CA senate bill SB584 imposes 15% tax on STR

Member since 2023 · 17 posts · 11 votes

Any insights into SB584 that places 15% tax on STRs but exempts hotels to fund housing situation? It seems bone crushing high for guests. If you were a new investor in CA market, this tax will lower your occupancy rates while hurting cash returns. Cash returns are already super tricky to attain with todays real estate prices and interest rates. How worried are current STR owners about this bill?

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John Carbone

Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes

Quote from @Shaival Patel:

This isn’t surprising, but it’s also why I would never invest in a state like California. Stuff like this will always pass too.

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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Shaival Patel:

Any insights into SB584 that places 15% tax on STRs but exempts hotels to fund housing situation? It seems bone crushing high for guests. If you were a new investor in CA market, this tax will lower your occupancy rates while hurting cash returns. Cash returns are already super tricky to attain with todays real estate prices and interest rates. How worried are current STR owners about this bill?
This isn’t surprising, but it’s also why I would never invest in a state like California. Stuff like this will always pass too.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
Quote from @Shaival Patel:

Any insights into SB584 that places 15% tax on STRs but exempts hotels to fund housing situation? It seems bone crushing high for guests. If you were a new investor in CA market, this tax will lower your occupancy rates while hurting cash returns. Cash returns are already super tricky to attain with todays real estate prices and interest rates. How worried are current STR owners about this bi
It will be more bone crushing for the owners not the guests. While they will pay it, eventually it will get to the point that a hotel will be more economical and cause rates to be lowered by the landlords. Only so much someone will pay, you tack on those fees and airbnb or VRBO fees and the markup is starting to look like the markup on cigarettes
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
It's California, what do you expect? More to come for sure. You're lucky it was only 15% and not higher I suppose.
The takeaway is this - if people choose to stay in, and support, a state that engages in this type of thinking and resultant policies, then you just gotta deal with it. Make less money, raise your rates, maybe it will work, maybe not.
But their message is clear...they do not want you to operate a STR in that state.
Ball is in your court.
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Ross Dickson
Member since 2021 · 6 posts · 9 votes
3y
It is definitely concerning. That tax will crush already tight profit margins. I would imagine all the markets that have a lot of hosts barely hanging on will push them into selling and creating a surplus of inventory and lower prices. All hosts with properties in CA should have gotten an email from AirBnB urging them to email the senate and voice your opposition.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
Is that in addition to the 17-19% taxes they already charge for hotel rooms or is is simply making it ALMOST “fair” for hotels? If it’s the first tax it should probably be 20-25% to make up for the fact they provide few if any jobs and no additional property taxes like hotels provide
Google says:

What is the tax on hotel rooms in California?"

Occupancy Tax: 14% California Tourism Fee: 3% Los Angeles Tourism Fee: 2%
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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
3y
The CA tax aside… the VRBO, Airbnb, and occupancy taxes, are tacking on as much as 30 percent to a booking. There will need to be a few bona fide alternatives to VRBO/Airbnb, or vacation rentals will cease to be a viable investment.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Bill B.:

Is that in addition to the 17-19% taxes they already charge for hotel rooms or is is simply making it ALMOST “fair” for hotels? If it’s the first tax it should probably be 20-25% to make up for the fact they provide few if any jobs and no additional property taxes like hotels provide
Google says:

What is the tax on hotel rooms in California?"

Occupancy Tax: 14% California Tourism Fee: 3% Los Angeles Tourism Fee: 2%

Your saying STR doesn't supply jobs like hotels do? Where are you pulling this from? Here in the smokies STR industry provides good paying jobs to cleaners, handymen, contractors, landscaping…and they actually make a living wage (way more than what hotels pay). Contrast that to the neighboring hotels around here who staff the bottom barrell employment pool and pay them a fraction of the cost.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
Which of those jobs doesn’t a hotel provide? On top of valets, bellmen, waitresses, cooks, managers, etc etc etc.
I would be more than willing to be the average STR employees ZERO people. They may hire a cleaner once or twice a week for an hour here or there, like a person does for their personal home. Same story with the other "jobs" you listed. I don't provide jobs when I buy my primary home, even if I hire those people for a repair. When I buy a car do I provide jobs for mechanics? But what percent of STRs actually have employees and pay social security taxes, paid vacation, medical insurance? I bet it's waaaaaaay less than 1%.
Ps. You skipped over the main point. 15% is still a discount for some reason over the taxes that hotels were already paying and it took 5 years to get it instituted. Of course every STR should be paying the same room tax as a hotel. That's obvious. Even if it eats in to the "cleaning fee" scam. That should obviously be included in the room price.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Bill B.:

