Senate Bill 555 California State Vacation Rental Tax

Sacramento, CA – Senator Mike McGuire’s bill that would create a new, innovative system for collecting and dispensing revenue from Transit Occupancy Taxes (TOT) for short-term vacation rentals has passed its first committee in the Senate.

The bill is a critical step in supporting local governments as they try to collect tens, and very likely, hundreds of millions in revenue statewide to support vital city and county services like fire and police, public health, good roads, and for parks and libraries.

In California, nearly every city and county levies TOT, and the revenue collected is typically used to support essential government services. Unlike with hotels and motels, local jurisdictions often have an incredibly difficult time collecting TOT on short-term vacation rentals because hosts are not always aware of the requirement to collect and remit these taxes, and local governments do not always know what properties are being used for short-term vacation rentals.

SB 555 will help cities and counties collect this untapped revenue by creating a statewide TOT collection program administered by the California Department of Tax and Fee Administration (CDTFA) for local jurisdictions who choose to participate.

This program would require short-term vacation rental platforms, such as Airbnb or VRBO, to collect the appropriate TOT from customers when a short-term rental is booked through the platform. The platform would then remit the funds collected to CDTFA, who would then distribute the revenue to the city or county.

“Hundreds of cities and counties don’t collect bed taxes from short-term vacation rentals and this is a simple statewide solution that will collect and invest in vital services that will help California cities and counties thrive,” Senator Mike McGuire said. “SB 555 will provide cities and counties the ability to opt-in to a statewide program to collect bed tax revenue from tourists, which will in turn be reinvested into fire and police services, local parks and libraries, and economic development projects. It also ensures that all short-term vacation rental platforms do their part and even the playing field.”

This program would be an opt-in for local municipalities, and those municipalities would be required to enact an ordinance to participate. This bill does not prohibit local agencies who want to continue with their own Voluntary Collection Agreements with platforms from doing so. Rather, SB 555 gives jurisdictions who have not found success in entering Voluntary Collection Agreements, which are the majority of cities and counties across California, with hosting platforms the ability to collect this vital and untapped revenue.

SB 555 passed unanimously, 5-0, last week in the Senate Governance and Finance Committee. It will head to the Senate Judiciary Committee in the coming weeks.