OCEAN CITY — With newfound cooperation, or at least conversation, with online rental hosting platforms, resort officials this week approved on second reading an ordinance requiring all rental properties acquire the appropriate rental license and remit room tax.
For the last couple of years, Ocean City has been working on code changes that will help ensure all rental properties are paying for rental licenses regardless of how the properties are rented, whether it is through a traditional rental agency, online or through a third-party hosting platform such as Airbnb, VRBO or Expedia, for example.
The second part of the equation is ensuring rental properties are remitting the appropriate room tax and sales tax, which is sent to the county and come back to Ocean City through an established formula. With the proliferation of third-party hosting platforms, the resort has faced challenges in ensuring rental licenses are being acquired and room tax is being remitted.
When the ordinance was presented for first reading earlier this month, City Solicitor Heather Stansbury and Planning and Community Development Director Bill Neville explained to the council there had been conversations with at least one of the third-party hosting platforms about cooperating with the resort in its efforts to identify room tax scofflaws. When the ordinance came up for second reading on Monday, Stansbury explained in the two weeks since, more of the third-party hosting platforms had reached out expressing an interest in working with the city on the rental license and room tax issues.
“If you recall, when this was accepted at first reading, we had had a discussion with one of the third-party hosting platforms — at that point it was just one,” she said. “Since that time, we have been able to make contact with several of them. We’ve had various conversations and changes we’ve made are slight, but we think this makes better sense now that we understand what happens on their end.”
Councilman John Gehrig said the tweaks in the second reading version of the ordinance insulated the third-party hosting platforms from potential penalties for not acquiring rental license numbers from listings. He said the online listing application should include a field or a box where the property owner would be required to enter their rental license number.
“Well, they’re no longer going to be in violation if there are no numbers or incorrect numbers,” he said. “Their responsibility is providing a field that requires me, for example, to put my unit on their platform. Whether I put the real number or a fake number is irrelevant to them.”
Neville said that is somewhat true, but the concessions made to the online platforms in the amended ordinance came with a benefit to the town. He said there were trade-offs with the online platforms in exchange for access to their databases and other information that could help the town track those listings without rental license numbers.
“You’re correct, but we’ve trade the rental violation for their willingness to give us the required field, giving us access to their database and their commitment that if we come up with an invalid license number, they will take it down. What we found by talking to them about it is they are willing to be a partner with us on those terms.”
Gehrig said it appeared under the amended ordinance the third-party platforms would include in the listing application a field in which the property owner would enter a rental license number, but that didn’t mean the hosting party would pull any listing without confirming if the number was accurate.
“So, they couldn’t pull it right away?” he said. “It would be pending until we validate it. I just don’t want to give that up. This is nothing to them. No wonder they asked for this. They’re off the hook and we deal with it.”
Neville suggested recent conversations with some of the hosting platforms suggested a thawing of sorts in the rental license issue.
“Two or three years ago when we started down this exercise, it was a much different thing,” he said. “They weren’t taking any responsibility for trying to help us out. I do think we’ve made a lot of progress. We have a lot more to work with than we did a few years ago.”
Stansbury said the intent of the ordinance was to level the playing field for all rental types, including those listing on third-party hosting sites. She said the ordinance could be passed on second reading and could come back to them with amendments later if changes are needed.
“Our goal has been to treat everyone as fairly as possible, whether you are a hosting platform or a rental company in town,” she said. “The changes we’ve made here do that. We may come back to you if we find additional tweaks are needed. This is a substantial improvement from how things have been done.”
Gehrig said the amended ordinance was veiled as a partnership with the third-party hosting sites, but was really a means to shield them from penalties if accurate rental license numbers aren’t entered and confirmed. He said the ordinance presented for first reading at least had some hammer for the third-party sites.
“At least there is a consequence for them not following the rules,” he said. “Basically, we’ve taken them off the hook and we’re back to where we are now, which is hunting people down.”
City Manager Terry McGean said the ordinance presented on Monday represented the next evolution in the town’s attempt to tighten the rental license and room tax issue.
“I think it’s a crawl, walk, run,” he said. “If they agree now to share their database with us and they’ll share not only the names of the people, but also the rental license number, we ought to be able to go down that list pretty quickly and find out where the bogus rental licenses are. We’re getting close to the season now. We were crawling, but now we’re walking and next season we can run.”
Gehrig said the third-party hosting sites should be held accountable for collecting and confirming rental license numbers up front.
“If we’re serious about collecting the tax to make it fair for everyone — if that’s the intent — we shouldn’t just let the third-party hosting platforms off the hook,” he said. “We’re going to do the effort either at the end or at the beginning. I argue it will be less effort if we do it at the beginning.”
Stansbury said the third-party sites have expressed a willingness to collect the rental license information, but it would still fall on the town to confirm the information is accurate.
“We believe after speaking with these hosting platforms that this may be a better approach,” she said. “The ability for us to enforce that against the third-party sites relies on us telling them to pull the listings down until we get back to them. If they say no, then our ability to have recourse against them becomes difficult.”
Gehrig opined following that reasoning, the town would remain at the “walk” stage and never get to the “run” stage. McGean disagreed.
“I don’t think that’s fair,” he said. “We have always strived to get better. We are almost in April now. Anytime somebody goes to put their property on one of these services, the service first has to notify us. Then, we have to go look to make sure the person has a rental license and then tell the service they can go ahead and post it. We’re adding an extra step for everyone.”
McGean said the process isn’t perfect, but it can be revisited.
“We can do that for at least this summer,” he said. “They give us, say once a week, a batch. Here’s the address and here’s the rental license number. I think we could quickly go through that and check if the rental licenses are valid.”
Neville said the newfound cooperation with the third-party sites was a welcome step in the ongoing process.
“We’re trying to get a cooperative relationship,” she said. “Without their cooperation, our ability to enforce this is very difficult. Enforcement against the renter is easier. We’re trying to work together so we can share this info to ensure our bigger goal, which is collecting the taxes.”
After considerable debate, the council voted 6-0, with Councilman Lloyd Martin absent, to approve the amended ordinance on second-reading. The council also unanimously approved a companion ordinance on second reading that outlines the penalties for a violation.
