Auditor Report on Vacation Homes

8/6/2019 Auditor Report on Vacation Homes

1/7

MemorandumCITYOF DALLAS(ReportNo.A11-010)

DArE:August12,2011ro: HonorableMayorandMembers f the CityCouncil

suBJECr:Auditof HotelOccupancy ax Collection Short-Term acationRentalsl

Preliminaryesearchof vacation entalwebsites ndicatesthat residential ropertiesocatedwithin he Cityof Dallas(City) imitsare advertised n thesewebsites;however,heCity does not currentlyhaveprocessesand proceduresnplace hat specifically ddressshort-term acation entals.As a result, t is unlikely hat shortterm vacation entalproperties peratingn the City are registeredwith the Cityand paying Hotel OccupancyTaxes (HOT). The CityController'sOfficeand the CityAttorney'sOffice are in the

Short-TermVacationRentalsResidentialpropertiesrented out by theproperty owners forshort time periods(less han30 days).

processof researching hort-term acation entalproperty *issues to determine f it is practicaland cost effective or the City to implementprocesses ndprocedureso improve ollection f HOT or theseproperties.Accordingo theTexasComptrollerf PublicAccounts' ax PolicyNews AprilZA11

"Iexas is seerngan increasen the numberof homesOfferedas lodgingaccommodations hrough online social media marketingseryices. Socia/media marketing seryrbesmake renting oneb home easy, effrcient,andeffective. ndividual omeowners nd leasingcompaniesmarkethomesandrental property via the lntemet to persons seeking a place to stay forbuslnesstrips, vacationsand specialevents,such as musicfestivalsandathletic onfesfs."Shorttermvacation entalproperties re ypicallyadvertised nthe Internetwithonlyan e-mailaddressandlorphonenumberistedso that nterested artiescan contactthe owner. Therefore,dentifying ndregistering horttermvacation entalpropertyandestimating nd/orcollecting oteloccupancyaxesaremoredifficult.

1We conductedhe Audit of HotelOccupancy ax Collec{ion Short-Tenn acationRentalsunder heauthority f the City Charter,ChapterX, Section . This auditwas added o the FiscalYear 2011AuditRtan AuditPlan)approved y the CityGouncilwtrich rovidesor suchadditionso theAuditPlan' Thisperformanceudit arasonductedn accordance ithgenerally ccepted ovemment uditing tandards.Thosestandardsequire hatwe planand performhe audit o obtainsufficient, ppropriatevidenceoprovidea reasonablb asis or our findingsand conclueionsasedon our auditobjectives.We believeinat ttre evidence btainedprovides reasonable asis or our findingsand conclusions asedon ourauditobjec{ives.The objective f the auditwas o determinewhether he Cityhas processesn place oassurehat short-termacationentalpropertiesre registered ith heGityandpayin_qppropriate otelOccupancyTax. We interviewedCity Controller'sOfiie, Code Compliance,City Aftomey, andSustainable evelopmentnd Constructionersonnel.We also reviewed acation entalwebsites,heTexasTax Code,CityCode,and CityController's fficepolicies ndprocedureselatedo HOT.


2/7

Honorableayor ndMembersf heCityCouncilAugust 2,2011Page of 7To improve heirability o collectHOT or short-term acation entalproperties, thercities,such as Key West, Florida and the City of Encinitas,California,haveimplementedomeor allof the ollowingseeAttachment l or additionaletails):

r Updatedhe City'sordinanceo clarify hat HOTapplieso short-term acationrentalpropertiesr Required shortterm vacation rental property owners to register/licenseproperties ndpayan annual egistration/licenseee. Addressed otentialCode ompliancessues. UpdatedHOT AdministrativeProcedures o specificallyaddressshort-termvacation entalpropertieso lmprovedwebsiteaccessibility sed to communicateHOT reportingand

paymentequirementslf you haveanyquestions r needadditionalnformation,lease ontactme at 214-670-3222r CarolSmith,Assistant ityAuditor, t214-674-4517.Sincerely,

Ub.ta*,CraigD. KintonCityAuditorAttachmentsC: MaryK. Suhm,CityManagerThomasP. Perkins, r.,CityAttomeYJeanneChipperfield,hiefFinancial fficerEdwardScoft,CityController


