South Carolina’s House Bill 3876 would hurt small short-term rental providers

South Carolina localities have a history of hostility toward short-term rentals (STRs), and the latest statewide effort is found in House Bill 3876. This bill would impose significant restrictions against both local STR providers and the digital platforms that support them. HB 3876 would establish arbitrary limits on short-term rental providers, undermining property rights and distorting the STR market in favor of large providers capable of absorbing the additional costs this legislation imposes.

What does House Bill 3876 do?

While the expressed goal of this legislation is to standardize and streamline tax collection for STRs, it contains several harmful provisions that limit providers’ ability to participate in the market, disproportionately burdening smaller hosts.

First, HB 3876 would prevent STR owners who use a property management company from also using a digital platform, like Airbnb or Vrbo, to complete the tax and fee collection process. Instead, the property manager must handle those responsibilities.

Property management companies significantly reduce transaction costs for STR providers, often handling tasks such as cleaning, maintenance, and guest communications. Especially for hosts who live far from their rental properties, they are integral to making short-term rentals possible. However, if the booking is done through a digital platform, then the platform handles the taxes and fees associated with the transaction. Platforms are not designed to let someone else take over tax collection for a listing that uses their service.

By arbitrarily requiring property management companies to process taxes and fees when they are involved, HB 3876 conflicts with the structure of digital platforms. This misalignment makes it nearly impossible for hosts who use property managers to continue using them in practice.

To standardize the tax collection process, legislators have ignored the realities of STR transactions, unnecessarily forcing hosts to choose between property management services and online platforms. If hosts pay all required taxes and fees, they should have the freedom to decide how to comply without being forced to follow an impractical and poorly designed requirement.

Further, HB 3876 requires that every STR provider and intermediary submit an annual report to the South Carolina Department of Revenue listing the address of any STR that was rented for more than 14 days. The listed 14-day threshold is arbitrary and imposes an unnecessary burden on hosts. Without clear public interest, there is no justification for the state to require this information or to treat hosts renting for just 15 days like large commercial enterprises.

HB 3876 risks making short-term rentals in South Carolina so burdensome that many small hosts could be forced out of the market entirely. Homeowners should be free to rent their property and pay their taxes as they see fit, provided they comply with the law. Beyond this principle, STRs are a vital part of the tourism economy in South Carolina and across the United States. It would be shortsighted for the state to restrict this vibrant market.

The role of STRs and competitors in South Carolina 

Though the property rights of homeowners should not need to be justified through tax revenue generation or gross domestic product contribution, it remains the case that the short-term rental market benefits South Carolina’s economy. HB 3876, if passed, could cut off a valuable source of income for both residents and the state government. Tourism is one of the largest sectors of South Carolina’s economy, accounting for an estimated 10% of total employment. With developments in technology, such as the emergence of digital platforms, short-term rentals are playing an increasing role in the state’s economy. 

In 2022, it was estimated that the economic impact of the cumulative short-term rental market in South Carolina was $4.2 billion, including all direct and indirect goods and services attributable to STRs. From bookings on Airbnb alone, South Carolina collected $60 million in tourism tax revenue in 2023. A substantial share of this economic activity and tax revenue is generated by small hosts who use short-term rentals to support their own cost of living.

As of 2023, 80% of Airbnb hosts in South Carolina have only one whole-home listing, and 56% reported that renting out their home has helped them cover rising costs of living. These hosts may find it particularly burdensome to comply with the demands in HB 3876. If they leave the STR market due to compliance difficulties, the accommodation needs of South Carolina’s tourists will be met elsewhere, likely by larger providers able to absorb these costs.

The role of hotels in either banning STRs or making it more difficult for them to operate has been well documented in cities across the United States. Feeling pressure from the success of STRs, hotels, and large vacation rental companies are pushing to limit them, either through outright bans or restrictive regulations that make it harder for small hosts to operate. Where these efforts have been successful, the result has been higher accommodation costs for tourists and a stream of revenue lost for hosts. The push to restrict STRs as presented in HB 3876 could represent an extension of this same pattern. Instead of restricting small providers, legislators looking to even the playing field should consider deregulating large providers and hotels as well.

Takeaways

South Carolina benefits from short-term rentals, and undermining this market through unrealistic legislation would be a mistake. Even without considering their economic impact, there is no justification for infringing on homeowners’ property rights and unnecessarily making it difficult to operate their short-term rentals.

By making it harder for small hosts to operate, legislators are reshaping the short-term rental market in a covert and obstructive way. In practice, HB 3876 serves as an unnecessary barrier to entry for the short-term rental market, lacks a clear public-interest justification, and ultimately drives smaller hosts out.

The post South Carolina’s House Bill 3876 would hurt small short-term rental providers appeared first on Reason Foundation.

Source: https://reason.org/commentary/south-carolinas-house-bill-3876-would-hurt-small-short-term-rental-providers/