AirBNB and the like could be behind a future tax increase. Currently, there is a 7% hotel tax applied to a visitor’s stay when they stay in one of the hotels or bed and breakfasts in the County. But with the advent of a younger consumer and aggressive technology, many visitors are now flocking to Vacation Rental By Owner (VRBO) properties.
On the surface, the VRBO house sounds great. More room for a few less amenities and a considerably lower cost. But as the popularity continues to grow, it follows that hotel and bed and breakfast revenue will shrink. And the VRBOs do not currently pay any type of hotel tax.
In 2016, VRBO accounted for 11% of the Annapolis lodging revenue. By 2018, it accounted for 23%! And while the actual revenue for VRBO properties increased from $5.4 million to $13.6 million, the hotel revenue remained pretty flat at about $45 million over the same period. As the VRBO market continues to grow, hotel revenue will begin to recede and hotel tax revenues will fall causing a shortfall in the Visit Annapolis and Anne Arundel County funding. To be clear, this 7% hotel tax is paid by the visitor and not the hotel (or VRBO owner). The hotel collects and remits it. AirBNB and other have mechanisms in place to collect and remit the taxes for jurisdictions that do tax visitors.
Many jurisdictions are changing their laws to address this and bring these VRBO properties into the fold as if they were a hotel or bed and breakfast. Connie DelSignore, CEO of Visit Annapolis and Anne Arundel County estimates that a 7% tax for these properties in 2018 would lead to an additional $1.4 million in tax receipts. Projected to 2021, that number increases to $2.8 million per year.
Visit Annapolis and Anne Arundel County relies on the hotel tax for their annual funding which in turn is used to promote the County as a destination to visitors, businesses, events, and celebrations. Tourism and interrelated industries make up nearly 25% of Anne Arundel County’s economy.
While VRBO properties can be found all over the county, the majority of them are in the Annapolis area with 502 of the 797 in the County.
And for those homeowners who can afford to give up a portion (or their whole) house to a temporary renter, the income is significant. Assuming all rentals are the same, each VRBO property in Annapolis earned $27,000 in income last year. If you were in Arnold, congratulations, you were number 1 in the County with an average income of nearly $49,000.
With such a lucrative asset, another issue has sprung forward. VRBO properties that are owned as a VRBO investment and not as a home. In zip code 21401 34% of the VRBO homes are owned by someone that has multiple properties that are rented out. 21403 is 31%. 21402 is 50%. And 21409 is 23%.
The extended concern from a non-owner is maintenance, safety, and property values. Many VRBO homes are not maintained to the degree a primary residence would be. And certainly the behavior of guests cannot be controlled in terms of noise and activity. There is a potential to deflate property values of surrounding homes. In Annapolis City, VRBO homes are also not safety inspected regularly as are traditional rental homes and are not subject to the City’s regulations regarding that guide the operations of bed and breakfasts. Local bed and breakfast owners have been asking the City to regulate the VRBO market to level the playing field as they must get permits, maintain insurance, collect and remit taxes, etc.
Read the entire report here.