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This November, Menlo Park voters will face the question of whether or not to raise taxes on hotels, motels and short-term rentals in the city. In advance of that ballot measure, on Aug. 13, the Menlo Park City Council reviewed how much money short-term rentals make the city. During the 2023-24 fiscal year, the city collected $510,438 in transient occupancy tax revenue from short-term rentals.
Transient occupancy taxes are imposed on people staying for 30 days or less in hotels, motels and short-term rentals like Airbnbs. These taxes are paid by guests, rather than Menlo Park residents.
In order to identify active short-term rentals in the city, Menlo Park contracts with HdL Companies, a consulting firm that specializes in revenue management services and tax recovery for public agencies.
According to a Menlo Park staff report, the city began partnering with HdL in the summer of 2021, when they began implementing short-term rental detection, monitoring and compliance services within the city. Detection of short-term rentals is accomplished by monitoring various rental sites, such as Airbnb, Tripadvisor and Vrbo, according to the report.
The information about each short term rental is then entered into a short-term rental inventory, which includes the name of the owner, the address of the unit for rent, number of nights rented and average occupancy rates, room rates and usage trends.
In the first year of monitoring short-term rentals, fiscal year 2021-22, Menlo Park collected $230,279 in transient occupancy tax revenue from 68 registered short-term rental properties, according to an informational update from city staff. In fiscal year 2022-23, the city collected $363,857 in revenue from the short-term rental monitoring program.
As of June 30, 2024, there are 101 short-term rental properties within Menlo Park, 92 of which had confirmed stays in fiscal year 2023-24, according to the staff report.
Revenue from short-term rentals accounts for only a small portion of the city’s total transient occupancy tax revenue. In fiscal year 2023-24, the city collected a total of $10.5 million in transient occupancy taxes, $10 million of which came from hotels and motels. Short-term rentals accounted for just under 5% of transient occupancy tax revenue in 2023-24.
Transient occupancy tax measure
The transient occupancy tax measure on Menlo Park voters’ ballot on Nov. 5 proposes an increase in the transient occupancy tax within city limits by 3.5%, from 12% to 15.5% over a two-year period. The Menlo Park City Council voted to place the measure on the ballot to help solve ongoing funding challenges that the city is facing.
Menlo Park’s approved 2024-25 budget included a deficit of about $820,000, which had to be closed with money from the city’s general fund reserve.
“The city has faced the removal or the discontinuation of revenue sources that it has depended on for decades — one being the UUT (utility-user tax), which the city is no longer collecting,” Vice Mayor Drew Combs said during discussion of the measure at the council’s July 9 meeting.
The ballot language for the measure says that the tax as proposed is estimated to provide an additional $3.6 million for the city annually.
According to a staff report on the tax, the higher taxes on short-term occupants would be used to maintain city services such as street and pothole repair, police and 911 response, emergency preparedness programs, park and open space programs, storm drain maintenance and other general government use.
The measure requires a simple majority voter approval to pass.
