San Luis Obispo County Recovered $72,000 in Taxes from Previously Unlicensed Short-Term Vacation Rentals

200 new business licenses from previously illegal short-term rentals

600 unlicensed short-term rental listings removed from the local marketplace

$72,000 in recovered tot from previously unlicensed rentals

Challenges

The County of San Luis Obispo is located in California and has a population in excess of a quarter of a million people. With stunning beaches, coastal hills and approximately 30 local wineries, it’s easy to see why so many people visit the region each year. Despite being a geographically large county consisting of many smaller sized towns, San Luis Obispo County had over 2,000 unlicensed short-term vacation rentals in the unincorporated areas, and was receiving an increasing number of complaints with only 2 code enforcement staff.

They knew the challenge of short-term vacation rentals was growing, based on the volume of complaints received, primarily from the residents and other vacation rental owners. Residents were taking issue with the increased numbers of cars parked in their neighborhoods, noise and increased trash. Vacation rental owners complained it was not fair to compete with unlicensed vacation rental owners, who could charge less as they did not pay tax or other regulatory costs. While they knew they needed to deal with the situation, San Luis Obispo County was not able to determine how many illegal short-term vacation rentals were located in their area of jurisdiction because short-term rental platforms wouldn't provide listings data.

As a result, it was impossible for staff to manually track online listings, and locate properties based on the information provided (for example there would be no picture of the outside of the house, and the specific location was not revealed on the map). When it came to capturing TOT (transient occupancy tax), tracking the total number of nights rented and the cost was also largely left to the host to report, with no good way to verify if this was correct. Some unlicensed operators would even remove and then re-upload their listings as a way to escape detection from the County. Frustratingly, San Luis Obispo County had no way to track this sort of activity on their own. Finding contact information for owners of unlicensed vacation rentals further compounded the problem.

Objectives

San Luis Obispo County wanted to improve its ability to collect transient occupancy tax while eliminating unlicensed rentals in the region. By doing this, officials were confident they'd offset any costs related to enforcement and monitoring of short-term rentals while reducing complaints from the public and licensed lodging operators.  While the County knew they were missing out on potential tax revenue, and had illegal rentals operating within it's jurisdiction, getting visibility into the full scope of the issue was also extremely important.

Solution

The tax collection and planning department at San Luis Obispo County realized they could work together and be more effective in enforcing short-term vacation rental regulations. Partnering together, they chose Host Compliance implementing the service in fall 2016.

Before choosing Host Compliance a lot of the information the County had was anecdotal. They had received reports and complaints, but lacked clarity on how many illegal rentals were operating and how many issues they were creating for residents. The data from Host Compliance provided the County was far more comprehensive then anything they had been able to compile manually. Justin Cooley, Principal Financial Analyst with San Luis Obispo County indicated that “The Data we were able to get from Host Compliance allowed the County to really analyze the situation and allocate our resources where they were most needed.”

To get started, San Luis Obispo County’s planning department shared data with Host Compliance, such as the the land parcels in the county and a list of licensed vacation rentals. With this information, Host Compliance was able to detect nearly all of the rentals in the county, both licensed and unlicensed. This provided the County with instant visibility into the size of the problem, which they had previously not been able to determine.

Empowered with data that showed which units were unlicensed, San Luis Obispo County worked with Host Compliance to compose a letter and contact these owners. Soon after the letter was sent, the County received a significant increase in the number of new business licenses issued. Those unlicensed vacation rental owners that did not respond received a more stern, follow-up letter from their code enforcement division and investigations were opened. Again, more new business applications were received.  

San Luis Obispo County also chose to use Host Compliance’s 24-hour hotline service, enabling residents to register complaints any time of day. Feedback has shown residents like being able to speak to a live person. Host Compliance operators handle the calls, and forward a transcript and the recording to the appropriate department for handling. This has made the handling of complaints faster, ensuring they go to the appropriate departments quickly for follow-up. 
 

Outcomes

Within the first few months of using Host Compliance, the County received 200 new business licenses for short-term vacation rentals, which represented double digit growth of approximately 12.5%. Improvements in compliance has generated US$72,000 of additional revenue recovery through TOT, and has more than covered their costs for Host Compliance. 

In addition, they now receive fewer complaints from residents and licensed vacation rental owners. They are now in a position where they can enforce their existing ordinance when new unlicensed short-term vacation rentals appear. 

Since using Host Compliance, they have also witnessed a sharp reduction in online listings for unlicensed short-term vacation rentals, with roughly 600 being removed. The County viewed the removal of unlicensed listings as a further win, with those listing having either become licensed and compliant, or they have ceased operating. With more than 2,100 listings remaining in the County, this represented a substantial reduction.

According to Justin Cooley, from San Luis Obispo County, “It would be impossible for us to come to that same result in San Luis Obispo County without Host Compliance’s software.”  He indicated that before choosing Host Compliance, they had tried, with their limited staff, to go through internet listings one by one to determine which ones were operating illegally. It took between an hour to an hour and a half to find correct listings, so it was completely impossible to deal with the problem in this way, based on their resources.