I'm torn - what would you do?

Question

I'm torn because I told myself I would stay out of other people's business and only focus on my own, but after paying my quarterly STR taxes to the city of Austin, I'm thinking twice.

Austin is known for heavy STR regulation and a cumbersome, painful permitting process.  It tested my patience, but I played by the rules, paid an obnoxious application fee, waited 3 months and finally got my permit.  There is no way that most of my competition has done the same.  In fact, 8/10 listings don't have an STR operating license number in their listing which is required by the city of Austin.

What does this mean?  This means I am paying 11% (in addition to state taxes) to the city on every single booking -  and wow, does it add up at the end of the quarter.  I am playing by the rules, but I get penalized.  Other listings can ask for less knowing they won't get hit by that 11%.  Not the mention bypassing the application fee and the annual renewal fee.

I'm torn because I think Austin's regulation is a bit ridiculous and needs reform - if the process wasn't so awful, then maybe most would play by the rules.  The city is basically incentivizing the illegal listings and penalizing legal listings - I get why people don't play by the rules.

So, what do I do?  What would you do?  Mind your own business, pay that extra 11% + renewal fee and get dinged on non-competitive pricing or go after the illegal competition and shut them down - or at least attempt to?

Michael Baum · Answer

Good luck @Kevin McGovern! I hope you get things squared away. Keep us posted!

David Sandvig · Answer

I'm most definitely not a lawyer, but my understanding was that the State of Texas had deemed the City's ordinance illegal. It seems to be a bit of a grey area. In December there was talk of changing the law to go after the host sites (e.g. Airbnb, VRBO, etc.) rather than the owners of the short term rentals.  The goal seems to have a more realistically enforceable law similar to other places that have cracked down on STR's (like Los Angeles).

https://www.kxan.com/news/loca...

That obviously doesn't help you in the short term, but maybe it's not worth your time if the City is going to handle it in the next year or so.  It looks like the proposed amendment would need to be submitted to city council before March 23.  Alternatively, maybe foregoing the STR license and turning your property into a MTR might be more profitable and/or slightly more passive for you.

John Underwood · Answer

Continue playing bunthe rules.

I'd make some anonymous complaints about your competition who are operating illegally.

Eliott Elias · Answer

Don't get caught up and try to justify doing things not by the book. If you want to take on the risk of the COA catching you (I know a few that have been caught) then to hell with the permit. As a business woman you should evaluate your risk wisely.

Kevin McGovern · Answer

@Scott Mac Correct.  It is the HOT that's taking 11%.  However, Airbnb collects the State tax from the guest on my behalf.  I am on the hook for paying the 11% city HOT tax as Airbnb does not collect the city HOT tax from the guest on my behalf.

Thanks for that info - I had no idea and I suppose that makes it sting a little less.

@William Beck haha.  I will keep my current legal listing in Austin.  My next STR will be outside of Austin city limits fortunately.

Brooklyn McCarty · Answer

What about investing in a more STR friendly market?

Michael Baum · Answer

Hey @Kevin McGovern, you could try calling the city and asking what their process is for finding and fining illegal STRs. Get them thinking about it. Tell them you are tired of playing by the rules when other flaunt them.

They are missing out on a lot of tax revenue.

Having said that, do you have proof that they are operating unlicensed other than the missing license number? Some folks just forget.

Paul Cox · Answer

Are you still able to be profitable even with doing it by the book? Is there an STR meetup in your area where issues like this are discussed? You can't be the only one playing by the rules and so there are probably others fed up too. There's power and weight with numbers. If you're not profitable with STR, then look at another strategy like LTR or consider selling and picking up something in a STR friendly community.

Best of Luck and kudos for doing the right thing!

Paul

Kenneth Garrett · Answer

@Kevin McGovern

That’s a hefty tax for sure.  Even though your competition doesn’t disclose their license number doesn’t mean they’re not licensed.  You probably could request through the FOIA (Freedom of Information Act) a copy of who is licensed.  They might redact the names, but it should reveal the addresses to confirm who is licensed. Then you can decide if you wanted to turn them in, find out their process of finding out illegal operators or just move on.  In my home town, code enforcement goes on to Airbnb and VRBO to see if people are licensed.  They may do the same.

Ronald Rohde · Answer

I'd sell, go into commercial real estate.

Can't fight city hall!

I'm torn - what would you do?

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