NEWPORT — Airbnb, HomeAway and other online short-term rental platforms collect mandatory sales and hotel taxes from their clients in Newport and sends the sales taxes to the state and the hotel taxes to the city.
The problem the city has, according to officials, is that each hosting company sends the city a monthly lump-sum check but provides no information on which properties are paying the taxes.
City Finance Director Laura Sitrin said when she receives those checks, she has no way of identifying the properties that are offering the short-term rentals. That makes effective enforcement of the tax levy difficult.
Airbnb and other companies have refused to give the city any documentation on who is paying what, citing their clients’ privacy.
City Council members said Wednesday night that is unacceptable, since the government had “improperly ceded tax authority to these hosting platforms.”
The council unanimously passed a resolution calling on the General Assembly to pass legislation that would “require third party hosting platforms to file tax returns based on real data instead of anonymous numbers that prevent verification of the information.”
The collection of taxes on hotel, motel, bed and breakfast, and private rooms is a major revenue source for the city. Sitrin said the city collects about $2.3 million annually in lodging taxes.
When people stay at a hotel room or short-term rental anywhere in the state, they pay a 7 percent sales tax and an additional 6 percent lodging tax. Of that 6 percent, 1 percent goes straight to the host community, in this case Newport.
The remaining 5 percent lodging tax is divided up, according to the following funding formula:
Discover Newport and the other five tourism councils in Rhode Island receive 42 percent of what is collected in their communities. Of the remainder, 25 percent goes to the community where the lodging tax was collected, 28 percent to the state Division of Taxation and 5 percent to the Providence-Warwick Convention and Visitors Bureau. The state collects the hotel taxes in almost all the communities.
“Newport is the only community in the state that collects its lodging taxes and then distributes them, according to the formula,” Sitrin said.
Airbnb collects mandatory sales and hotel taxes from its clients in Newport and sends the sales taxes to the state and the hotel taxes to the city.
“The City of Newport has seen a rapid increase in short-term rentals through third party hosting sites over the past few years and expects that growth to continue,” the council resolution states.
Christopher Bicho, who owns housing developments across Aquidneck Island, told the Planning Board this week he has 40 guesthouse licenses in the city and pays about $200,000 in lodging taxes annually.
On any given day, there are about 1,400 listings on Airbnb for daily, weekend or weekly rentals in Newport, Bicho said.
City officials know that not all of those property owners are paying the required lodging tax.
The City Council hired Host Compliance LLC, based in San Francisco, in June 2017 to identify all short-term rentals in the city and monitor compliance with state laws, local ordinances and regulations, and to determine whether those rentals are paying room taxes.
The firm at first received a one-year contract to use its proprietary software tools to compare online listings with the city’s database of who is registered and who is not registered. The council earlier this month extended that contract for another three years.
By city ordinance, owners of homes in residential districts can rent up to two rooms in their home to up to four people for short terms, but the owner must remain on the premises and register the home as a guesthouse. The owners must register annually.
Homeowners can go before the Zoning Board of Review and apply for a special-use permit to rent their properties short-term in a residential district, when the owners are not living there. But that seldom happens compared to the number of listings for Newport seen on Airbnb and on other sites.
If someone with property in a residential district rents for less than 30 days, he or she is operating a guesthouse, according to city ordinance. That requires the special-use permit.
When people list accommodations for rent on sites like Airbnb, the address is often not included in the online listing. There is an email address where people interested in booking the property can send inquiries and receive details of the offer.
Even for listings with no address, Host Compliance has tools and methods of figuring out where the property is located, Sitrin said.
Short-term rentals are permitted by right in waterfront business, general business and limited-business districts, and Host Compliance is identifying these short-term rentals as well, Sitrin said.