Which of those jobs doesn’t a hotel provide? On top of valets, bellmen, waitresses, cooks, managers, etc etc etc.
I would be more than willing to be the average STR employees ZERO people. They may hire a cleaner once or twice a week for an hour here or there, like a person does for their personal home. Same story with the other "jobs" you listed. I don't provide jobs when I buy my primary home, even if I hire those people for a repair. When I buy a car do I provide jobs for mechanics? But what percent of STRs actually have employees and pay social security taxes, paid vacation, medical insurance? I bet it's waaaaaaay less than 1%.
Ps. You skipped over the main point. 15% is still a discount for some reason over the taxes that hotels were already paying and it took 5 years to get it instituted. Of course every STR should be paying the same room tax as a hotel. That's obvious. Even if it eats in to the "cleaning fee" scam. That should obviously be included in the room price.

15 percent on top of the sales and use tax, plus property tax, plus state income tax on profits, plus 3rd party servicers that collect 15 percent, which I’m sure California gets a cut from them too. Those jobs you describe are few and far between now in hotels. Have you been to hotels post Covid? You seem to be very tax friendly yet you are a resident and investor in Nevada, convenient.
2 Reply
Carolyn Fuller
Cambridge, MA · Member since 2015 · 651 posts · 736 votes
3y
Hi all,
Relax...
Massachusetts implemented a whomping 17% tax on short term rentals a few years ago. It hasn't impacted my bookings nor what I'm able to charge in nightly rates.
4 Reply
Shaival Patel
OP
Member since 2023 · 17 posts · 11 votes
3y
Quote from @Bill B.:

Which of those jobs doesn’t a hotel provide? On top of valets, bellmen, waitresses, cooks, managers, etc etc etc.
I would be more than willing to be the average STR employees ZERO people. They may hire a cleaner once or twice a week for an hour here or there, like a person does for their personal home. Same story with the other "jobs" you listed. I don't provide jobs when I buy my primary home, even if I hire those people for a repair. When I buy a car do I provide jobs for mechanics? But what percent of STRs actually have employees and pay social security taxes, paid vacation, medical insurance? I bet it's waaaaaaay less than 1%.
Ps. You skipped over the main point. 15% is still a discount for some reason over the taxes that hotels were already paying and it took 5 years to get it instituted. Of course every STR should be paying the same room tax as a hotel. That's obvious. Even if it eats in to the "cleaning fee" scam. That should obviously be included in the room price.
Yes 15 percent on top the tourism fees/Transisent Occupancy Taxes/local taxes and Airbnb/Vrbo booking fees. Hotel Resort fees is a much bigger got you then cleaning fees IMHO.
1 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
I am very “level play field” friendly. I hate double standards. Why in the world would you tax one room provider and not the other? You want to get rid of the hotel tax? Sweet, do that. But don’t complain about being taxed less than your competitors.
2 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
@Shaival Patel

I agree. I don’t know if there is a worse offender with “resort fees” than Vegas. And they’re charged even at non-resorts, or if you don’t use any “resort” features. I’m too libertarian to say “there ought to be a law”. But if you require airlines to include every fee in the price before you buy, they should probably do the same thing with hotel rooms.

If you're sure there's a new 15% tax on top of the 17-19% tax that hotels are paying that's not cool. I thought this was their first STR tax. I don't know how you survive a 32% tax on top of cleaning and booking fees. Like they said in Caddyshack. keep it Fair.
1 Reply
Shaival Patel
OP
Member since 2023 · 17 posts · 11 votes
3y
Yes singling out STRs only on this addage, exempting hotels, seems like rooting for one team over the other.
2 Reply
Luke CarlPro Member
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
3y
Quote from @John Carbone:

Quote from @Shaival Patel:

Any insights into SB584 that places 15% tax on STRs but exempts hotels to fund housing situation? It seems bone crushing high for guests. If you were a new investor in CA market, this tax will lower your occupancy rates while hurting cash returns. Cash returns are already super tricky to attain with todays real estate prices and interest rates. How worried are current STR owners about this bill?
This isn’t surprising, but it’s also why I would never invest in a state like California. Stuff like this will always pass too.

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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Carolyn Fuller:

Hi all,
Relax...
Massachusetts implemented a whomping 17% tax on short term rentals a few years ago. It hasn't impacted my bookings nor what I'm able to charge in nightly rates.

