TAXEATERS ON THE MARCH!

California’s Senate Bill 584 passed in the Senate chamber on Wednesday (27 yes’s to 11 no’s) and has been ordered to the Assembly. 

If passed in the Assembly, the bill will enact the Laborforce Housing Financing Act starting January 1, 2025, wherein a 15% tax would be imposed on the rental price of a short-term rental. For example, if your two night stay in a Big Sur Airbnb is priced at a total of $400, the tax would tack on a $60 charge. The tax revenue then goes into the statewide Laborforce Housing Fund. 

The bill defines “laborforce housing” as “housing that, among other things, is owned and managed by specified entities solely for the benefit of residents and households unable to afford market rent, and whose residents enjoy certain protections. 

The Laborforce Housing Fund would be used “for the creation of laborforce housing and other specified housing projects by public entities, local housing authorities, and mission-driven nonprofit housing providers, as provided.” 

For districts that implement transient occupancy taxes (TOT) – Mammoth’s is 14% – the bill could have drastic financial consequences. That two night, $400 rental in Mammoth would cost you an extra $116 in combined TOT and SB 584 fees. A 29% charge. And that doesn’t even include a cleaning fee.

 Either the renter or the property owner would have to absorb that 29% charge. 

If a property owner already has slim margins to work with – say the property was an investment they are paying off through, partially, short-term rentals – then an extra 15% could cripple the equation and force the property owner to default and abandon the enterprise.

The mathematics equation will likely dampen real estate values. 

It may also make property owners more willing to rent long-term, which is, probably, the state’s hope.

But it’s not too hard to picture a renter deciding to vacation elsewhere in order to avoid a 29% surcharge on lodging. Hello Park City. 

“I really think this is probably the wrong way to go about it,” said John Morris, Mammoth Lakes Tourism Board’s lodging representative and Treasurer/Director of Operations at Snowcreek Resort. 

Morris acknowledged the “major housing crisis throughout the state” and that long-term turned short-term vacation rentals in places like Mammoth have definitely contributed to housing problems. “I just don’t know that putting a 15% tax on vacation rentals is really the answer,” Morris said.

First, it creates unfair competition. “It’s only on vacation rentals,” said Morris. “It’s not on hotels and other things … it’s just on certain types of lodging.”

Second, the bill “is certainly going to have a negative impact on visitation to California in general and definitely for Mammoth, because it’s going to raise the price of what it costs to come here unless folks like myself are forced to cut our prices, which is difficult to do with payroll and so forth,” Morris explained. 

The result: fewer people coming to Mammoth and California means less revenue for the state.

Morris’s take: there are other ways to raise funds for affordable housing. 

For example, “a bunch of money [from TOT gets] put back into the Parcel and other housing projects here in Town every year,” he said. “I think that makes more sense … I mean, I get it, and I realize that there’s a big issue in California.” 

But Morris is “certainly not in favor” of the bill.

Matthew Lehman of Matthew Lehman Real Estate thinks the bill’s greatest impact will be felt in resort communities like Mammoth’s. Because of already existing things like TOT. 

“To basically go and throw another 15% on [short-term rentals] – it doubles our taxes on the property,” said Lehman. “In many cases, that’s going to take any profitability away.” 

And, when it comes to vacationers choosing their next destination, Lehman thinks California will lose out. “The big question becomes, ‘Okay, I’m thinking of going either to Mammoth or Idaho. Where am I going to go?’” 

Answer: probably Idaho. 

From Lehman’s perspective, it looks like another California cash grab. 

“I mean, how much workforce housing do we need to build versus just letting the market do its thing?” Lehman explained. “I think [the state is] just trying to backfill its deficit.” 

Lehman, like Morris, mentioned the disproportionate application of the tax. “I almost wonder if the hotel industry didn’t write the bill,” he joked. 

When it comes to property owners covering this 15%, Lehman said, “I can tell you what a lot of other people are going to do – they’re probably just going to start lying about it and start [doing short-term rentals] under the table.” 

Whether or not the bill will destroy resort economies or create more workforce housing remains to be seen. What’s pretty visible, though, is that local property players consider the bill a bad idea. 

SB 584 was introduced by Santa Barbara Democrat Monique LimÓn.

In A CalMatters story by Alexei Koseff – titled “Tax on short-term rentals like Airbnb could fund California affordable housing” – Senator LimÓn is quoted: “One of the things that I get asked very often by my local cities and counties is: ‘Where is the money to build the housing?’… I see this bill really saying everyone has a role to play.” 

The article continues: “LimÓn said she is not villainizing short-term rentals, but rather inviting them to be a part of fixing a statewide housing crunch they have exacerbated. If the industry has ideas, she said she’s open to alternatives to the 15% tax rate, which was suggested by a Senate committee, where  the bill passed earlier this month.”