San Diego’s vacation home tax, intended to benefit the city, seems to be doing the opposite, with around $10 million in annual losses reported.
Numerous short-term rental owners are neglecting to pay the transient occupancy tax (TOT), which varies between 8% and 13.75%. This tax pertains to rentals listed on platforms such as Airbnb and VRBO, applying to stays of up to 30 days across areas like San Diego, Fallbrook, and Escondido.
The tax was supposed to take advantage of the booming vacation rental market, but the burden of self-reporting has devolved into a compliance headache, turning what was meant to be easy revenue into the county’s largest uncollected tax source.
Last fiscal year, the total tax collected was only $9.5 million from about 1,200 officially registered short-term rentals, while around 700 additional properties operated without reporting their income. Fallbrook had the highest number of unregistered properties, totaling 114, with many other neighborhoods following suit.
This revenue reduction is almost three times the funding provided by the county’s divisive Community Strengthening Program, which allocates grants to various initiatives, leading to accusations of political favoritism. Now, significant tax dollars that were supposed to support these programs are simply disappearing.
Stephen Brooks, a Borrego Springs property owner, noted his frustration, stating that he adheres to the rules while many others do not. After enjoying a memorable stay at the location himself, he now rents it out via Airbnb, but the taxes have significantly impacted his profit margins.
Many compliant owners share his views, questioning the logic behind following the rules when enforcement appears sluggish and penalties seem distant.
Two years ago, San Diego County began using third-party software to identify unregistered properties on Airbnb and VRBO. Their initial search uncovered about 1,600 unregistered rentals, with compliance from just 400. They have made strides, bringing around 900 properties into compliance, yet 700 still remain unaddressed.
Penalties for non-compliance include fines and accruing interest, potentially leading to property liens. The Treasurer, Larry Cohen, mentioned that the county offers payment plans and assistance, but the process can drag on for months, leaving many owners claiming ignorance about tax obligations.
The rules differ significantly between the City of San Diego, which enforces strict regulations with licensing caps, and the unincorporated parts of the county, where oversight is much lighter. Here, property owners are only required to pay the TOT and display compliance certificates, fostering an environment of non-compliance.
For vacation rental owners using platforms like Airbnb and VRBO, the taxes feel just like another burden, especially in a state already infamous for high property taxes and living costs. What was intended to encourage compliance instead seems to have sown resentment among those who follow the rules, contributing to a situation where some properties evade taxes. The slow enforcement and reliance on self-reporting, coupled with inadequate communication from tax officials, have turned a reliable revenue stream into a significant loss for the county.
“Honesty about the situation is crucial,” Cohen acknowledged.
