Here Come the Rules and Taxes

Resort towns across the United States are now very attractive to home buyers and vacationers alike. Investors and second homeowners have never had such great opportunities to sell their second homes — or obtain new income by using these homes as rental properties.

In 2021, groups of friends and families are looking for new road-trip destinations. Avoiding air travel, they’re seeking out alternatives fairly close to home. These local adventurers want clean rooms, expansive, indoor-outdoor spaces, and versatile accommodations. Bonus points for proximity to water activities, ski slopes or hiking trails, and strong internet connections. The trends are drawing a new set of homeowners to Airbnb, HomeAway, Vrbo, and other online hosting platforms.

At the same time, major tourist cities and surrounding counties are honing their regulations to manage the trend. They’re passing laws to head off noise complaints, to hold room-rental platforms accountable, and to tap into a new source of taxes.

Can’t Beat ‘Em? Tax ‘Em!

Nevada is currently testing a new legal framework to regulate online home rental platforms. This is after Clark County, Nevada (home of the Las Vegas Strip) tried in vain to simply ban short-term rentals. Thousands of Las Vegas short-term listings could be found online, even with the ban. It was patently obvious that an Airbnb ban was never going to work in Las Vegas.

Nevada’s lawmakers have now turned away from bans. They’ve come up with a new regulatory framework.

Under Assembly Bill 363, effective since July 1, 2021, short-term rental houses in Clark County and throughout the Las Vegas area are taxed as hotels. This could fetch some $45 million in annual room taxes — money that could help pay for Nevada schools and infrastructure. On the other side of the coin, the law could use close to $4 million in expenses during its initial two years, as it equips the permitting agencies to deal with a booming business in home rentals.

The Nevada Resort Association and Culinary Union are supporters. They lose money when do-it-yourself tourism flourishes.

As for Airbnb, it supports taxation of short-term rentals, but doesn’t care for buffer requirements and two-night minimum stays for guests. The platform also claims that special limits on hosts near casinos will impede a post-pandemic rebound for Las Vegas. (As of July 1, no short-term rentals are being approved for properties located less than 2,500 feet from resorts.) As a general matter, Airbnb argues that the Nevada law appeases the big resorts at ordinary homeowners’ expense.

☛ Buying a condo to rent out? Understand the association’s short- and long-term rental rules. Homeowners’ associations (HOAs) can simply prohibit vacation rentals, in Nevada and elsewhere. Learn more about an HOA board’s authority over condo ownership here.

What Happens in Vegas

For now, Nevada’s law covers only a few highly populated counties and cities: Clark County, Las Vegas / North Las Vegas and Henderson. Meanwhile, in the Reno area, a separate set of rules, restrictions, and inspection processes will be effective in Reno on August 1. As it bars applications for new rentals inside the Reno city limits, it is drawing inevitable controversy.

A number of other Nevada cities have rules already in place. Most focus on numerical limits to rentals per owner, noise abatement, attention to local zoning ordinances, and advance notification to owners in the surrounding buildings.

The Las Vegas area’s new law adopts much of what’s already in place throughout the Las Vegas Valley. Highlights of the Las Vegas area law include:

A rule that the counties and cities must create a permit system, with individual limits and fees for homeowners who use rental platforms.

A requirement that each permitted house has liability coverage and a local contact, 24/7.

A minimum stay of two nights unless the houses are owner-occupied.

Rules for minimum buffers between home rentals, and between the rentals and hotels.

Limitations on investor-owners: each may only have five short-term rental properties.

A 10% cap on the percentage of allowed short-term rentals in condo and other multi-unit properties.

16-visitor occupancy limits.

A provision that keeps hosting platforms out of apartment buildings.

Taxation will not be retroactive. The law anticipates a six-month phase-in period. Owners who already rent out their places are shielded from penalties as they enter the permit framework. But that doesn’t mean out-of-compliance homeowners are guaranteed permits. Local authorities may also withdraw permits from noncompliant homeowners. Fines for violations of the new law may range from $1,000 to $10,000, depending on what a county decides. And local governments can go after the platforms connected with problem hosts.

Online Platforms Vs. Brick-and-Mortar Cities

Laws of the type Nevada is creating can be challenged in court. After Airbnb sued New York City, the parties were engaged in a long, brutal struggle before the platform finally agreed to share hosts’ data with the city, allowing violators to be tracked down. The city’s Office of Special Enforcement encourages locals to submit complaints about possible abuses of the system.

In 2016, Airbnb challenged rental registration rules established by San Francisco. As other cities have done, San Francisco defended its short-term rental rules by citing the need to protect housing stock of ordinary residents over investors. Yet it supported the rights of compliant homeowners to supplement their income by using the rental platforms within reasonable bounds.

Following a 2017 settlement, Airbnb created a user-friendly way for San Francisco homeowners to license and register their rental businesses, and agreed to remove invalid listings. New hosts are notified that city officials review their data. The platform has come to similar agreements with Denver, Chicago, and New Orleans.

Airbnb has sued a number of other cities, too — and sometimes it wins its lawsuits outright. But the typical case leads to county and city registration fees; hotel-like taxes; noise limits and party home prohibitions; security and waste collection rules; and some level of data sharing. Online platforms generally supply local officials with data on listings, reservations, owners and renters, and revenues.

Hosts need to be licensed by the states and permitted by their counties. A jurisdiction may require platforms to vet hosts to be sure they only list authorized property owners.

Forward-Looking Trend

Previously, communities have been all over the map on rental platform rules. Some towns have tried to ban them. Some counties have taken an anything-goes approach. Las Vegas had only been allowing platforms to work with owner-occupied homes.

As Nevada now shows, the general thrust ahead will be about balancing platform accountability, choice of fees and enforcement mechanisms for towns and counties, and homeowners’ rights to generate profits from their homes. And it will all have to be within boundaries that the parties agree are reasonable and fair.

As state laws gradually replace the current patchwork of approaches, counties should be better equipped to quiet the loud party hubs, and deter corporate investors from snapping up critical local housing supplies for profit.

Supporting References

Nevada Assembly Bill 363: Revised Provisions Governing Transient Lodging.

Shea Johnson and Bailey Schulz for the Las Vegas Review-Journal: Clark County’s Ban on Short-Term Rentals Failed. Enter Regulations (Jun. 27, 2021).

Zach Wichter for Bankrate.com: Coronavirus Is Driving a Vacation Town Real Estate Boom (Oct. 29, 2020).

Zach Wichter for Bankrate.com: Close-to-Home Travel Boom Opens Profit Avenues for Homeowners, Real Estate Investors (Feb. 15, 2021).

Tabitha Mueller for The Nevada Independent (via Northern Nevada Business Weekly): The Indy Explains: Nevada’s New Short-Term Rental Law, Impact on Companies Such as Airbnb (Jul. 2, 2021).

Megan Rose Dickey for TechCrunch.com: Airbnb Settles Lawsuit With San Francisco (May 1, 2017).

Photo credits: Joshua Miranda, via Pexels.