3/7

AttachmentShort-termVacationRentals

BackgroundThe Officeof the CityAuditor City of Austin Cityof Austin)completedhe PefformanceAudit of the HotelOccupancyTax Collection Shorf-Ierm VacationRenfa/s n February22,2011.The reportdirectedhe ollowinghree ecommendationso theCityof Austin'sCityController:

. Update tswebsite o make he HotelOccupancy ax (HOT) eportingorm easierto find and work with major short-term acation entalmarketingcompaniesoprovideinks o the site

. Coordinatewith other departmentso be informedof the existenceof short-termvacation entalpropertiesr Update he proposedamendedHOT Ordinanceo clarify hat it applies o short-

termvacation entalpropertiesIn addition,he City of Austin begana process o collectshorttermvacation entalHOTowed o the City.In April, he Cityof Austinnotifiedhe City of Dallas'Officeof the CityAuditor Office)hatthe ssuesdentifiedn the reportmayalsoexist n the Cityof Dallas.AfternotifyingheDallasCityCouncil, he Audit of Hotel OccupancyTax Collection Short-Term acationRentals as added o the FiscalYear2011AuditPlan.

Authoritv to Gollect the Hotel Occuqancv Ta)tStatestatuteand the Cityof Dallas City)Codeallow he City to collectHOTfor short-termvacation entalproperties.The City s authorizedo collectHOT by:

. Texas Tax Code - Chapter {56, Hotel Occupancy Tax, Sec. 156.001.Definition. In this chapter, hotel:meansa buildingn which membersof thepublicobtainsleeping ccommodationsor consideration. he term ncludesahotel,motel, ouristhome,ouristhouse, ourist ourt,odging ouse,nn, oominghouse, r bedandbreakfast.Sec.156.051.ax mposed.a)A tax s imposed n a personwho,undera lease,concession,ermit, ightof a@ess,icense, ontract, r agreement, ays or theuse or possession r for the right o the use or possession f a roomor space n ahotelcosting 15or moreeachday.

. Texas Tax Gode- Title 3. Local Taxation, SubtitleD. LocalHotel OccupancyTaxes. Chapter 351. MunicipalHotel OccupancyTaxes SubchaptersA.lmposition ndcollection f tax. Sec.351.002. axAuthorized.a)A municipalityby ordinancemay impose.a ax on a personwho, undera lease,concession,3

6|;;:r""alrg


4/7

AttachmentShort-termVacationRentals

permit, right of access, icense, contract,or agreement,pays for the use orpossession r for the right o the use or possession f a room hat is in a hotel,cost$2 or moreeachday,andordinarily sed orsleeping.. Dallas City Gode- Ghapter44, Taxation,ArticleV, HotelOccupancy ax. Hotelmeans any building in which members of the public obtain sleepingaccommodationsor consideration. he term includesa hotel,motel, ouristhome, ouristhouse, ouristcourt,odging ouse,nn,rooming ouse,or bedandbreakfast.

Limitson TpxRateThe HOT ax rate he Citycan collect s specified y:

r Texas Tax Code- Chapter156,Hotel OccupancyTax, Sec.156.052.RateofTax. Therate of thetax imposedby this chapters six percentof the pricepaid ora room n a hotel.r Texas Tax Code* Title 3, Local Taxation, Sec. 351.003.Tax Rate. b)The ratein aneligible entralmunicipality aynot exceed inepercent f thepricepaid ora room.. Dallas City Code - Ghapter 4, Taxation, Sec. 44-35. Levy;Amount;Dispositionf Revenue.

(a) There s hereby evieda tax upon he occupant f anyroom hat:(1 ) ls in a hotel;(2\ ls ordinarily sed or sleeping; nd,(3) The costof occupancy f which s $2 or moreeach day

(b) The tax is equal to seven percentof the considerationpaid by theoccupant f the room o thehotelResponsibilitvor T?xColleclionTheownerof the hotel s responsibleor collectinghe HOTas specified y:

. Texas Tax Gode - Chapter 156, Hotel Occupancy Tax, Sec. 156.053.Collection f Tax. A personowning, perating,managing, r controlling hotelshall collectfor the state the tax that is imposed by this chapterand that iscalculated n heamount aid or a room n he hotel.o Dallas City Code - Chapter &, Taxation, Sec.

