Santa Monica tightens home-sharing rules as appeals court upholds vacation rental law

The city of Santa Monica, California, has tightened up its ordinance on home sharing, requiring home-share hosts to obtain a special permit. Previously, home-share hosts were only required to have a business license. The new rules go into effect October 24.

Santa Monica’s law, which was passed in 2015, prohibits whole-home short-term rentals in properties where the host is not present, which the city calls “vacation rentals.”

The city does allow “home sharing,” where part of a property is offered for short-term rentals while the host lives on site for the duration of a guest’s stay.

However, the city is investigating approximately 30 percent of licensed home-share

hosts for allegedly operating illegal vacation rentals, and last month, the city passed the new home-share permit requirement.

The new home-sharing rules also require hosts to own the home-share unit or to be a long-term resident who has lived there for at least a year and intends to live there for a year following the permit application.

Home-share hosts are also required to collect the city’s transient occupancy tax.

Some short-term rental platforms collect payment from guests on behalf of their hosts, and when they do, both the host and the platform are legally responsible for collection and payment of the tax.

Currently, both Airbnb and HomeAway collect and pay transient occupancy tax on behalf of their Santa Monica hosts. Automated solutions such as MyLodgeTax can help hosts make sure that hosts comply with all Santa Monica home-sharing tax obligations.

Meanwhile, a federal appeals court has rejected a potential class action lawsuit challenging Santa Monica’s short-term rental law.

The suit was brought by Arlene Rosenblatt, who rented out her Santa Monica home for short terms while she traveled. She claimed that the law hindered commerce, violating the United States Constitution. The suit was dismissed by a district judge, then appealed to a three-judge panel of the U.S. 9th Circuit of Appeals, which upheld the lower court’s ruling.

Earlier this year, the same appeals court rejected another lawsuit from Airbnb and HomeAway that challenged a provision in the law that makes it illegal for anyone, including hosting platforms, to advertise illegal short-term rentals.

The short-term rental platforms argued that the law violated the First Amendment by restricting their commercial speech, as well as the Communications Decency Act, which offers websites immunity from liability for content users post on their sites. The appeals court upheld a prior ruling that the law did not violate the Communications Decency Act or the First Amendment.

Short-term rental platforms including Airbnb and HomeAway/Vrbo have been embroiled in several legal challenges to city laws over the past several years. Recently however, the platforms have settled some of these suits, including against Boston, Palm Beach County, Miami Beach, and Portland, Oregon.

For more on vacation rental lodging taxes in California, see our state Lodging Tax Guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.