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Tourism: Bills would let county crack down on unpaid rental taxes
By Charles Swenson
The state and local government will be able to work together to ensure that people who rent their vacation homes collect accommodations tax and sales tax under bills introduced in the legislature this month.
The Fairness in Lodging Act is intended to counter the rise of online rental sites that make it easier for owners to avoid the taxes, said state Sen. Ray Cleary. He introduced the bill in the Senate.
“I don’t have a problem if they rent the property on their own, I just have a problem if they don’t pay the taxes,” he said.
A companion bill was introduced in the House, sponsored by Rep. Stephen Goldfinch and six members of the Horry County legislative delegation.
“If we’re going to have the tax on the books, then we should be collecting it,” Goldfinch said. “We’re losing a lot of revenue to the online people right now.”
The bill allows local government to share data with the state Department of Revenue in order to track down owners who aren’t paying the taxes. It would require cities and counties to adopt an ordinance and to include notice of the law in property tax bills for owners of non-residential property. The bill would also create a penalty of $500 to $2,000 for each week a property was rented that the owner didn’t have a business license.
Lee Hewitt, co-owner and broker-in-charge of Garden City Realty, has pressed lawmakers to act on the issue for several years. “More homeowners are doing rentals on their own. I don’t have a problem with that,” he said.
What Hewitt objects to is the advantage individuals get by avoiding the taxes. “DOR doesn’t want to have to go chase these people. They come in here all the time and audit us,” he said.
He said Revenue Department did an audit of 195 of the 4,600 properties listed on the website VRBO, Vacation Rentals By Owner. It netted over $800,000 in taxes, which were collected for the previous three years.
The town of Isle of Palms has 1,100 vacation rentals, Hewitt said, about the same as the Garden City Beach area. The town has a full-time employee to track compliance with the accommodations tax law. “They can justify a full-time person just to run that down,” he said.
“Compliance has become a huge, huge issue,” County Council Member Jerry Oakley said. His district includes the Litchfield Beaches and Garden City. “That legislation would be very helpful.”
He said the county looked at the rental issue a few years ago when it hired a contractor to audit property tax assessments. “Council was persuaded that it was huge amounts of money,” Oakley said.
Hewitt said he has been told by Revenue Department employees that they get pressure from lawmakers when they investigate non-payment of taxes from owners of high-end rental property. “That’s why we’re taking it out of DOR’s hands,” Cleary said. “The state doesn’t have to enforce it. It allows the county to enforce it.”
Hewitt said he’d be just as happy if the state eliminated the taxes on rental property. In Georgetown County, those amount to a 5 percent state sales tax, a 3 percent county accommodations tax and a 2 percent state accommodations tax. “I’ve been told that’s not going to happen,” he said.
The local accommodations tax is intended to cover the cost of providing services to visitors. The state tax is for “tourism-related” services and a portion is required to be spent on tourism marketing. The town of Pawleys Island doesn’t have a municipal property tax; its largest source of revenue is accommodations taxes. Georgetown County has 10 requests of a portion of the state accommodations tax totaling $841,000 to fund a range of services as well as additional tourism advertising. It only has $487,000 available.
Cleary said there could be as much as $100 million in uncollected tax revenue from private rentals. “It creates an unfair playing field,” he said.
Cleary, a Republican, said the bill has run into opposition from some members of the Tea Party wing of the party who say it will stifle competition. “That surprised me,” he said. “I always believed the Tea Party believed in fiscal responsibility. Fiscal responsibility is paying your taxes, not evading your taxes.”