Will Arizona’s Latest Attempt to Rein in Vacation Rental Scofflaws do Enough to Make a Difference?

Article originally posted on AZ Central on March 17, 2021

The bill has the backing of the industry, including Airbnb and Vrbo owner Expedia Group, but not of cities and neighbors who live near the properties.

Arizona lawmakers are again looking for ways to punish bad actors in the vacation rental market. This year, they’re targeting tax licenses for those who repeatedly create neighborhood nuisances.

The move has the backing of the industry, including Airbnb and Vrbo owner Expedia Group, but not of cities and neighbors who live near the properties.

Sen. J.D. Mesnard, R-Chandler, is sponsoring Senate Bill 1379, which would allow the Department of Revenue to suspend a tax license for a rental property — effectively putting it out of business — for a year if the rental has three violations for things like noise or loud parties in a 12-month period.

The bill passed the House Commerce Committee on a unanimous vote Tuesday after already clearing the Senate, meaning it is just a few steps from heading to the governor for a signature or veto.

In addition to the tax license suspension, the proposal would allow municipalities to increase penalties for those three violations.

A first violation would increase to $500 or the advertised nightly rate for the property, whichever is greater. The second violation could go as high as two night’s rent and the third violation within a year would increase to $3,500 or three night’s rent. The first three penalties today are limited to $500, $1,000 and $1,500.

After a third violation, the Department of Revenue could revoke the tax license for a year.

The bill also allows municipalities to require the owner of a vacation rental or short-term rental to maintain liability insurance of $500,000.

As originally drafted, Senate Bill 1379 would have allowed municipalities to limit rental occupancy, but that portion of the bill was removed.

Rental companies support bill

A group called Arizonans for Responsible Tourism Recovery, which represents vacation-rental owners who support mild reforms, supports the bill and brought four rental owners from around the state to the Capitol on Tuesday to voice their support.

“My properties have never received a complaint from my neighbors that was not immediately addressed because I employ all the tools at my disposal,” said Sara Alper, a member of the group from Sedona, said before Tuesday’s hearing.

She said she requires renters to provide a government identification, charges a high-security deposit, only accepts renters with five-star reviews, and watches out for “red flags” from renters that could be problematic.

She and other members of the group discussed how renting out homes helps their families financially.

But people who live near vacation rentals cite problems with the houses they say they would not have with permanent neighbors and say the bill doesn’t do enough.

“We have heard renters having sex in the backyard,” said Chandler resident Vandama Verma. She said at Tuesday’s hearing that she lives near the former home of House Commerce Committee Chairman Jeff Weninger, R-Chandler.

“We have been woken up by very loud groups of people at all hours of the day and night. We have had to call the police department several times.”

Others, like Melissa Kovacs, who lives near Old Town Scottsdale, say they have tried to contact property owners to complain about the problems to no avail.

Kovacs has one rental property next to her home and two others nearby, meaning some nights she has three loud groups around her home.

“The short-term rentals that are the party houses in our neighborhood, they are registered with the city and we do have their contact information,” Kovacs said.

“We contact the property owners and the property managers and we notify them that their guests are disrupting the neighborhood, but there’s been no changes. It’s not making a change and we still cannot sleep through the night.”

Arizona limited cities in 2016

Limits on vacation rentals have been controversial in Arizona since 2016, when Gov. Doug Ducey signed a bill that prevented municipalities from imposing additional restrictions on them, other than existing noise ordinances and other laws that hard-partying vacationers often ignore.

People who live next to houses have asked lawmakers to allow cities to address the problems with zoning and other barriers, but lawmakers like Mesnard say they don’t want to hurt all the business owners just because some of them create problems.

The Legislature passed limited restrictions in 2019 targeting rental houses used for special events like weddings. But lawmakers lacked enough support to pass the larger measures that neighbors wanted.

Officials from municipalities around the state have spoken out against the Legislature’s handcuffing of their ability to address the problems from short-term vacation rentals, and officials from Scottsdale, Paradise Valley, Fountain Hills, Surprise signed in opposed to the bill.

“I think the issue overwhelmingly is that local decision-making was taken away for the purposes of short-term rentals,” said Nick Ponder, representing the League of Arizona Cities and Towns.

He said the problem is not just party houses, but when a neighborhood gets “overrun” with vacation rentals.

“(People) moved into the neighborhood with the understanding that it would be a neighborhood and that they would have people next door and across the street that they would recognize and be able to befriend,” he said. “And now when those have turned into business operations, which was not the expectation when they moved into that neighborhood, I think those are some concerns as well.”

Ponder said that municipalities continue to struggle to address vacation-rental issues because even with fines, police departments are reluctant to answer every noise complaint, and issuing citations can be time-consuming for cities.

“Cities in no way are interested in banning short-term rentals,” he said.

He said that revoking a sales tax license is a major threat to rental owners, but there are likely easy ways for owners to get around such penalties, such as registering the business under a partner’s name and a new limited liability corporation to continue operations.

Other states allow regulations

Ponder said Arizona appears to have the most protective laws in the nation for vacation-rental companies.

Other states, including those with reliably Republican majorities in their statehouses, allow municipalities to set local rules on vacation rentals.

For example, Teton County, Wyoming, which includes Jackson and a portion of Yellowstone National Park, doesn’t allow rentals for fewer than 31 days.

Helena, Montana, allows 25 rental properties within the city, and provides a public list and map of those permitted locations.

Dallas doesn’t have regulations but is considering them because party houses are so disturbing to neighborhoods.

Fayetteville, Arkansas is developing regulations that have been under review a year.

And Savannah, Georgia requires owners to register with the city and comply with rules, but that state is considering an Arizona-like ban on municipal rules that some residents oppose.

Mesnard said Tuesday he didn’t think allowing municipalities in Arizona to set their own regulations is wise because it would lead to a “patchwork” of regulations, even though that is how vacation rental companies like Airbnb and VRBO operate in other states.

“There is the potential for folks who decide because of this one bad apple (property owner), I want to kick all these folks out of my city, and that causes victims on the other side,” Mesnard said. “Some of these fine folks you heard from that make a living on this and are following the rules are penalized. I think that is a bridge too far.”

He said that if just a few people in a city “get really ginned up” they can create rules “to run these folks out of town.”