Should Morro Bay tax vacation rentals like hotels? City council says yes

UPDATED STORY: The Morro Bay City Council voted 4-1 Tuesday to initiate the process of forming a new 3 percent assessment on vacation rentals to go toward the city’s Tourism Business Improvement District, with Councilman Jeff Heller dissenting.

But the council opted not to pursue a similar proposed tax on city RV park properties.

Council members discussed the potential for creating a new ordinance regarding vacation rentals that better reflects the city’s current housing and quality of life interests. Council member Marlys McPherson expressed a desire to expedite a new ordinance, which has been discussed for years.

No timeline on that has been determined yet.

Council members also expressed a desire to direct money toward physical improvements on streets, bathrooms and lighting, among other infrastructure, as part of the city’s tourism and public improvement efforts.

Multiple council members said those improvements should be prioritized over tourism marketing spending.

ORIGINAL STORY: A controversial proposed tax on vacation rentals and RV parks in Morro Bay will come before the City Council on Tuesday.

In a meeting that’s expected to generate lively debate among tourism industry representatives, a new 3% assessment on vacation and RV park rentals is at issue.

If the council gives the go-ahead, the new tax could go into effect in early 2020 after an ordinance is formed.

Vacation rentals include homes made available for stays under 30 days, typically through online services such as Airbnb and Vrbo.

The new tax could generate about $218,000 for tourism marketing in the city.

Currently, hotel guests in Morro Bay pay a 3% tax that goes to the city’s Tourism Business Improvement District for marketing the city to prospective tourists nationwide. That assessment is projected to generate about $835,000 in 2019-20.

Opposition is expected by some in the vacation rental and RV industry, who say the tax is too high and will deter lodging, ultimately hurting overall tourism.

Alternatives for 1% or 2% taxes for vacation rentals and RV parks are on the table as well.

MB Kite Festival034
Morro Bay is proposing a new vacation rental tax that would help attract tourists through marketing. Here, a kite is flown with the backdrop of Morro Rock. Laura Dickinson ldickinson@thetribunenews.com

The city currently has 250 registered vacation rentals, which is its cap, and a total of 266 RV rental spaces that are available for stays under 30 days.

“I would anticipate a pretty good turnout for this discussion,” said Morro Bay City Manager Scott Collins. “It was several years ago when this was first considered along with the hotel assessment, but vacation rentals were a fairly new concept at the time. Now, vacation rentals are an integral part of the tourism community and they benefit from the tourism marketing that helps attract people to the city.“

Collins added he hopes that the discussion will lead to productive conversation about a pathway forward.

“I think we’ll hear comments on both sides of the issue and hopefully we can build unity and get people in the industry all working together,” Collins said.

Tourists stop to watch fish being unloaded at the Morro Bay Fishermen’s Wharf. dmiddlecamp@thetribunenews.com

Vacation rental owners who weighed in on the issue on the city’s website largely opposed the idea of the new tax, or at least one as high as 3%.

Comments included the following:

▪ “3% is the highest in the county and it’s too high, but I could go along with 1%.”

”Wow, do we benefit from tourism marketing efforts? I’d want to understand what we’d be getting for the money.”

”We don’t see ourselves as competitors to hotels as our guest is very different and seeks out our accommodations because of multiple bedrooms and a kitchen.”

But other commenters expressed support for an equitable tax that puts vacation rentals and RV stays on par with hotels:

”Additional dollars to use for marketing Morro Bay makes sense.”

”The city really needs to step up and enforce illegal (vacation rentals).”

“I know (vacation rentals) don’t think they see the benefit of our marketing efforts, but anytime you drive overall awareness of a community through marketing, every lodging type benefits in some way.”

Collins said that vacation rental owners currently pay a business license fee that amounts to about $150 per year. Additionally, about 90 applicants are on the waiting list to register their homes.

The city is currently considering hiring a compliance firm that would conduct checks on any vacation rentals that are being illegally marketed without a business license.

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Nick Wilson covers the city of San Luis Obispo and has been a reporter at The Tribune in San Luis Obispo since 2004. He also writes regularly about K-12 education, Cal Poly, Morro Bay and Los Osos. He is a graduate of UC Santa Barbara and UC Berkeley and is originally from Ojai.