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Staff Report PREPARED BY: ARN ANDREWS, Assistant Town Manager Reviewed by: Town Manager, Finance Director, and Town Attorney 110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 4/02/19 ITEM NO: 3 DATE: MARCH 25, 2019 TO: MAYOR AND TOWN COUNCIL FROM: LAUREL PREVETTI, TOWN MANAGER SUBJECT: AUTHORIZE THE TOWN MANAGER TO ENTER INTO A VOLUNTARY COLLECTION AGREEMENT WITH AIRBNB TO COLLECT TRANSIENT OCCUPANCY TAXES OWED TO THE TOWN FROM SHORT-TERM RENTAL OPERATORS IN LOS GATOS USING THE AIRBNB PLATFORM RECOMMENDATION: Authorize the Town Manager to enter into a Voluntary Collection Agreement (“VCA”) with Airbnb to collect transient occupancy taxes (“TOT”) owed to Town from short-term rental operators in Los Gatos using the Airbnb platform. BACKGROUND: On February 5, 2019, the Town Council voted to proceed with the introduction and first reading of an Ordinance, by title only, adding Article XIV to Chapter 14 of the Town of Los Gatos Town Code related to short-term rental (STR) of residential property. On February 19, 2019, the Town Council adopted this Ordinance, adding Article XIV to Chapter 14 of the Los Gatos Town Code entitled Short-Term Rentals. As reported to Council in February, Airbnb shows that there are currently 180 active Airbnb STR hosts within the jurisdiction of the Town of Los Gatos. The average length of stay for guests of Airbnb STRs in Los Gatos is four days. Based on the data received from Airbnb, the new regulatory environment would potentially yield annual TOT revenue of $226,800 from the existing Airbnb hosts. Given that the Town does not currently have the data or resources required to proactively enforce and collect the TOT ordinance requirements, staff recommends entering into a voluntary collection agreement with Airbnb (Attachment 1). PAGE 2 OF 4 SUBJECT: Authorize the Town Manager to enter into a Voluntary Collection Agreement with Airbnb March 25, 2019 S:\COUNCIL REPORTS\2019\04-02-19\Collection Agreement Short Term Rentals\Staff Report Airbnb FINAL.docx DISCUSSION: Airbnb has recently started entering into tax collection agreements with municipalities to collect and remit TOT on behalf of hosts/property owners. These agreements allow municipalities to interact with one organization, rather than collecting funds from hundreds of individual property owners. San Jose, Santa Clara, Palo Alto, San Francisco, Cupertino, and others have established these agreements with Airbnb. The tables below provide a comprehensive listing of California entities that have entered into VCAs with Airbnb to date. California Cities with VCAs with Airbnb Berkeley Carlsbad Coachella Corona Cupertino Davis Desert Hot Springs Dunsmuir Indio Long Beach Los Angeles Malibu Morgan Hill Oakland Orinda Pacific Grove Pacifica Palm Desert Palo Alto Pasadena Pinole Pittsburg Rancho Cucamonga Rancho Mirage Redwood City Richmond Riverside Sacramento San Diego San Francisco San Jose San Luis Obispo Santa Clara Santa Monica Sebastopol Sunnyvale Twentynine Palms Union City Winters Yucca Valley *Bay Area communities highlighted in gray California Counties with VCAs with Airbnb Amador Butte Calaveras Culver El Dorado Humboldt Madera Marin Nevada Plumas San Bernadino San Joaquin San Luis Obispo Santa Cruz Siskiyou Sonoma Trinity Tuolumne While Airbnb is not an STR operator and is therefore not responsible for the collection of TOT, it has agreed to voluntarily collect TOT on behalf of its users and remit the revenue to cities/towns that sign a voluntary collection agreement. Under the terms of the VCA, Airbnb agrees to assume the duties to collect the TOT completed on its hosting platform and remit it to the Town on a monthly basis pursuant to the TOT requirements in the Town Code. Airbnb represents that that the procedures utilized to bill guests for local TOT achieves 100% compliance of TOT remittance on their platform. It achieves this compliance by programming its hosting platform to automatically collect the TOT from transients who rent short-term rental units from Airbnb hosts. Once collected, Airbnb remits the TOT directly to the Town as required by the Town’s Code. While the hosts are responsible for remitting the tax, Airbnb voluntarily collects and remits the tax on the hosts’ behalf. PAGE 3 OF 4 SUBJECT: Authorize the Town Manager to enter into a Voluntary Collection Agreement with Airbnb March 25, 2019 S:\COUNCIL REPORTS\2019\04-02-19\Collection Agreement Short Term Rentals\Staff Report Airbnb FINAL.docx DISCUSSION (continued): Key provisions of the proposed agreement are summarized below: • Airbnb agrees to notify guests and hosts of the TOT to be collected. • Airbnb agrees contractually to assume the duties of a TOT collector as described in the Town Code solely for the collection and remittance of TOT. • Airbnb agrees to report aggregate information on the tax return form prescribed by the Town. • Airbnb agrees contractually to assume liability for any failure to report, collect and/or remit the correct amount of TOT. • The Town agrees to audit Airbnb on an anonymized transaction basis for Taxable Booking Transactions. • The Town reserves the right to audit any individual Airbnb host for activity that has been brought to the attention of the Taxing Jurisdiction (i.e., the Town) in the form of a complaint or other means independent of the agreement or independent of data or information provided pursuant to the agreement • The Town agrees to waive the right to collect TOT payments owed by hosts for Airbnb bookings made prior to the effective date of the agreement. • The agreement does not relieve short-term rental hosts from remitting TOT for bookings on other platforms, or registration requirements under the Short-Term Rental ordinance. As previously noted, the agreement does not require Airbnb to provide the Town with individual information regarding its hosts or guests. However, as part of Airbnb’s onboarding process, they do inform platform hosts that the TOT collection is associated with the Town’s adoption of a new regulatory environment for STRs. Staff believes that the benefits associated with the efficient and immediate collection of TOT from all hosts on the largest rental platform, and the subsequent recognition of the newly adopted regulatory environment , outweigh the current contractual construct of only receiving aggregate data on TOT collections. CONCLUSION: Staff recommends that the Town enter into the VCA with Airbnb and begin the collection of TOT revenues. The VCA will significantly simplify the remittance process for STR operators using the Airbnb platform and enable the Town to immediately receive 100% of the TOT associated with taxable rental bookings completed on Airbnb. PAGE 4 OF 4 SUBJECT: Authorize the Town Manager to enter into a Voluntary Collection Agreement with Airbnb March 25, 2019 S:\COUNCIL REPORTS\2019\04-02-19\Collection Agreement Short Term Rentals\Staff Report Airbnb FINAL.docx COORDINATION: This report was coordinated with the Town Manager, Town Attorney, and Director of Finance. FISCAL IMPACT: It is estimated that current booking volumes on Airbnb could yield an additional $200,000 in annual TOT collections. Actual receipts will be dependent on actual guest nights booked annually through the Airbnb platform. Attachment: 1. Draft Airbnb Voluntary Collection Agreement