AIRBNB, VRBO HOSTS COULD SOON FACE FINES OVER TAXES

Denver is gearing up to enforce rules for shortterm vacation rentals.

The new year will bring the first threat of fines under Denver’s new vacation rental rules, and there appear to be plenty of potential targets.

Six months into the city’s roll-out of short-term rental licensing, most people who rent rooms or homes on online services such as Airbnb and VRBO still have not gotten on board.

That’s not a surprise. San Francisco, Portland, Ore., and other cities similarly have struggled to get most hosts to start collecting lodging taxes and obtain a license or permit. Such lags often persist for years.

But next week, Denver licensing officials will begin holding out the threat of fines — topping out at $999 for repeated violations — though they say violations still will be met first with a warning.

The short-term rental regulations, approved by the City Council 9-2 in June, legalized the growing practice over some objections from neighborhood advocates who worried they could disrupt quiet blocks. The rules allow the rental of a primary residence for 30 days or less and require collection of the 10.75 percent lodger’s tax from guests.

The Denver Department of Excise and Licenses said it had issued 420 active licenses as of Thursday, with another 200 or so applications underway in the online application system. This month has brought a surge.

It’s unclear just how many short-term rental properties exist in Denver, but observers previously estimated the city was home to 2,000 or more listings on vacation rental websites.

That would mean about 20 percent have obtained licenses — not bad, considering that Portland reached that compliance rate about two years after it passed its rules. But it’s still far short.

“What’s more important to us is figuring whether or not this is working,” said Dan Rowland, a Denver licensing spokesman. “That’s part of why we have an advisory committee to sort of gauge that feedback as that comes in over the next couple months,” with both hosts and more skeptical neighborhood advocates represented. “Obviously, we want to get anyone out there who’s hosting to get licensed.” Here are key things to know: •Denver allows short-term rentals only for primary residences — no second homes or investment properties. (A separate dwelling unit on the primary property, such as a carriage house, still can be rented out full time.) The rules heavily favor Airbnb’s model of more occasional renting while cutting out, in theory, entrepreneurial owners who have listed multiple properties as vacation rentals.

•Hosts, including homeowners and renters who have their landlord’s permission, can get licensed entirely online, avoiding a trip downtown. Denver requires that they post their license num-

ber in each online listing.

•The city’s website, at www.denvergov.org/str, guides hosts through the step-by-step process, starting by getting a lodger’s tax ID (costing $50 every two years) and an occupational privilege tax ID ($48/year). They then apply for the short-term rental license, which costs $25 a year.

•Enforcement by a new short-term rental coordinator and licensing inspectors will include responding to complaints about unlicensed rentals — or those that are legal but a nuisance — as well as proactive searches. The licensing department has budgeted $70,400 in 2017 for a digital data-mining service that will comb vacation rental websites and provide reports and maps to the city.

•Citations and violations will start with a warning and then escalate from $150 to $500 and a maximum $999 for repeated violations. Fines could result from something as simple as repeatedly failing to note a city license number on a listing.

The city has redesigned its application website to make it simpler after surveys and advisory committee feedback indicated that applying was more cumbersome than intended.

Getting more on board

One challenge is that many of those seeking the new license don’t think of renting out their home as a business and aren’t familiar with tax registrations, Rowland said.

Several approaches have aimed at getting more people on board. The city sent out 240 compliance notices through early December. And Airbnb sent an e-mail blast to its Denver hosts and created a reference page explaining Denver’s new rules.

Licensing officials now are rolling out a new campaign — under the banner “Stay Legit Denver” — via use social media and digital advertising that will continue into 2017.

The long debate over how to regulate short-term rentals included two years of public meetings convened by Councilwoman Mary Beth Susman and zoning and licensing officials before the council’s vote.

The most contentious issue centered on whether to restrict rentals to primary residences or allow second homes. The council’s decision left plenty of enterprising hosts dissatisfied.

“In light of that, the city has done well in moving forward with what it passed,” said Craig Ellsworth, an advisory committee member who obtained a short-term rental license for his home in July. He called the formation of the committee “a very positive step. It’s been successful, and including public comment at the advisory committee meetings, I think, was very important.”

“Throwing in the towel”

The first six months of the soft rollout have forced a reckoning for owners of potentially lucrative second homes: try to fly under the radar, including by portraying the home as their primary residence or advertising 30-night minimum stays (a common tactic in other cities); sell the home; or convert it to a longer-term rental that’s likely to be less profitable.

“For the most part, long-time hosts that I’m speaking with are throwing in the towel and are looking to comply with the law,” said James Carlson, a Denver real estate agent who has taught courses on how to be a successful Airbnb host. “And they’re either going to sell off their furniture and convert to a traditional long-term rental, or they’re considering keeping their furniture and converting to a mediumterm rental model where they’re looking to rent to visiting nurses and relocating professionals” who are in search of a place to stay for a few months.

Carlson has eked out a specialty in finding home-buyers properties that have basements, attics or mother-in-law units that can be listed on websites legally. He calls it “house-hacking” for people seeking to earn a steady income without running afoul of Denver’s new rules.

Councilman Kevin Flynn, who cast one of the two “no” votes on the rules in June, said he remains concerned about the city’s enforcement capacity.

“My biggest question is: How will neighborhoods be protected under this?” he said. “I have concerns that we don’t have enough resources to follow up on complaints,” whether by police officers or licensing inspectors.

But whether those complaints will materialize in large numbers is among the many unknowns.

For now, the city’s approach is more straightforward.

“Our first step will continue to be getting people into compliance,” said Rowland, the licensing spokesman. “We aren’t going to be slapping $1,000 fines onto people on Jan. 3, but we will be stepping up our enforcement then.”