-Collection,Reporting,.nd Paymentof Tax. Every-fFEEg44-36. Responsibilityorpersonowning,operating,


5/7


6/7

AttachmentlShort-termVacationRentalRequirementsor TwoCities

The followingareexamples f short-term acation ental equirementsor twocities hatcollectHotelOccupancy ax (HOT) or short-term acation entalproperties:

Key West, FloridaThe City of Key West, Florida,OrdinanceNo.2-06, $ec.2-7.21. Transient ivingAccommodationin ResidentialDwellings Regulation,C. Application,equires hatshort-term acation entalproperty wners hustannuallyprovide:

o The complete treetaddressandreal estatenumberof the propertyr Proofof ownership,ncludinghe name,address, ndphonenumber f eachpersonor entitywithan ownershipnterestn thepropertyr An approvednspection eport of the fire marshalverifyingcompliancewiththe iremarshal'sriteriaor a residentialwellingransientodging seo The grosssquare ootageof the property,ncludinghe numberof rooms,bedrooms,kitchens,and on-site parking spaces attributable o transientlodging ser A valid and current ederalemployer ax identification umber or SocialSecuritynumber)or the owner(s)of the propertyr A validand cunentsales ax dentificationumberr The name,address, nd 24-hourphonenumberof the personwho will beoperatinghe property'sransient ccommodationso The applicationhall"lJr the signatures f all owners,authorized gents,andauthorized roperty-managers.

Encinitas, CaliforniaTheCityof Encinitas mendedChapter .38,Regulating hort-Term entals,Ordinance2006-05o includehe ollowing:

r Defined he tenn, short-term ental, as the rental of any structureor anyportionof any structure or occupancyor dwelling or lodgingor sleepingpurposes f 3b consecutiveaysor less) n theCity ncluding ingle amilyorduPlex nits.e Specified hort-termentalsmustobtaina permiteachyear or eachunit. Theapplicationor a permit s accompaniedy a non-refundablepplicationeeestablishedby the City Manager o cover the costs of administeringheordinance. , 6


7/7

AttachmentlShort-termVacationRenhl Requirementsor TwoGities

Somespecified perationalequirements,nclude:o Applicants hall use "bestefforts" o insure hat the occupantsand/or

guestsof the short-termental unit do not createunreasonable oiseor disturbances,ngagen disorderly onduct, r violateprovisionsfthe EncinitasMunicipal odeor anyapplicableawpertainingo noise,disorderly onduct,overcrowding,he consumptionf alcohol,or theuseof illegal rugso Propertyowners shall limit the number of vehicles of overnightoccupantso the numberdesignatedn the permitwhichshall notexceed he numberof designated n-siteparking paceso Trash and refuseshall not be left or storedwithinpublicview exceptfromsunsetof thedayprior o trashpick-up ntilup to midnight nthe

day designated or trash pick-up. All trash will be in approvedreceptacles.o Applicants hallaffix he shortterm entalpermiton the insideof themainentrydoorof eachshort-termentalunit o which t applies. heinteriordisplaywill also contain he maximumnumberof overnightoccupantspermitted o stay in the unit, the maximumnumberofvehicles or overnightoccupants, nd a 24-hourl7-day honenumberof the privateparty esponsibleor the facility.o Applicants hall displayon the exteriorof a short-termentalunit, anoticeprovidedby the Citycontaining Z4-hourlT-dayhonenumberfor a private party responsible or the facility to take complaintsregardingts operation. The exteriordisplaywill also contain henumber of bedrooms,maximumnumber of overnightoccupantspermittedo stay n the unit,and he maximum umberof vehiclesorovernight ccupants.Thenoticeshallbe in plainviewof the generalpublicand/or ommon reasand shallbe maintainedngoodconditionat allt imes.o Applicantsare also required o provideadjacentpropertyownerswiththe 24-hourft-day honenumber or a privateparty esponsibleor thefacility

Defined ordinanceviolations and associatedpenalties/suspensionornoncompliance

Documents

Auditor Report on Vacation Homes