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Senate bill proposes 10% tax on short-term internet rentals for affordable housing

By Erin Freeman | Lynnwood Times Staff

OLYMPIA, Wash., January 22, 2021 – Washington’s state legislature began its 2021 session on Monday, January 11, with a few housing-related bills receiving hearings in the Senate Housing & Local Government Committee, including one that would allow cities to levy taxes on short-term rentals to fund affordable housing programs.  The first public hearing was on January 13.

Headshot of Senator Liz Lovelett, representative of the 40th Legislative District. Photo Courtesy of Skagit County.

Introduced by Senator Liz Lovelett (LD40 D) from the 40th legislative district, Senate Bill (SB) 5012 would provide local governments with affordable housing funding by allowing them to levy up to 10 percent of a special excise tax on short-term rentals facilitated through an “internet-based platform” such as Airbnb.

A provision allows local governments to retain up to 5% of the revenue collected to administer these affordable housing programs.  

If passed, revenues from this tax must be used for operating and capital costs of affordable housing programs, including homeless housing assistance, temporary shelters, or related services. Cities and counties also may contract with nonprofits or public housing authorities for these programs and services. 

“[SB 5012] underscores the challenges we have, particularly in small municipalities, to open up any part of the budget in order to pay for affordable housing out of their normal general fund,” Lovelett commented. 

The local revenue impacts of this bill are undetermined, as it is unknown how many local governments would impose it and what levy rate they would choose. However, if all local jurisdictions levy the 10% rate, $31.4 million could potentially be raised and allocated towards affordable housing programs. 

“Again, this is an opt-in local option bill, so if you’re in an area that has a high amount of internet-based rentals and it makes sense for your area, opt-in,” explained Lovelett. “If this is an area of the state where you don’t think it’s appropriate for your on-the-ground circumstances around housing, you don’t have to.”

Sen. Lovelett says she recognizes the concerns regarding the bill circulating from short-term rental landlords in the state using their rentals as a means of passive income and notes additional works needs to be completed, with the potential for adjustments to the tax rate.”

“I left it flexible to be adopted at the local level to determine what threshold makes the most sense for a specific jurisdiction.” 

Currently, Washington state imposes an excise tax of 6.5% on lodging and similar short-term accommodations. In addition to sales taxes, cities and counties can also impose additional local excise taxes on lodging of up to 2%, commonly referred to as the hotel/motel tax. 

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