The Montgomery County Office of Inspector General (OIG) has released a review of the County’s Short-Term Residential Rental (STRR) program. The review illuminates significant challenges related to short-term rental (STR) platforms like Airbnb and Vrbo.
As these platforms expand, they have created obstacles to counties’ ability to enforce their rules and ensure tax compliance, resulting in widespread unlicensed operations and potentially lost revenue.
STR Landscape in Maryland
Short-term rentals involve leasing residential properties for short durations, typically under 30 days. Online platforms like Airbnb, Vrbo, and HomeAway facilitate these rentals by connecting property owners (hosts) with travelers seeking temporary lodging.
STRs have surged in popularity across Maryland, offering homeowners a lucrative opportunity to capitalize on the growing demand for unique travel experiences.
However, STR platforms’ refusal to share host information with local authorities complicates efforts to regulate and tax short-term rentals effectively. It also poses significant safety risks by preventing necessary oversight to ensure properties meet local health and safety standards.
Widespread Non-Compliance Driven by STR Platforms
To ensure guest safety, hotels must comply with strict regulations, including regular inspections and building code adherence. By contrast, many STRs operate without such oversight, creating disparities in safety standards between traditional hotels and short-term rentals.
The Montgomery County OIG report reveals that more than 85 percent of the County’s estimated 1,400 short-term rentals operate without the required licenses. One reason for this widespread non-compliance is that platforms like Airbnb and Vrbo allow property owners to list and rent out their homes without verifying whether hosts have obtained the necessary local licenses.
Rather than supporting the County’s regulations, these platforms have enabled unlicensed operations to thrive by not verifying whether their hosts comply with local laws. This lack of oversight from the platforms undermines the County’s efforts to maintain safety standards, protect housing affordability, and preserve neighborhood integrity.
Platforms Are Failing the County on Tax Collection
STR platforms are also failing to provide adequate transparency regarding tax payments. STR platforms have agreements with a handful of Maryland counties, like Montgomery, to collect and remit local taxes, but these agreements are not universal, and coverage varies.
In most counties, platforms collect state sales tax but are not required to collect local hotel or transient occupancy taxes. Even in places where agreements exist, these platforms often withhold critical data, such as property-specific information, making it difficult for local governments to audit and verify compliance.
In Montgomery County, all short-term rentals owe the 7 percent transient tax. Still, these platforms remit taxes to the County in large lump sums without identifying which properties are covered, leaving the County in the dark.
By refusing to provide critical tax data identifying specific properties and their revenue, STR platforms prevent the County from verifying whether the taxes collected accurately reflect what is due, making it impossible to track whether each STRR is paying the correct amount.
By allowing property owners to operate with virtual anonymity, these platforms make it difficult for the County to enforce tax laws or penalize non-compliant operators. This setup unfairly burdens compliant local property owners while platform users easily evade scrutiny.
Statewide Policy Considerations
To effectively address the challenges of regulating and taxing STRs, Maryland could mandate data sharing between STR platforms and county governments. While platforms may raise privacy concerns, Maryland can protect the privacy of hosts and guests by anonymizing data where possible and ensuring that it is used solely for regulatory and tax purposes.
In addition, to streamline tax compliance and reduce administrative burdens, the State could centrally collect and remit local taxes for short-term rental platforms. This centralized approach ensures consistent tax collection, simplifies the process for hosts, platforms, and county governments, and ensures STRs contribute their fair share to supporting essential public services.
These measures would create a fairer, safer, and more regulated environment for STRs, benefiting guests, hosts, platforms, county governments, communities, and the hospitality industry.
Stay tuned to Conduit Street for more information.
