOT on behalf of operators when the listing is booked. However, marketplaces don’t collect all lodging taxes in all locations, and operators are responsible for making sure they comply with lodging tax requirements.

Debates about short-term rentals and how to regulate them have become high profile all over the country in recent years, and California is no exception. Local communities have been active in creating laws to govern the industry. Examples include:

In June 2023, the Sonoma County Board of Supervisors revised regulations for short-term rentals in unincorporated areas of the county. The rules clarify business license and operational requirements, place limits on the number of short-term rentals in specific areas, and address fractional property ownership. The latest rules don’t affect licensed properties already in operation.

Under the law, license holders must be natural persons or family trusts, not LLCs or corporations, and only one license is allowed per holder. Operators must notify neighbors when renewing their license, and they must resolve complaints within 30 minutes in the evening and 60 minutes during the day.

The new rules also strengthen enforcement. Fines start at $1,500 for a first violation and go up to $5,000 for a third violation within one year. Licenses can now be revoked for up to five years, versus a maximum of two years previously. The county already established a 24-hour hotline for complaints about STRs last fall.

Short-term rental operators in Sonoma County are also required to collect TOT from guests and file TOT returns with the county. Airbnb automatically collects TOT on behalf of hosts in unincorporated Sonoma County for bookings made through its site. However, operators need to be aware that they’re responsible for collecting and filing any lodging taxes Airbnb doesn’t collect directly for them, as well as taxes on bookings made through other platforms, such as Vrbo.

Santa Barbara announced in spring 2023 that the city is ramping up enforcement against illegal STRs. The City Council voted to allocate $1.175 million toward a short-term rental enforcement pilot program.

Under the program, the City Attorney’s Office and Finance Department will gather data on short-term rentals throughout the city, including those operating illegally. Then the city will turn to enforcement, at first by working with operators on voluntary compliance. The city can issue civil administrative citations and fines or prosecute operators who don’t cooperate voluntarily.

The city estimates that between 1,000 and 1,500 short-term rental properties are operating illegally. In Santa Barbara, STRs aren’t allowed in most inland areas of the city because they’re prohibited in residential areas. However, short-term rentals in the coastal area are permitted, following a 2021 California appeals court ruling.

Short-term rental operators are required to register with the city for business tax certificates, collect TOT from guests, and pay the tax to the city monthly. Neither Airbnb nor Vrbo collect local lodging taxes on behalf of their hosts at the time of booking, so hosts are solely responsible for TOT compliance.

San Diego finally implemented its short-term rental regulations, which have been years in the making. The new law went into effect May 1, 2023.

In December 2022, the city abandoned its plan to hold a lottery for new STR licenses because the number of applicants didn’t exceed the city’s cap of 5,416 licenses. As of July 2023, more than 1,300 licenses were still available for whole-home rentals. The city did hold a lottery for the Mission Beach area, where STR licenses are limited to 1,100.

While the law limits applicants to one license per person, some operators have been using loopholes to get multiple STR licenses.

The San Diego ordinance also sets license fees that range from $100 for hosts who rent out their properties for less than 20 days a year to $1,000 for operators who rent out whole homes for more than 20 days per year.

Short-term rental hosts in San Diego are also required to collect transient occupancy tax (TOT) from guests and remit it to the city, unless a short-term rental platform collects the tax on hosts’ behalf. Both Airbnb and Vrbo collect TOT for their San Diego hosts.

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.