An Act Relating to Online Lodging Marketplaces – Establishing Statewide Standards, Protecting Privacy, and Enabling Efficient Tax Remittance

Summary

Internet platforms are enabling more Americans to earn extra income from their homes and investment properties through short-term and vacation rentals. At the same time, American travelers and family vacationers are saving money by renting fully-furnished homes instead of hotel rooms. The growth of this new market is encountering resistance from many local governments, in the form of zoning restrictions and prohibitions that prevent homeowners from using their residences for short-term rentals. In 2016, Arizona enacted breakthrough legislation that enables short-term rentals while increasing tax revenue and preserving limited local regulation. The Arizona law stops local governments from prohibiting short-term rentals, while allowing local enforcement of regulations on parking and public safety. This law also makes taxes more efficient by allowing online platforms to collect and pay taxes at the state level, relieving homeowners of the need to file individually. The Arizona law serves as the basis for ALEC model policy that can help every state realize the benefits of short-term rental income and increased tourism.

An Act Relating to Online Lodging Marketplaces – Establishing Statewide Standards, Protecting Privacy, and Enabling Efficient Tax Remittance

Section 1 – Definitions

  • “Lodging Marketplace” means a person that provides a platform through which an Unaffiliated Third Party offers to rent a Vacation Rental or Short-Term Rental to an occupant and collects the consideration for the rental from the occupant. For the purposes of this paragraph:
    • “Unaffiliated Third Party” means a person that is not owned or controlled, directly or indirectly, by the same interests.
  • “Lodging Accommodations” means any space offered to the public for lodging, including any hotel, motel, inn, tourist home or house, dude ranch, resort, campground, studio or bachelor hotel, lodging house, rooming house, residential home, apartment house, dormitory, public or private club, mobile home or house trailer at a fixed location or other similar structure or space.
  • “Lodging Operator” means a person that rents to an occupant any Lodging Accommodation offered through a Lodging Marketplace.
  • “Lodging Transaction” means a charge to an occupant by a Lodging Operator for the occupancy of any Lodging Accommodation.
  • “Vacation Rental” or “Short-Term Rental” means any individually or collectively owned single-family house or dwelling unit or any unit or group of units in a condominium, cooperative or timeshare, or owner occupied residential home, that is offered for a fee and for less than thirty consecutive days.  Vacation Rental and Short-Term Rental do not include a unit that is used for any nonresidential use, including retail, restaurant, banquet space, event center or another similar use.

Section 2 – Limitations on Regulation of Vacation Rentals and Short-Term Rentals; State-Wide Standard;

  • A city, town, or other locality may not prohibit Vacation Rentals or Short-Term Rentals.
  • A city, town or other locality may not enact or enforce any law, ordinance, regulation or plan that prohibits or regulates Short Term Rentals except as provided in this section. A city many not restrict the use of or regulate Vacation Rentals or Short-Term Rentals based on their classification, use or occupancy.  A city, town or other locality may enact or enforce a law, ordinance, regulation or plan that regulates Short Term Rentals for the following purposes:
    • Protection of the public’s health and safety, including rules and regulations related to fire and building codes, health and sanitation, transportation or traffic control, solid or hazardous waste and pollution control provided enforcement would not expressly or in practical effect prohibit the use of a property as a Short Term Rental, and designation of an emergency point of contact, if the city or town demonstrates that the rule or regulation is for the primary purpose of protecting the public’s health and safety.
    • Adopting and enforcing residential use and zoning ordinances, including ordinances related to noise, protection of welfare, property maintenance and other nuisance issues, if the ordinance is applied in the same manner as other similar properties.
    • Limiting or prohibiting the use of Vacation Rentals or Short-Term Rentals for the purposes of housing sex offenders, operating or maintaining a structured sober living home, selling illegal drugs, liquor control or pornography, obscenity, nude or topless dancing and other adult-oriented businesses.
  • This subsection does not apply to private entities or homeowners’ associations.

Section 3 – Transaction Tax and Municipal Tax Licenses; Fees; Renewal; Revocation; Violation; Classification

  • A Lodging Marketplace may register with [the State Agency] for a license for the payment of taxes levied by this state and one or more counties, cities, towns or special taxing districts, at the election of the Lodging Marketplace, for taxes due from a Lodging Operator on any Lodging Transaction facilitated by the Lodging Marketplace.
  • Notwithstanding any other law, a Lodging Operator shall be entitled to an exclusion from any applicable taxes for any Lodging Transaction facilitated by a Lodging Marketplace for which the Lodging Operator has obtained from the Lodging Marketplace written notice that the Lodging Marketplace is registered with [the State Agency] to collect applicable taxes for all Lodging Transactions facilitated by the Lodging Marketplace, and transaction history documenting tax collected by the Lodging Marketplace.
  • A Lodging Marketplace that is registered with [the State Agency] shall not be required to list or otherwise identify any individual Lodging Operator.

