Vacation Rentals are Booming, But Oversight is Limited

A welcome note on a vacation rental unit.
Starr Sariego, Asheville Watchdog

Written by Sally Kestin, Asheville Watchdog.

Vacation rentals have become big business in Buncombe County, but identifying specifically who is benefiting and whether they’re following the laws is difficult at best.

There is no publicly available list of the more than 5,000 vacation rentals with a breakdown of owners -– how many are investors, corporations, local or out-of-town residents.

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Even Buncombe County and the city of Asheville cannot say precisely how many vacation rentals are within their jurisdictions or who owns them. Neither government requires owners to register; state law prohibits that, as affirmed by a court ruling last year.

Tax records could provide a clue – the same 6 percent occupancy tax charged on hotel and bed and breakfast stays also applies to vacation rentals. But the records related to those payments are considered taxpayer information that is not public.

And because of a confidential agreement Airbnb negotiated with the state in 2015, many of those occupancy tax payments do not identify rental owner names or addresses, according to Christopher McLaughlin, a professor of public law and government at the University of North Carolina’s School of Government. That agreement allows Airbnb to submit lump sum tax payments without identifying “the properties to which they relate,” McLaughlin wrote in a blog post last fall.

The payment system is open to abuse and prevents counties from ensuring “they’re getting the money they’re supposed to be getting,” McLauglin told Asheville Watchdog. Local governments could make the argument that Airbnb is not meeting tax obligations by not providing “information necessary to audit the taxes.”

“The time and effort it would take to sue Airbnb in San Francisco by one particular city in North Carolina is not going to be worth the increased revenue because for all we know they’re getting paid the right amount,” McLaughlin said. “Maybe they are, I don’t know, you’d like to think they are.”

Airbnb has signed hundreds of similar agreements with state and local governments around the country, “almost all of which prevent those governments from learning the names or addresses of Airbnb’s hosts,” McLaughlin wrote in his blog post.

In a statement to Asheville Watchdog, Airbnb said, “The tax collection agreements help streamline the tax collection and remittance process for Hosts and lighten the administrative burden for state and local governments. . .It does not include a host’s name or address because this information is neither required nor relevant for determining whether we’ve collected the right amount of tax and we take our responsibility to protect personal user data seriously.”

The company added, “As part of these agreements, Airbnb is responsible for ensuring all taxes are paid and there are audit provisions in place.”

‘Zero ability to audit’

Vrbo and Expedia also remit lump sum tax payments “without any supporting detail” but do not “appear to have signed formal agreements with the state or any of our local governments,” McLaughlin’s blog post said.

McLaughlin told The Watchdog he’s never seen the Airbnb agreement with the North Carolina Department of Revenue. “I’ve asked for it, and they told me it’s confidential,” he said.

When The Watchdog requested the agreement, spokesman Thomas Beam responded, “The Department of Revenue cannot confirm whether such a document exists. That information would be tax information protected by G.S. 105-259.”

Without information on which properties are paying taxes, “there’s zero ability to audit that,” McLaughlin said.

Buncombe Tax Collector Jennifer Pike said the county receives lump sum tax payments from Airbnb and other vacation rental companies.

“They’re not giving us a count of units that are available or rented, or any names, any property addresses,” she said. “They’re not required to provide any of that information.”

Asked how the county ensures the tax payments are accurate, Pike said, “That’s tricky because we do not have access to any of that information. So we’re basically relying on them.”

Airbnb said in its statement that the state Department  of Revenue “can request audits of returns at their discretion in order to verify that all appropriate taxes have been collected. If the DOR requests an audit, we would provide them with the sufficient information necessary to conduct an audit of Airbnb’s tax collection.”

The company said that in 2022, it “collected and remitted over $111.4 million in tourism taxes on behalf of Hosts in North Carolina.”

Enforcement difficult

The occupancy tax collected on stays in hotels, bed and breakfasts and vacation rentals in Buncombe is projected to total $36 million this fiscal year. The amount attributable to vacation rentals isn’t broken out, according to the tax collector and the Buncombe County Tourism Development Authority, which spends the tax proceeds promoting Asheville to visitors and funding local projects.

Short-term rentals have increasingly taken over a bigger share of the tourism market in Buncombe, more than tripling since 2017.

Who owns these rentals remains an unanswered question. Among them are realtors, investors, second- and third-homeowners, and local residents.

The Asheville City Council in 2018 banned short-term rentals of entire dwellings in the city, except for areas zoned as “resort.” “Homestays” – rentals of one or two bedrooms for fewer than 30 days in owner-occupied dwellings – are allowed by permit.

Homes that operated as vacation rentals before 2018 were allowed to continue. The best the city can do is estimate the number today: 179.

“It is important to emphasize that this is an estimate only as the City does not require the registration or permitting of these units for continued operation,” said Chris Collins, planning and development division manager.

The city relies generally on complaints to identify illegally operating short-term rentals. Code enforcement officers investigated 93 complaints in 2022 and 25 as of mid-July this year. The city issued at least four citations and six notices of violation during that time frame; the outcome of all the investigations is unavailable “due to limitations in reporting past statuses in the City’s permitting system,” a spokeswoman said.

Buncombe County is in charge of ensuring vacation rental owners pay their share of occupancy taxes.

“We do not typically audit occupancy tax remitters,” said Pike, the tax collector.

The county’s software has “checks and balances,” including flagging incorrect payments based on the receipts reported and sending out notices if no payment was received, she said.

The Airbnb statement said the company “works in partnership with tax authorities to provide auditable data to substantiate the accuracy and completeness of Airbnb tax collection and remittance efforts.” The company provides “all accommodation details such as number of nights, accommodation charge, additional charges (e.g., cleaning fees), and amount of tax collected. Using this information, a jurisdiction would be able to determine the accuracy of Airbnb’s tax collection and remittances.”

GreyBeard Realty in Black Mountain, which manages 283 vacation rentals in several counties, most of them in Buncombe, submits lump sum tax payments similar to Airbnb, said owner Chip Craig.

He said an outside firm hired by Buncombe County audited his company for occupancy taxes. “They looked at the past 3 years,” he said. “All was fine.”

Attempt to restrict regulations

A bill pending in the General Assembly could make oversight over vacation rentals even harder. Sponsored by Sen. Timothy Moffitt, a Republican whose district includes Henderson County, SB667 would prevent cities from enacting regulations that prohibit the use of any residential property, including accessory dwelling units, as short-term rentals.

The bill describes vacation rentals as “vital to the tourism and marketability of the state” and says local governments “often frustrate tourism and infringe” on property owners’ rights to “use their property as they see fit.”

The bill could make Asheville’s current ban on short-term rentals unenforceable.

“If passed, the true effect may not be fully clear until local governments have had a chance to adjust their own rules to come into compliance,” City Attorney Brad Branham said via email. “This, at times, results in litigation, which allows the Courts to add their own say on the final meaning.

“However . . . I believe that the current draft of the bill would require the City of Asheville to rethink its current prohibitions against whole home rental, as well as our homestay program. This may include completely removing these ordinances from our City Code.”

Asheville Watchdog is a nonprofit news team producing stories that matter to Asheville and Buncombe County. Sally Kestin is a Pulitzer Prize-winning investigative reporter. Email [email protected].