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Court strikes down parts of Austin vacation rental law

  • Dec 10, 2019 | Jennifer Sokolowsky

Austin, Texas

A Texas appeals court has struck down key parts of Austin’s embattled short-term rental law.

The Third Court of Appeals ruled that two elements of the ordinance are unconstitutional: The requirement that hosts only rent out their primary residences, and rules about how guests can use vacation rentals. The ruling overturned an earlier local district court decision.

The city’s 2016 short-term rental law differentiated between Type 1 short-term rentals, where owners live on site and claim the property as their primary residence, and Type 2 rentals, which are not occupied by the owners. The law halted licensing for Type 2 rentals in residential areas, with a total phaseout of these types of rentals by April 1, 2022.

The court wrote in its opinion that “the ordinance provision banning non-homestead short-term rentals significantly affects property owners’ substantial interests in well-recognized property rights while ... serving a minimal, if any, public interest.”

The law also limited occupancy and banned group events (such as weddings and bachelor parties) between 10 p.m. and 7 a.m. This provision infringes “on Texans’ fundamental right to assemble because it limits peaceable assembly on private property," the court wrote.

The Center for the American Future, a legal arm of the Texas Public Policy Foundation representing short-term rental owners, sued the city over the law in 2016.

Austin’s requirement for short-term rental properties to be licensed was not part of the ruling. Unlicensed short-term rentals are prohibited from advertising, with fines of up to $2,000 per day for violations.

Austin has been aggressive in pursuing vacation rental rule-breakers and has hired Host Compliance, a short-term rental data company, to provide information on unlicensed short-term rentals. The city recently sent out warning notices to short-term rental operators believed to be operating without a permit.

The appellate court’s ruling also did not affect vacation rental tax rules. Austin recently raised its hotel occupancy tax rate from 7% to 9%. Short-term rental hosts are required to collect these city taxes from guests, as well as a 6% state hotel occupancy tax. Hosts must register with tax authorities and file regular lodging tax returns at both the state and city level.

Airbnb and Vrbo/HomeAway automatically collect the state portion of the tax for bookings on their platforms. However, those platforms do not collect city tax, so Austin hosts must collect and remit the city portion of the tax themselves.

MyLodgeTax can help short-term rental hosts automate and simplify city and state lodging tax compliance, from registration to tax return filing. If you have tax questions related to Austin vacation rental properties, drop us a line and we’ll get back to you with answers.

For more on lodging taxes in Texas, see our state Hotel Occupancy Tax Guide.

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.