Senate Bill (SB) 584, which has passed the California Senate, would impose a 15% tax on the rental price for a short-term rental (STR).

After its passage, Sen. Monique Limón (D-Santa Barbara), who introduced the bill, said in a press release, “The vote today signals the legislative interest in advancing a conversation about what role short term rentals should play in helping invest in housing solutions for our state. The increase in short term rentals, used as a business, requires we examine the impact they present, whether opportunities or limitations, for our housing market.”

Collection of the tax would not begin until Jan. 1, 2025. And more importantly, “Facilitators or operators who make less than $100,000 from facilitating STRs during the prior calendar year are not required to collect this tax,” according to the Senate Floor analysis of May 26.

SB 584 (The Laborforce Housing Financing Act of 2023) is intended to establish an ongoing funding source for local governments to create low-income and middle-income housing units across California. This housing would be owned and managed by a public entity, or mission-driven nonprofit.

When the bill was introduced, State Building and Construction Trades Council of California President Andrew Meredith joined Limón in supporting the bill. “We believe the root problem of this crisis is a lack of direct funding to get affordable housing projects off the ground. SB 584 is a real solution, providing a funding mechanism that will bring dollars into local communities to build affordable housing that isn’t held back by profit margins.”

After hearings before the Housing, Governance and Finance, and Appropriations committees this spring, all of which supported the bill, the full Senate approved it May 31. The vote was 27-11 and moved SB 584 to the Assembly for review.

SB 584’s definition of STR is “the occupancy of a home, house, a room in a home or house or other lodging that is not a hotel, inn, motel, or bed and breakfast in this state for a period of 30 days or less.”

The 15% tax was estimated to generate about $150 million revenue annually, according to the Senate Analysis.

Two-thirds of the money is directed to construction of new housing and 30% allocated to the acquisition and rehabilitation of existing housing.

The Senate Analysis explains the reasons for taxing STRs for low- or moderate-income housing. First, it says that both rents and housing prices increase slightly with every 1% increase in STR listings.

Secondly, it states, “STRs also decrease long-term housing supply overall. Several studies analyzing individual STR markets (Los Angeles and NYC neighborhoods) found that STRs contributed to the removal of between 1-12.5% of a neighborhood’s housing. This may be due to the fact that, as concluded by researchers at Carnegie Mellon University, STRs motivate property owners to convert properties away from the long-term rental market.”

This is not the first attempt to tax STRs. In 2015, current state Senate Majority Leader Mike McGuire introduced SB 593, which required homeowners to report on the use of their facilities for transient or tourist purposes. Its intent was to improve the collection of the Transient Occupancy taxes.

Among the organizations opposed to SB 584, the Senate Analysis listed Airbnb, California Association of Realtors, California Chamber of Commerce, California Housing Partnership Corporation, Expedia Group, Lake Arrowhead Host Community, Sonoma, Napa and Marin County Area Host Community, and Western Electrical Contractors Association.