Item 10 - Receive and File - Orange County Grand Jury’s Investigative Report, Findings, and Recommendations Regarding Long-Term Solutions to Short-Term Rentals

Home Browse Search

Long-Term Solutions to Short-Term Rentals city can initiate proceedings to rescind the STR permit and pass it on to the next applicant on the waiting list. However, the STR operator can appeal, and this can extend the process even longer. Some cities allow permit holders to transfer their permit to a family member or to the new owner of their property, thus circumventing the waiting list altogether. A system where permits expire after a certain time would afford those on the waiting list an opportunity to be placed ahead of renewals, thus creating a more equitable process. One city, Dana Point, has set a limit on investor-owned properties, allowing more Hosted STRs to have priority in getting permits. Collecting TOT Revenue The fifteen cities that allow STRs (see Table 1) collect TOT on STR revenue,plus any fees charged to the renter. Operators report TOT to cities either annually, quarterly, or monthly. Monthly reporting of TOT has several advantages: cities receive TOT sooner, the STR owner has a smoother and more predictable cash flow, and cities can quickly identify non-revenue- producing STRs. In cities like Dana Point and Anaheim, TOT represents a substantial percentage of city revenue; however, nearly all of this comes from hotels. Short-term rental TOT in Newport Beach represents thirty percent of total TOT collections, contributing two percent of city revenues. Newport Beach has the greatest share of TOT revenue from STRs (with 1,550 units) and the greatest number of STRs of all Orange County cities. Transient Occupancy Tax rates vary by city from eight to seventeen percent. Despite the limited amounts, each city that collects short- term rental TOT increases their general fund. Each city handles TOT collection differently. Newport Beach collects quarterly from agents who operate STRs and annually from STR homeowners, using paper-based forms. This system does not allow for easy tracking of short-term rental TOT by permit number because multiple units at the same address (with separate permits) may be combined on the form. A digital submission by unique permit number, such as is used by the City of Orange, is easy and provides greater detail to the city. The City of Anaheim has agreements called Voluntary Collection Agreements (VCAs)with a number of Online Booking Agency platforms that enable monthly TOT remittance from short- term rental advertising on the OBA. In most cases, OBAs share a spreadsheet with totals only; however, at least one platform remits with detailed addresses with amounts by address. It is possible for an OBA to send more detailed data and for the city to integrate it into its information systems, but as yet no city appears to have negotiated with an OBA to implement this direct reporting. Requiring an OBA to report more detail ensures that all STR tax from Online Booking Agency is reported, collected, and remitted to the city, whether the STR is permitted or not. However, this system still would not capture STRs booked directly with the operator, which may be up to 30-60% of gross rental revenue. 2024-2025 Orange County Grand Jury Page 12