In the past year, Cannon Beach took in more than $3.8 million in transient room tax. Without proper tracking and enforcement, how much is being unreported is unknown.
The city is considering making changes to a city ordinance that would require lodging intermediaries like AirBnB and Expeida to pay taxes directly to the city.
These entities are subject to paying the transient room tax, but keeping large online booking companies accountable for providing the information necessary for the city to file tax returns is proving to be a challenge, Cannon Beach Finance Director Laurie Sawrey said.
In the hospitality industry, it is becoming increasingly common for hotels and short-term rental owners to sell their rooms through intermediary companies like Hotwire and AirBnB, who will rent them out on their sites and take a cut of the profits made off the sale of the room.
In 2013, the state Legislature passed a law requiring those intermediaries to deliver tax collections directly to the taxing community. She wants the city to amend the city code to follow this state law, which will help in the collection, accounting and enforcement of the tax.
“If a hotel sells 100 rooms to an intermediary, we have no tracking mechanisms to see who they sold them to,” Sawrey said at the Tuesday, Sept. 12, City Council work session. “From the intermediaries, we want more information of who they purchased the room from.”
City staff have been always asking for this information, but so for most intermediaries have not been forthcoming, Sawrey said. Often rooms are sold at a discount to these intermediaries, who take their own profit off the sale. Without knowing which rooms are being sold to what booking site, figuring out which booking site to hold accountable for reporting that taxable profit margin is difficult.
“It takes more time for us. Are people not reporting? Do they misunderstand? We don’t know the situation if we don’t have numbers in front of us,” Sawrey said.
Sawrey and City Attorney Tammy Herdener hope to change the ordinance so that companies who don’t file their tax returns will face a fine.
In May, AirBnB presented a voluntary agreement to the city of Seaside to collect thousands of dollars of lodging taxes on Seaside vacation rentals.
Some saw the agreement as an opportunity reap the benefits of previously untapped revenue. Some in the lodging community, however, think the agreement gives the company an unfair advantage over other hotel owners, and ultimately drain affordable long-term housing units to the vacation rental market.
“This is an evolving area. Cities all over Oregon are having trouble with this,” Herdener said. “But to whoever is listening, it is important to have this in our code so (intermediaries) know they are responsible.”
It’s hard to estimate how much more revenue these changes could bring in for the city, because there is so much variation between lodging options. For City Councilor George Vetter, the solution comes from striking a balance between keeping the property owner and the intermediary on the hook.
“I’m reluctant to take the burden off the property owner, because those are the only people we have control over,” Vetter said.
Whatever the solution to this issue is may be hard to come by.
“No city has figured this out perfectly yet,” Herdener said.
City councilors plan to discuss an ordinance change in more detail at the November work session and hope to get more input from the lodging industry in the meantime.