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Savannah may have earned the nickname “Hostess City”, but the question of who’s doing the hosting, where they live and what’s required of that host presents the city with a complex dilemma in light of a recent boom in vacation rental houses.
Last month, the issue was brought further into focus after a meeting with city officials and vacation rental owners as they attempted to work through a proposed text amendment to give short-term house rentals their own clear definition in the zoning ordinance — separate from inns and bed and breakfasts, which is where they currently fall.
“When we started meeting with the Metropolitan Planning Commission on what was then called the Unified Zoning Ordinance, we knew that this was a use that wasn’t identified and it’s really grown leaps and bounds over the last few years,” said Assistant City Manager Pete Shonka.
Shonka said at the time, around 2008, there were not nearly as many vacation rentals or complaints from neighbors as there are now, and the issue wasn’t revisited in earnest until a stakeholders meeting last summer.
Bridget Lidy, city tourism administrator, said the efforts require coordination among numerous departments, including tourism, zoning, revenue and the Metropolitan Planning Commission.
“Orchestrating all these people to come together has definitely been something we’re working on,” said Lidy.
Shonka’s first concern with the industry was life and safety issues. Whereas hotels and motels go through permitting and fire marshal inspections, no such requirements exist for people renting out their homes.
However, Shonka said that tack eventually turned out to be a “dead end,” with too many sticky issues over the legality of inspecting people’s homes.
Since then, the city has turned its focus toward two major components — zoning and revenue — which, while connected, do not completely overlap.
Revenue
Several vacation rental owners are advocating stricter enforcement of the revenue side, with many saying the city hasn’t gone far enough to collect the 6 percent hotel-motel tax on under-the-radar vacation rentals, including those renting out spare rooms on popular site Airbnb.
One of the biggest challenges is ascertaining just how many houses are out there renting to transient guests.
“I’ve heard numbers like 300 and 500, but I’ve not seen anything whatsoever to substantiate anything near that high,” said Shonka.
A current search of VRBO, the largest paid listing site, lists 349 properties in Savannah. However, multiple listings may be operated by the same property manager, and the number can fluctuate as owners may live in the residence part of the year or flip the property to a long-term rental.
Corey Jones, owner of Lucky Savannah Vacation Rentals, is relatively new to the industry, but is now a major player. He started with eight properties in October of 2012 and now manages about 35.
He began, he said, as many others, by renting out his own home, unaware of the fact he needed a business tax certificate from the city.
“I don’t think the local short-term lodging industry here is intentionally avoiding taxes,” said Jones. “I think that there’s a segment that knows they’re supposed to be paying and choose not to — probably because of lack of enforcement — but there’s also a pretty wide population that just don’t realize what regulations are required.”
Jones said he is advocating for equal parts education and enforcement. He said once people realize that the hotel-motel tax goes toward marketing efforts to bring in more tourists, which in turn helps the industry as a whole, it is easier to get on board.
“I understand that the city doesn’t have someone on staff whose full-time job is to regulate vacation rentals, and there’s a lot of misinformation out there,” said Jones, who, along with other vacation property managers, is working with the city on refining the draft amendment on issues such as number of occupants and parking spaces.
The problem with trying to create rules for an amorphous industry is trying to find common ground for all those involved — from those with dozens of properties to those renting out a single room.
And while many vacation rental owners said they support the city’s efforts, not all agree on the details.
Zoning
About 45 cease-and-desist notices were sent out late last year by the zoning administrator to Savannahians who were renting out properties in neighborhoods where commercial use was not allowed.
Mark DeWitt was one of the first to receive a notice on three properties he rented in the Ardsley Park neighborhood, which is strictly residential. DeWitt faced a fine of $1,000 per property and went to court. The judge ruled against him and he said he immediately switched the properties to long-term rentals, i.e. more than 30 days.
“We’ve appealed the judge’s decision,” said DeWitt. “We were the first ones the city really went after.”
Shonka confirmed that after the judge ruled in the city’s favor, the precedent allowed them to proceed with enforcement under the current definition of inns and bed and breakfasts — while concurrently working to amend the zoning ordinance to add short-term rentals.
DeWitt said he has no qualms with the city trying to get everyone into compliance, but said his properties do not qualify as B&Bs. For one, they don’t have signs out front and two, they don’t serve breakfast.
He said the city should widen its scope and encourage vacation rentals as a means for increased revenue collection and improving residential neighborhoods plagued by foreclosures and boarded-up houses.
“I bought a house on 41st Street for $34,900, I put $70,000 in it and now it’s worth $175,000. From an investment standpoint, I really feel that it’s going to encourage investors to buy these homes that are distressed and improve them if it was allowed,” said DeWitt.
Shonka noted that it is ultimately up to the MPC on whether to allow short-term vacation rentals in more residential enclaves. Tom Thomson, MPC’s executive director, has said previously that his staff’s position is to protect residential neighborhoods from commercial encroachment.
DeWitt said he has no problem with the tax component.
“Everyone who wants to do this should get a business tax certificate,” he said. “The sales tax is a huge benefit to the city.”
Educating the industry
Amy Gaster of Tybee Vacation Rentals has more than a decade of experience advocating for the tourism and vacation rental industry, managing about 200 properties on the island. She also started a group called T.I.A.R.A., Tybee Island Association of Rental Agents, to encourage best practices among vacation rental owners.