Is that 17 percent on top of hotel and occupancy tax like California is proposing?Also, isn't Massachusetts heavily restricted on who can rent STR in the Boston area? I'm pretty sure there is, so the impact to you wouldn't be as impactful since government regulation restricts supply.
0 Reply
Carolyn Fuller
Cambridge, MA · Member since 2015 · 651 posts · 736 votes
3y
I believe it is 3% more than hotels & occupancy taxes but it might be 5.5% more. And yes, STRs are restricted in Cambridge and Boston. Boston actually has enforcements with teeth. Cambridge, unfortunately, does not. We still have illegal listings in Cambridge which is where my STR is.
0 Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
I am not surprised. It is too bad really. CA has such a varied pool of places to do and things to do, you could go there 10 times and never do the same thing.

I hope @Carolyn Fuller is correct that it might not be a big deal. People want to go to CA and they just might pay to stay and play.
0 Reply
Carolyn Fuller
Cambridge, MA · Member since 2015 · 651 posts · 736 votes
3y
Quote from @Michael Baum:

I am not surprised. It is too bad really. CA has such a varied pool of places to do and things to do, you could go there 10 times and never do the same thing.

I hope @Carolyn Fuller is correct that it might not be a big deal. People want to go to CA and they just might pay to stay and play.

It certainly won't impact my trips to California nor my preference to stay in STRs.
1 Reply
Jason Monroe
Investor · Oakland, CA · Member since 2016 · 89 posts · 50 votes
3y
I have no understanding how this wouldn't result in nearly all Short Term Rentals looking to reclassify themselves as "bed and breakfast" to dodge the tax.
If a STR host provides food wrapped in plastic or the like at check-in for the purposes of consumption during the morning does that not classify the place as bed and breakfast?
0 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Jason Monroe:

I have no understanding how this wouldn't result in nearly all Short Term Rentals looking to reclassify themselves as "bed and breakfast" to dodge the tax.
If a STR host provides food wrapped in plastic or the like at check-in for the purposes of consumption during the morning does that not classify the place as bed and breakfast?

Cali will be taxing them out of existence soon as well...if this bill does not include them already....
0 Reply
Jon Martin
Member since 2022 · 1k+ posts · 1k+ votes
3y
Quote from @John Carbone:
This isn’t surprising, but it’s also why I would never invest in a state like California. Stuff like this will always pass too.
What's even more insidious is that they sell these taxes to the public as if each dollar for dollar raised will go into the program it claims, and every time these taxes get funneled into the general fund. Twice this has happened with gas taxes that were supposed to go into road infrastructure. No different than how lotteries "fund" schools.
1 Reply
John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Carolyn Fuller:

Quote from @Michael Baum:

I am not surprised. It is too bad really. CA has such a varied pool of places to do and things to do, you could go there 10 times and never do the same thing.

I hope @Carolyn Fuller is correct that it might not be a big deal. People want to go to CA and they just might pay to stay and play.

It certainly won't impact my trips to California nor my preference to stay in STRs.
Yeah, it’s the operator who will take the hit with lower revenue. Have that tax high enough and it will force them to stop altogether. If I’m in California I use hotel points anyway. I’m sure this increase in tax will solve the homeless problem. Perhaps they will need to increase to 30 percent.
2 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Bill B.:

@Shaival Patel

I agree. I don’t know if there is a worse offender with “resort fees” than Vegas. And they’re charged even at non-resorts, or if you don’t use any “resort” features. I’m too libertarian to say “there ought to be a law”. But if you require airlines to include every fee in the price before you buy, they should probably do the same thing with hotel rooms.

If you're sure there's a new 15% tax on top of the 17-19% tax that hotels are paying that's not cool. I thought this was their first STR tax. I don't know how you survive a 32% tax on top of cleaning and booking fees. Like they said in Caddyshack. keep it Fair.

The 15% is in addition to the transit occupancy taxes that is already collected from the guests.
The new tax revenue is to be used to reduce homelessness. It is an anti STR policy disguised as a social benefit. The anti LL group is heavily supporting it similar to any LL tax.
The state has a large and growing anti-STR representation. If you have STRs in the state, you have to recognize this risk.
2 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Dan H.:

The new tax revenue is to be used to reduce homelessness. It is an anti STR policy disguised as a social benefit. The anti LL group is heavily supporting it similar to any LL tax.
The state has a large and growing anti-STR representation. If you have STRs in the state, you have to recognize this risk.

Yep, so on a $200 nightly stay for your STR, you now have to add $60+ dollars for Gavin, and then there are the cleaning fees and fees to ABNB/VRBO. This is getting expensive.

@Carolyn Fuller may still visit Cali, but will soon be staying in only hotels.

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