August 2019

City of San Diego Going After Transient Occupancy Taxes for Month-to-Month Rentals

By Ashley M. Peterson

Law Office of Ashley M. Peterson

The City of San Diego has recently begun targeting property owners who conduct month-to-month rentals, claiming the owners are required to obtain a transient occupancy certificate and pay transient occupancy taxes.

I have received several phone calls from such property owners who were notified by the Office of the City Treasurer that they are operating a short-term rental business and are therefore in violation of the Municipal Code when they conduct whole month rentals.

The San Diego Municipal Code Section 35.0102 states, “ ‘Transient’ means any Person who exercises Occupancy, or is entitled to Occupancy, by reason of concession, permit, right of access, license, or other agreement for a period of less than one (1) month.  A month is defined as the period of consecutive days from the first calendar day of Occupancy in any month to the same calendar day in the next month following, or the last day of the next month following if no corresponding calendar day exists.” 

Our City’s Municipal Code language was enacted in 1999, well before the short-term rental craze of Airbnb hit San Diego. The current implementation of the code is arguably an incorrect interpretation of a short-term rental. This statute effectively requires that all property owners have the same check-in and check-out date of the month. For example, if you have a check-in date of June 1, you would have to have a check-out date of July 1 to be in compliance with the municipal code. Property owners conducting month-to-month rentals in which the guest or tenant takes occupancy on June 1 and vacates on June 30 would not be in compliance with the statute. Thus, the owner would owe transient occupancy taxes based on the entire month’s rental income. 

It is my opinion that this statute is ripe for a legal challenge. The express use of the word “to” and not “through” is essential in the interpretation. The first day of occupancy to the same day the following month is not inclusive of the same day of the following month.  For example, under my argument, a move in date of June 1 and termination date of June 30 should be in compliance with the code. However, this is not how the City is interpreting the statute despite my letters to the contrary. Moreover, it is common knowledge and routine practice in the real estate world that a monthly rental begins and ends on the first and last day of each calendar month. If we were to follow the City’s interpretation of the statute, a monthly rental would be for a period of a month and a day with the second month’s rental starting on the second day of the following month (i.e. June 1 to July 1, July 2 to August 2). By this reasoning, all month to month rentals in the City of San Diego would be in violation of this code section and all landlords would owe transient occupancy taxes, which would be absurd.

Generally, short-term rental regulations are enacted by cities with the primary purpose of taxing short-term rentals and hotels, and to combat the lack of long-term housing available. In fact, many cities in California have enacted short-term rental regulations that restrict rentals for periods of less than 30 days. In San Diego, specifically targeting property owners who are conducting month-to-month rentals will face major backlash and will likely result in more true short-term rentals conducted to offset the taxes owners have to pay. To the best of my knowledge, this statute has never previously been enforced by the City. It appears from my conversations with my clients that many of them are being targeted due to their online postings on Airbnb, VRBO, Homeaway, Flipkey, etc. because they show a minimum night stay of less than 30 days. 

Cities across California are now using companies like Host Compliance LLC to monitor and report owners that violate STR ordinances through searching property addresses and hosting platform listings. San Diego homeowners may want to consider updating their hosting platform listings to reflect a 32-day minimum stay to avoid the City’s radar even if they are accepting guest reservations for shorter periods of time.

Owners who wish to challenge this law should write to their City Councilman/woman for their district to voice the need for an update to this law. 

This article is for informational purposes only and does not constitute legal advice. It is specific to the laws of the State of California. For specific questions related to this article, please contact the Law Office of Ashley M. Peterson.