Short-Term Rental Compliance in California

State Regulation

California’s short-term rental market offers great opportunities, but it comes with various local regulations that hosts must understand. Rules differ by city and county, covering everything from permits and licensing to taxes and rental caps. Compliance is crucial to avoid penalties.

This guide highlights key aspects like licensing, tax requirements, and local restrictions, helping hosts navigate the legal landscape and run a successful rental business. Whether you're starting out or looking to optimize, knowing these regulations will help you make informed decisions in California’s dynamic short-term rental market.

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Is STR legal in the State?

Short-term rentals (STRs) are legal in many parts of California, but regulations are heavily influenced by local ordinances, which means rules vary greatly across cities and counties. Some places allow STRs with strict conditions, some are more flexible, while others have outright bans. For instance:

• Santa Monica: STRs (full-home rentals) are banned, and only home-sharing is allowed, where the host must be present during the guest's stay.

• Manhattan Beach: STRs are prohibited in residential areas; only commercial properties allow STRs, with a minimum stay of 30 days.

• San Francisco: requires hosts to reside in the property for at least 275 days per year.

• Hermosa Beach: STRs are banned entirely in all residential areas.

• Los Angeles: limits STRs to primary residences and caps rentals at 120 days unless extended.

Is there a statewide definition of STR?

California defines a short-term rental as any property rented for 30 consecutive days or fewer. This is the statewide definition, but local governments can set additional parameters. For instance, some jurisdictions may require the host to live on-site for a certain period or restrict the number of days a property can be rented to guests

Statewide Registration Requirement

To legally operate an STR in California, hosts must register their business at both the state and local levels. Here’s how:

Choose a Business Structure: You can operate your STR as a sole proprietorship, LLC (Limited Liability Company), or corporation. Most hosts opt for an LLC due to the liability protection it offers, keeping personal assets separate from business liabilities.
Obtain an Employer Identification Number (EIN): An EIN is required for tax purposes, especially if you plan to hire employees or need to open a business bank account. You can apply for an EIN through the IRS website.
Register with Local Authorities: Each city in California requires hosts to obtain a business license to operate STRs legally.

The requirements vary by location:

San Francisco: Hosts must register with the Office of Short-Term Rentals and apply for a business license. Registration costs about $450, and hosts must renew every two years.
Los Angeles: A home-sharing permit is required for $89 annually, along with a registration number that must be included on all listings.

Statewide Tax Requirement

Short-term rental hosts in California must comply with state tax requirements as well as the federal and local level taxes.

California State Income Tax: STR income is also subject to California state income tax. Hosts must report their rental earnings on their California tax returns, along with their federal tax filings.
California State Sales Tax: Short-term rental income is also subject to California state sales tax if the rental property includes taxable services, such as cleaning fees, or if the property is considered a lodging business.
Transient Occupancy Tax (TOT):

In California, most cities and counties impose a TOT on rentals lasting less than 30 days. The rates vary by location, typically range from 6% to 15%:

[ ] Los Angeles: 14%

[ ] Palm Springs: 11.5%

[ ] Santa Barbara: 12%

TOT can be collected by platforms like Airbnb or Vrbo, but hosts should verify if they are responsible for remitting taxes independently.

Is there any other state-wide requirement?

Each city in California has unique regulations that STR hosts must follow. Here are key examples:

San Diego:

San Diego requires STR hosts to obtain an STRO license. The city categorizes STR licenses into part-time (renting fewer than 20 days per year) and full-time (more than 20 days). Only 1% of the housing stock can be licensed for full-time rentals. Hosts must also collect and remit TOT to the city.

San Francisco:

San Francisco requires STR hosts to register with the Office of Short-Term Rentals and obtain a business license. STRs are limited to primary residences, and un-hosted rentals cannot exceed 90 days per year. Hosts must provide proof of liability insurance and ensure compliance with local zoning and safety laws.

Palm Springs:

Palm Springs allows STRs, but hosts are subject to a strict code of conduct. The city caps the number of rental contracts to 32 per year and imposes fines for non-compliance. Hosts must obtain a vacation rental certificate and pay TOT.

Best Practices for STR Hosts in California

Stay Updated on Local Laws: Short-term rental laws change frequently. It is essential to stay informed about new regulations in your city or county by following a platform like Lodge Compliance on Social Media for recent news to avoid fines and penalties.
Comply with Zoning and Safety Requirements: Many cities, such as Santa Barbara and Los Angeles, have strict zoning laws that dictate where STRs can operate. Be sure to comply with fire safety codes, maintain appropriate insurance, and provide clear safety instructions for guests.
Maximize Tax Deductions: To minimize your tax liability, keep detailed records of all expenses related to your rental property, such as utilities, repairs, and management fees.

Check the Lodge Compliance website for the law that affects your locale.

California

Best Practices for STR Hosts in California

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