Leaving money on the table: How Airbnb and other short-term rentals are costing KC

Kansas City officials have tried and failed for years to compel the Missouri legislature to regulate emerging technologies and disruptive business models such as ride-sharing app Uber, Bird scooters and online property rental giant Airbnb.

State lawmakers’ unwillingness to allow cities to tax short-term rentals, coupled with a lack of resources needed to enforce Kansas City’s own regulations, are costing the city dearly. Missouri laws and city staffing aren’t keeping pace with this burgeoning industry, and Kansas City is losing out on needed revenues as a result.

Kansas City spent more than three years studying the home-share model and its effect on property owners and their neighbors. The city eventually developed a comprehensive ordinance regulating short-term rental listings on sites such as Airbnb.com, HomeAway.com and VRBO.com.

The policy, while not perfect, is carefully considered and crafted. But resources for enforcement are sorely lacking. As a result, there are about 1,300 known short-term rentals operating in Kansas City without a permit.

Those scofflaws haven’t paid required fees, depriving the city of funds needed to enforce the ordinance. Unregistered hosts likely aren’t remitting sales taxes, either.

The city plans to send notices advising rule breakers to either apply for permits, or cease operations. But the city doesn’t have the resources to follow up and initiate enforcement on so many properties, said Joseph Rexwinkle, manager of the city’s Development Management Division.

“We do not have any dedicated enforcement staff for this ordinance, so the same group that is enforcing these short-term rental properties is doing this task in addition to their other tasks,” Rexwinkle said.

Compounding the city’s problems is a state law that prevents Kansas City from collecting tax revenue associated with some short-term rentals.

Currently, Kansas City cannot force individual property owners to charge guests what is known as a convention and tourism tax, a 7.5% excise that the guest would pay, and the host — or a platform such as Airbnb — would collect on behalf of the host.

In Jackson County, hosts collected $12.5 million in revenue last year. Most did not pay the tourism tax, costing the city hundreds of thousands of dollars. Jackson County does not collect the tax.

Kansas City officials say taxing short-term rental properties with fewer than eight units would require clearing two hurdles: The legislature would need to pass an enabling statute, and Kansas City voters would have to approve the tax.

Collecting a tourism tax in Kansas City is simply a matter of fairness. If hotels, motels and bed-and-breakfast operations are subjected to a tourism tax and other regulations such as fire codes and requirements for commercial insurance, short-term rentals should be as well.

“Visit KC supports fair taxation across all lodging types,” said Visit KC President and CEO of Jason Fulvi. The tourism agency is partially funded through the city’s hotel lodging tax. “To that end, we feel that it would be worthwhile to explore fair taxation of these properties for the benefit of the city’s and state’s economies.”

The city should continue to pursue a change in state law. In the meantime, here’s what local officials can do: Enforce the current policy requiring hosts to register short-term rentals as small businesses, and collect the required fees and sales taxes from non-compliant short-term rental operators.

The city also should consider borrowing an idea from San Francisco, which created an office of short-term rentals. Airbnb and HomeAway provide the office with a monthly accounting of all registered listings, and they deactivate listings if the companies receive notice of an invalid registration.

Kansas City has taken the right approach to developing regulations for short-term rentals. But the reality is the city does not have the capacity to enforce its own policies.

Both the city and the state need to take steps to keep pace with an evolving economy. An unregulated market is not in the best interest of Kansas City or its residents.

This story was originally published June 29, 2019 at 5:00 AM.