Section 4 – Lodging Taxation Rates and Base

  • Except as provided by this section, a city, town or other similar taxing jurisdiction may not levy a transaction sales, use, franchise or other similar tax or fee, however denominated, on the business of operating a Lodging Marketplace or, in the case of a Lodging Marketplace that is licensed pursuant to this act, on any Lodging Transaction facilitated by the Lodging Marketplace or on any Lodging Operator with respect to any Lodging Transaction for which it has received documentation that the Lodging Marketplace has or will remit the applicable tax to [the State Agency] pursuant to this act.
  • The tax base for a Vacation Rental or Short-Term Rental is the gross proceeds of sales or gross income received by Lodging Operator, except that the tax base does not include:
    • The gross proceeds or gross income received by a Lodging Operator from any Lodging Transactions for which the Lodging Operator has received documentation from a registered Lodging Marketplace showing that the Lodging Marketplace has remitted or will remit the applicable tax to [the State Agency].
  • In the case of a Lodging Marketplace that is licensed pursuant to this act, a city, town or other taxing jurisdiction may levy a transaction sales, use, franchise or other similar tax or fee on the Lodging Marketplace subject to the definition of “tax base” in this section and subject to the following conditions:
    • The adopted tax must be uniform on Online Lodging Marketplace, Online Lodging Operators and other taxpayers of the same class within the jurisdictional boundaries of the city, town or other taxing jurisdiction.
    • The adopted tax shall be administered, collected and enforced by [the State Agency] and remitted to the city, town or other taxing jurisdiction in a uniform manner.
  • The tax may not be collected from a Lodging Operator with respect to any Lodging Transaction or transactions for which the Lodging Operator has received written notice or documentation from a registered Lodging Marketplace that it has or will remit the applicable tax with respect to those transactions to [the State Agency] pursuant to this act.
  • A Lodging Operator:
    • Remains ultimately responsible, accountable and liable for both:
      • The accuracy of information the Lodging Operator furnishes to the Lodging Marketplace.
      • The return and payment of the full tax liability.
    • Is subject to audit, as provided by law, of the records in the Lodging Operator’s possession that are submitted to the Lodging Marketplace for the purposes of the electronic consolidated return.
    • May withdraw any of the Lodging Operator’s properties from the electronic consolidated return on thirty days’ written notice to the Lodging Marketplace, [the State Agency] and the tax collector of the city or town.
  • The [State Agency] shall annually report to the public the revenues collected and distributed to each city, town or other taxing jurisdiction from Lodging Marketplaces pursuant to this Act. Such a report shall be anonymized and otherwise comply with the Privacy requirements set forth in Section 5 of this Act

Section 5 – Privacy

  • Except as allowed in subsection B of this section [the State Agency] may not disclose information provided by a Lodging Marketplace without the written consent of the Lodging Marketplace. Such information:
    • Is not subject to disclosure pursuant requirements relating to public records.
    • May not be disclosed to any agency of this state or of any county, city, town or other political subdivision of this state.
  • [The State Agency] may disclose confidential information provided by a Lodging Marketplace to only:
    • The taxpayer whom the information concerns.
    • The office of the attorney general solely for its use in an investigation or proceeding involving tax administration.
    • Any person only to the extent necessary for effective tax administration in connection with:
      • The processing, storage, transmission, destruction and reproduction of the information;
      • The programming, maintenance, repair, testing and procurement of equipment for purposes of tax administration; or
      • The collection of the taxpayer’s civil liability; or
    • Any state or federal judicial or administrative proceeding pertaining to tax administration if:
      • The taxpayer is a party to the proceeding; and
      • The proceeding arose out of, or in connection with, determining the taxpayer’s civil or criminal liability, or the collection of the taxpayer’s civil liability, with respect to any tax imposed under this Act. However, nothing in this section shall be interpreted to limit the right to protect confidential information.

 

Adopted by the Task Force on Communications and Technology and the Task Force on Tax and Fiscal Policy at the Annual Meeting, July 28, 2016.

Approved by the ALEC Board of Directors, September 12, 2016.