Across Menlo Park, potentially hundreds of housing units are used as short-term rentals, yet only a small portion are registered to pay the city's 12% hotel tax, according to data collected by the city.
That is expected to change, starting next year.
The Menlo Park City Council voted unanimously on July 28 to move forward with a plan to hire a third-party vendor to create a database and notify all of the short-term rental housing operators in the city about the ordinance that requires them to pay the city's 12% transient occupancy tax, also know as a hotel tax.
The council also agreed to delay enforcement of the ordinance until January 2021.
While the city's hotel tax ordinance applies to all housing units rented for less than 30 days, enforcement has usually been directed toward hotels. Under the city's ordinance, operators of other types of short-term housing rentals are supposed to register with the city and then report and remit taxes quarterly, according to staff.
However, in Menlo Park, only 12 homes and four corporate lease companies are registered and voluntarily remitting taxes to the city, according to staff.
Hotel taxes usually go into the city's general fund. The city's Housing Commission had recommended that the revenue be set aside to support affordable housing activities specifically, but the council didn't decide how it might spend the new revenues Tuesday, or the logistics of how the ordinance will be enforced in the new year.
The closest estimate to the true number of short-term rental units on the market comes from a website called AirDNA, which is not entirely accurate, said Rhonda Coffman, deputy community development director. In some instances, housing units may be duplicated if they are marketed on multiple sites, and unincorporated Menlo Park data is not separated out, she said.
However, according to that data source, looking at the last two quarters of 2019, there were anywhere between 396 and 524 short-term rental units on the market in Menlo Park, and average nightly rates fluctuated between $211 and $254.
Several council members discussed concerns that short-term rental operators are likely seeing revenues drop during the pandemic, and argued that now is not a good time to start enforcing a tax that hasn't been enforced before.
"For me this issue is not if, it's just when," said Councilman Ray Mueller.
Councilwoman Catherine Carlton initially opposed the measure, raising concerns that some households rely on the income from short-term rentals and that the tax could drive up prices and send visitors to stay in neighboring communities instead, but ultimately agreed when the enforcement date was pushed back.
Currently, though, the few people who are following the rules and paying their taxes are the ones most adversely affected by the city's hotel tax ordinance, and that should be remedied, Vice Mayor Drew Combs said.
Councilwoman Betsy Nash and Mayor Cecilia Taylor also favored the step and pushed to avoid additional delays.
Airbnb also has a program where it makes agreements with governments to collect and remit local taxes on behalf of hosts, collecting them from guests at the time they book their stays, according to its website. While Airbnb has such agreements in Redwood City, Palo Alto and Mountain View, among many other California cities, according to its website, the company was not able to immediately commit to a similar agreement in Menlo Park, according to Coffman, who told the council she had recently spoken with company representatives.
However, that program doesn't provide the same level of data that working with an outside compliance management service might, she said. Having clearer data about the short-term rental market in Menlo Park could also set the city up to tackle larger questions about short-term rentals, such as whether they're impacting housing availability, Coffman said.