Palo Alto Weekly

Real Estate - June 7, 2013

Home or hotel?

Local residents who rent space to travelers may owe city taxes

by Eric Van Susteren

Teresa Gadda and her husband had a dilemma. The long-term renter of the cottage in the back of their Downtown North house had left, and they wanted to make some money on the space while keeping it occasionally available for her mother, who sometimes visits for more than a month at a time.

They decided to advertise the space on Airbnb, an online platform that allows for "hosts" like Gadda to rent out unused space for travelers staying in the area.

"We said, 'We'll put it up, and if we hate it, we'll stop,'" Gadda said.

They put up the ad for the one-bedroom, one-bathroom mother-in-law cottage for $120 a night in December. Now the space is booked through mid-August and Gadda is considering raising the price.

"It turns out it's really good money," Gadda said. "Renting it out for part of the year makes as much as full-time renter. It turns out to be a really good balance."

The process works like a social-network profile. A host sets up a profile, adds pictures and a description of the space, and lays out a calendar of when it will be available. Travelers use the site to find places to stay regionally and connect with hosts. Airbnb processes the payments and takes a bit off the top — 6 to 12 percent, depending on the cost of the rental.

Since its founding in 2008, Airbnb has exploded in popularity. Its website states that there are listings available in 33,000 cities in 192 countries.

But the legality of renting out space in a house is complex, and not always well-understood by the site's users.

In San Francisco, Airbnb's hometown, there have been reports of people being evicted and heavy fines for use of the service because the city's municipal code prohibits renting out an apartment unit for tourist or transient use.

In 2010 New York state outlawed renting out certain residential spaces to customers for fewer than 30 days.

Homeowners in Palo Alto who are using the service can breathe a sigh of relief, though perhaps a measured one.

The city's municipal code doesn't proscribe hosts from renting out rooms, apartments, cottages, houses or even mobile homes for fewer than 30 days at a time. However, the code does state that if a lodging acts like a hotel, it has to pay taxes like a hotel. That means Airbnb hosts must pay the city a 12 percent "transient occupancy tax" for each transaction it has with its customer.

Both Mountain View and Menlo Park have nearly identical provisions in their municipal codes, though travelers in Mountain View pay only 10 percent.

Palo Alto's transient-occupancy tax will bring in about 2 percent of the city's total revenue. It's expected to make the city almost $9.6 million this year, up almost $1.4 million from last year's $8.2 million.

A spokeswoman for the company said that data wasn't available on how many Airbnb rentals were available in Palo Alto; however, in late March there were more than 100 spaces advertised on the site for Palo Alto, around 90 in Mountain View and more than 30 in Menlo Park. Most ran between $80 and $200.

Only two parties in Palo Alto have registered to pay the city the tax, and so far only one of those parties has actually paid it according to Lalo Perez, the city's chief financial officer.

Thomas Fehrenbach, the city's economic development manager, sees the company's entrance into the hotel space as a potential drain in the funds the city gets from the tax. He said he recently wrote a letter to the company asking it to better clarify hosts' responsibilities to follow local laws.

Many of the hosts, he said, probably aren't aware that they should be paying taxes on the service, either because of their unfamiliarity with the ins and out of the municipal code or because they don't read the fine print of the company's terms-of-service agreement.

He said the city enforces such issues when it receives a complaint but that any penalties would affect the hosts, not the company.

According to the site, Airbnb isn't responsible for any laws or rental agreements users break (many rented spaces don't allow subletters).

An Airbnb spokeswoman who asked not to be named said the company doesn't police its users for local laws like Palo Alto's and that users should be responsible for researching the legal issues on their own. Fehrenbach said he never received a response to his letter.

Murky legal issues aside, the Airbnb process has been mostly seamless for Gadda and for Stephanie Anderson, who has been renting out the guest bedroom of her Crescent Park home for two years.

In that time, Anderson has had hardly a bad experience acting as a host, which she does in part for the extra cash and in part for the people she meets by doing it.

"It's been really gratifying," she said. "The money has helped pay for gardening and other maintenance things, and everyone loves it."

While Gadda is able to enjoy some separation from her lodgers (sometimes she says she never meets them at all), living with travelers has become a part of Anderson's life.

"They're not customers to me; they're house guests," she said. " I don't treat them any differently. If there's someone in my house, I talk to them, give advice and hang out with them."

She says the close proximity to downtown, the quality of the lodgings she provides and the personal touch she brings to the job make her listing particularly attractive.

She hit it off so well with one woman that the woman now rents a basement apartment from Anderson.

Both Anderson and Gadda said the benefits outweigh the logistical difficulties of replacing sheets and keeping up an Airbnb profile. It's even inspired them to travel more using the service.

"It was a little quirky — a funky multistory house — but it was a clean and decent place to sleep," said Anderson of an Airbnb rental she stayed at in London, England. "It's economical if you're an outgoing, adventurous person who doesn't feel like spending $350 for a hotel."

READ MORE ONLINE

More Home and Real Estate news is posted at www.paloaltoonline.com/real_estate.

Online Editor Eric Van Susteren can be emailed at evansusteren@paweekly.com.

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