SB 584, a new bill from a state senator in Southern California that aims to pay for workforce housing, could raise vacation rental taxes to as high as 30 percent

Sonoma County is currently in a tug-of-war over SB 584, a bill proposed by Senator Monique Limón. The bill would add a new 15% tax on short term rentals on top of already high combined local tax and assessments. Supporters aim to tackle the affordable housing crisis in California.

Senator Limón, representing the 19th district that includes all of Santa Barbara County and part of Ventura County, argues that SB 584 will finance publicly owned housing developments for middle and low-income Californians. The senator explains, “The grant funds will be distributed to counties proportionate to the amount collected in the local jurisdiction,” emphasizing that the revenue would be allocated to the construction and rehabilitation of affordable housing.

In contrast, local businesses and the Sonoma County Hospitality Association (SCHA) express serious concerns. Liza Graves, Chair of SCHA, warns of potential negative impacts on the tourism industry. She explains, “Increasing the total tax to 27 to 30% or more is going to have a huge impact, not just on vacation rentals, but on all the local businesses within the tourism sector, including restaurants and wineries.” Graves fears this could discourage tourism and reduce revenue, thus hurting the local economy. Graves says there’s already a regional solution in the works. “People in the area and across the North Bay are very excited about a bond measure being developed to support affordable housing.”

Kirkman Lok, CEO of Lok Group of Companies and treasurer of SCHA, also advocates for alternative solutions, including housing bonds. Lok also suggests a more innovative solution – a GDP tax. He echoes Professor Robert Eyler’s proposal for a tax on all goods and services sold, thus spreading the burden evenly across all sectors. Lok explains that “A 4.5% GDP tax will stimulate economic growth across all sectors and make sure all businesses have skin in the game”

Consumer behavior: an inflection point at fifteen percent

Lok also raises a critical point about consumer behavior and how taxes influence behavior. He points out that there’s a psychological inflection point where taxes or discounts of more than 15% start to influence buyer behavior. That behavioral change happens when a tax or a discount exceeds 15%. Any perceived/combined tax on goods or services that collectively exceed 15% causes humans to sharpen the pencil of whether/where to purchase or shop for a better deal,” he states.

Lok says “In today’s online shopping world, almost all travel-related buys clearly show the full costs, including taxes and fees. So, if a customer sees a $300 price for a car or vacation rental, but the final bill is $390, does that extra $90 make them think twice? For the average American shopper, this might indeed make them reconsider their travel plans. After all, we Americans have plenty of travel choices and we always look for good value for our money.”

What’s next?

Graves says “This will be a drawn out process… so the fate will not be known soon unless the bill fails in the Senate next week, which is unlikely. The bill will then go on to various legislature committees during which it will likely be amended and then to the legislature and if it passes there, to Governor Newsom by September or early October. The real fight will begin if the Senate approves it this coming week.”

As Sonoma County awaits the fate of SB 584, residents and businesses are grappling with the potential implications of this proposed tax. With strong arguments on both sides, the debate underscores the tension between increasing public revenue for affordable housing and maintaining the viability of local businesses.