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Court rules against Airbnb in Santa Monica case

  • Mar 19, 2019 | Jennifer Sokolowsky

Santa Monica, California

A federal appeals court has ruled against Airbnb and HomeAway, allowing the city of Santa Monica, California, to hold short-term rental platforms liable for listings of illegal short-term rentals on their sites.

At issue is a Santa Monica law making it illegal for anyone, including “hosting platform” operators to advertise illegal short-term rental activity. The law requires short-term rental operators to register with the city for a business license, display the business license number in any advertisements, and collect lodging taxes.

Santa Monica prohibits whole-home short-term rentals in properties where the host is not present, which the city calls “vacation rentals.” The city does allow “home sharing,” where part of a property is offered for short-term rentals while the host is present.

After the law went into effect in 2015, the city fined platforms more than $40,000 for posting listings for illegal short-term rental properties. The platforms challenged the law in court, arguing that the ordinance violated the Communications Decency Act, which offers websites immunity from liability for content that users post on their sites. They also argued that the ordinance violated the First Amendment by restricting their commercial speech.

However, a three-judge panel of the United States Court of Appeals for the Ninth Circuit ruled that the law did not violate the Communications Decency Act or the First Amendment, upholding a prior ruling.

“Like their brick-and-mortar counterparts, internet companies must also comply with any number of local regulations concerning, for example, employment, tax, or zoning,” Ninth Circuit Judge Jacqueline Nguyen wrote. “Because the ordinance would not pose an obstacle to Congress’s aim to encourage self-monitoring of third-party content, we hold that obstacle preemption does not preclude Santa Monica from enforcing the ordinance.”

The ruling permits the city to once again enforce all the provisions of the law, including tax requirements. Short-term rental operators in Santa Monica are required to collect transient occupancy tax from guests and pay it to the city every month.

When a short-term rental platform collects payment from guests on behalf of a short-term rental operator, both the operator and the platform are legally responsible for collection and payment of the tax. Currently, both Airbnb and HomeAway collect and pay transient lodging tax on behalf of their Santa Monica hosts.

Automated solutions such as MyLodgeTax can help hosts make sure they comply with all lodging tax obligations as Santa Monica resumes enforcement of its short-term rental rules.

Airbnb and HomeAway have been busy in court recently fighting community restrictions on short-term rentals. While the Santa Monica ruling was a defeat for short-term rental platforms, they have also had some wins.

In Hawaii, a federal judge denied the state’s attempt to subpoena 10 years of records from Airbnb in order to find out which of its hosts are paying lodging taxes. According to the judge, the state failed to prove that a substantial number of Airbnb hosts are disobeying tax laws. The Hawaii Department of Taxation plans to appeal the ruling.

Earlier this year, a federal judge blocked part of a New York City law requiring short-term rental platforms to disclose listing information to the city, including the name and address of hosts as well as the total number of days the property was rented.

Airbnb and HomeAway had sued New York City after the law was passed, claiming the requirement to release host data to the city violates privacy. The judge issued a preliminary injunction against the data-disclosure requirement while the lawsuit is being decided.

However, the city then issued a subpoena to force the short-term rental platforms to turn over data for approximately 20,000 listings.

Meanwhile, Airbnb sued Boston last year over its new short-term rental rules that require platforms to share data with the city and remove any hosts who break the rules. In November, the city agreed to delay enforcement of the data-sharing requirements until a judge rules on Airbnb’s request for an injunction while the case proceeds.     

Lodging tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Jennifer Sokolowsky
Avalara Author Jennifer Sokolowsky
Jennifer Sokolowsky writes about tax, legal, and tech topics. She has an extensive international background in journalism and marketing, including work with The Seattle Times, The Prague Post, Avvo, and Marriott.