Blindsided

Adrienne Parker and her husband, Jerry Morano, started renting out a studio unit next door to their home in the Barber neighborhood in March 2016. It’s a quaint little place with a front patio framed by a lush perennial garden.

Though the couple originally invested in remodeling the studio to create a tranquil home for Morano’s aging mother, they have found that offering a place of respite to travelers through Airbnb has helped them prepare for the next stage of their lives—Morano is retired, and Parker is preparing for retirement. “Our income is going to drastically drop, and we’re going to need help paying our own mortgage,” Parker said.

That’s why the couple were taken aback recently when they were hit with a notice from the city giving them two weeks to submit records and pay retroactive taxes on all vacation nights within the past year.

Parker expected something was coming down the pike on this issue, she told the CN&R. She called the city a year ago and says she was told staff was in the process of clarifying the law.

“No way did I think I was going to have to start paying retroactively,” she said. “It doesn’t seem fair. … It’s not the tax itself; it’s the way they’ve gone about implementing it that’s discouraging.”

In the spring, the City Council updated the municipal code to include “short-term home-sharing and/or vacation rental unit[s]” of less than 31 days on a list of properties that require a business license and must pay the transient occupancy tax (TOT), like hotels. That money goes into Chico’s general fund.

The TOT is meant to be levied upon customers. In fiscal year 2017-18, the city took in $2.8 million of such revenue. The vacation rentals will bring an estimated $50,000 to $150,000 per year, according to the April staff report. Another $2,500 is the estimated take from business licenses. The average listing on Airbnb is $150 per night.

Last year, the city cited a couple for renting out their home, saying vacation rentals were not allowed in town. The homeowners sued and a judge ruled that the city had erred. That prompted a revision to the municipal code—and the implementation of the TOT on such rentals.

Administrative Services Director Scott Dowell said the municipal code has always allowed for the collection of TOT from customers booking short-term rentals in Chico, the city just “hasn’t gone out and enforced it.”

“I understand this is a newer concept. I can understand people’s frustration … but the city is actively trying to follow the municipal code and bring about compliance,” Dowell said. The city is aiming for self-compliance and not trying to be hard-nosed about it, he said. Owners also can appeal.

“The taxpayers of the city want us to be diligent … and part of that is really monitoring and trying to achieve 100 percent compliance citywide,” Dowell said. Given the city’s shaky financial outlook, “every bit counts.”

Consultant HdL Companies, out of Fresno, is collecting the tax and will be paid 15 percent of what is collected.

When Liz and Chris Thrasher Wheatley opened up their home in central Chico as a vacation rental last year, they were searching for some financial relief. Booking only two weeks per year, the funds have made a big difference.

They’ve used the extra income to make basic home repairs, like replacing a malfunctioning dishwasher. In addition, the couple have paid for their three kids to start taking soccer classes through the Chico Area Recreation and Park District.

“This has been a really transformative side hustle for us,” Liz said.

Like Parker and Morano, the Thrasher Wheatleys were blindsided by the order to pay retroactive taxes. Both couples also disagree with lumping vacation rentals into the same category as hotels and motels, advocating for a lower tax rate instead.

“It feels so frustrating to be getting this tax that feels like an overreach. If this was a full-time property, I’d have no hesitation,” Liz added. “It feels like the city is trying to get as much money out of this as possible, and not trying to foster a successful commerce community in town.”

Meanwhile, Butte County is taking a different approach. As it identifies people who have vacation rentals, staff is reaching out to them with an informational letter and getting the tax process started, with no retroactive payments required.

Treasurer-Tax Collector Peggy Moak said her main goal is to inform citizens that short-term rentals are required to pay TOT—she added that she believes many people did not know about this obligation, because it is a new type of business.

“My approach is that once I educate people, then they should understand their obligation and respond, and if they fail to, then penalties and arrears would apply,” she said. “I try to be realistic. You put yourself in their shoes. Where some might say, ‘Ignorance is no excuse,’ I try to be a little gentler and kinder.”