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Judge strikes down part of Austin STR law

  • Sep 19, 2023 | Jennifer Sokolowsky

A federal judge has struck down part of a short-term rental (STR) law in Austin, Texas, that bans unhosted STRs in residential areas. The ruling by Senior U.S. District Judge David Alan Ezra addressed a lawsuit filed by STR owners Robert and Roberta Anding.

In 2014, the Andings bought a property next to Lake Austin, intending to operate it as a short-term rental. Austin then passed a new STR law in 2016. The ordinance 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. After the ordinance was passed, the city stopped issuing new Type 2 licenses and was set to phase out all Type 2 rentals by April 1, 2022.

In 2019, the state Third Court of Appeals ruled that two elements of the ordinance were unconstitutional: The requirement that hosts only rent out their primary residences, and rules about how guests can use vacation rentals. 

After the 2019 ruling, the city changed the law to continue to allow Type 2 STRs, but limited them to commercial areas of the city. Only Type 1 licenses have been allowed in residential areas since then.

Now, Type 2 licenses must be allowed in the same areas as Type 1 licenses, according to the city.

According to the 2019 ruling, the Andings should have been eligible to apply for an STR license, but Austin never approved their application because the property wasn’t their primary residence. In the latest ruling, the judge stated that STR hosts who owned their property before the 2016 ordinance went into effect are eligible for a Type 2 license. 

The city is working on updating the online application process for Type 2 licenses in residential zones.

In a similar case in New Orleans earlier this year, a federal appeals court ruled that the city’s STR law discriminates against out-of-state property owners. In New Orleans, vacation rental hosts in residential neighborhoods had to have a “homestead exemption,” meaning they live there and claim the property as their primary residence to qualify for a short-term rental license. The ruling prompted the city to approve a new STR ordinance.

Austin requires STR operators to obtain a license from the city, provide proof of insurance, and designate a local agent who can be contacted in case of issues. The law also prohibits unlicensed short-term rentals from advertising, restricts the density of short-term rentals within neighborhoods, and establishes limits on the number of guests and noise levels.

STR hosts in Austin are also required to collect city lodging taxes from guests. All STRs in Texas are also subject to state hotel occupancy tax. Operators must register with the Texas Comptroller’s Office, collect taxes, and file state occupancy tax returns. Registration and filing aren’t required if an online short-term rental marketplace such as Airbnb or Vrbo collects all state hotel occupancy taxes for the property.

Airbnb and Vrbo automatically collect the state portion of the tax for bookings on their sites. However, those marketplaces don’t collect city occupancy tax, so Austin hosts must collect and remit that 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 Texas vacation rental properties, drop us a line and we’ll get back to you with answers. See our Texas Vacation Rental Tax Guide for more on short-term rental taxes in the state.

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.
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