She manages three properties in the Savannah Historic District now and attended the last stakeholder’s meeting with the city. She said because Savannah’s industry is younger, it’s important for the industry to come together and try to find solutions.
“Our motivation is to have above board, open and honest competition,” said Gaster. “It’s important for the industry to maintain a high level of professionalism and engage in fair business practices.”
Gaster said it may be that many rent-by-owners do not understand what the taxes go toward or even consider themselves an established business, which is why education is key.
“I appreciate standing up for property rights, but this is a very transient, tourist activity,” she added. “(A) high priority is recognizing that this is a professional undertaking and tax compliance is just a no brainer.”
She said on Tybee, 68 percent of lodging revenue is generated by vacation rentals, equating to about about $1.5 million. She said this money helps pay for dune restoration, lifeguards and overall maintenance of the island to keep tourists coming back.
Currently, vacation rental homes are regulated similar to inns and bed and breakfasts. This means a vacation rental must be located within the appropriate zoning district or obtain a variance request from the city to allow the lodging of transient guests. Revenue-wise, those renting their properties for 30 days or less must also obtain a business tax certificate, pay 7 percent sales tax and a 6 percent hotel-motel tax, according to the city.
Airbnb and owner-occupied rentals
One of the sidebars to this issue is the boom in Airbnb, a website which allows not just whole-house rentals but spare bedrooms, too.
Keith Galloway is a staunch advocate of owner-occupied vacation rentals, though he no longer lists through Airbnb. He’s hosted more than 1,100 guests from 22 countries at his renovated neoclassical revival-style home on 35th Street.
On Galloway’s website, he’s made a multimedia presentation of the benefits Savannah stands to reap by allowing more vacation rental properties, but argues that smaller players should not be subject to the same bed tax as large hotels such as the Hilton and Hyatt.
“(We) buy all our supplies locally and pay local sales tax. We don’t have contracts with manufacturers in China, or the economy of scale in multi-million dollar national advertising campaigns and we don’t send our profits to Wall Street,” writes Galloway.
Indeed, other cities have had difficulty enforcing regulations on owner-occupied rentals, including New York, where the city has taken Airbnb users to court for running illegal hotels. A recent court decision ruled in favor of Airbnb or similar short-term rentals as long as the legal tenant is also on premises during the stay.
Sites like Airbnb, which handles the financial transaction through its website, leaves it to the discretion of the homeowner to comply with local and state tax laws and zoning. Airbnb’s U.S. market development chief, Justin Hauge, visited Savannah last August and arranged getogethers with local Airbnb users as well as a meeting with the Tourism Leadership Council’s Michael Owens, who has advocated for stepped up revenue enforcement as a means of leveling the playing field.
Nick Papas, a spokesman for Airbnb, acknowledged the visit but didn’t disclose details.
“Our team works with local officials around the world to help them better understand how Airbnb benefits communities like Savannah and the importance of clear, fair laws that allow regular people to rent out their homes,” said Papas via email.
Enforcement
The biggest challenge for the city will be enforcement. Right now, a property manager with a business tax certificate may have both short-term and long-term rentals in their portfolio, making it tricky for the revenue auditor to assess which addresses to collect on.
“When they get their business tax certificate from Revenue, Revenue doesn’t ask them for all the addresses. ...But now they’re going to somehow get every address and figure out which of those are short term and collect the bed tax,” explained Shonka. “As I understand it, that is the chief challenge for revenue.”
Another enforcement challenge is that a person who owns vacation rentals in Savannah but whose management company is headquartered in another city is currently required to pay sales tax to their municipality but remit the hotel-motel tax to Savannah.
Shonka said he believes the new zoning amendment will be helpful to revenue collection. He said once zoning compiles a list of verified vacation rental addresses, it can turn that over to revenue, who will then check its rolls to see if that property is in compliance.
“I think it’s going to be easy to find the addresses online,” said Shonka. “And that’s going to have to be part of our enforcement is going online and checking.”
Stakeholders such as the Tourism Leadership Council are also contributing lists of properties found through rental websites to add to the city’s tax rolls.
Lidy said the city will likely begin sending notices to properties in the coming weeks through zoning, directing them to obtain a business tax certificate.
After another stakeholders meeting next Tuesday on the draft text amendment, the MPC could take a vote on it at its next regular meeting on March 11. If approved, the amendment would next go to City Council.
A longtime rental company owner, Ron Purcer of Savannah Getaways, hasn’t participated in the meetings but said he’s aware of the conversations happening. He began his company more than a decade ago and now manages about 50 rentals in the district, both short and long term.
“Everything’s moving in the right direction,” said Purcer. “The biggest issue in the 31401 is folks going on Airbnb and VRBO where you have neighborhood communities.”
Purcer said he has no objections to anything the city has done so far.
“The industry is changing all across the country,” he said. “It’s important that the city, county and state get their revenue.”
Lidy said they’re currently crunching numbers to demonstrate how much money is actually coming in from the vacation rental industry, though they were not yet ready to release a figure.
“We have been collecting the money in the past, and I think there might be a perception that no money is being collected for the hotel-motel tax from this particular use — and that’s not the case at all,” said Lidy.
Jones said he thinks the city has been receptive so far to the industry’s concerns and is fine with additional regulations so long as they apply to everyone.
“Right now there’s too much gray,” said Jones. “I would much rather have black and white, as long as it’s black and white for everybody.”