GREENVILLE — The city of Greenville will join several Lowcountry governments in suing short-term rental companies to collect back taxes, just as it begins a new effort to crack down on homes in residential areas that fail to obtain permits or pay fees.
The lawsuit filed last month in Charleston County circuit court alleges online companies like powerhouse Airbnb are legally bound to pay local accommodations taxes and business license fees.
City Council voted unanimously May 10 to enter as a party to the suit, which includes nine plaintiffs — Charleston County, the city of Charleston, North Charleston, Isle of Palms, Folly Beach, Hilton Head, Myrtle Beach, North Myrtle Beach as well as the city of Columbia.
It's part of a two-step process to place more government oversight over the short-term rental market, city spokeswoman Beth Brotherton told The Post and Courier.
First, the city has executed a contract with technology firm Granicus to use a service called Host Compliance, which searches for short-term rental listings across multiple rental platforms that handle payments on behalf of owners.
The service will allow the city to identify properties that have proper permits, help bring other properties into compliance and receive required permits, and ultimately bring enforcement action if unsuccessful, Brotherton said. The city is currently training employees to use the technology, she said.
The enforcement campaign will begin with letters written to hosts who are out of compliance.
"This process will coincide with the legal action the city of Greenville is joining with other municipalities and counties across the state," Brotherton said. "The Host Compliance program will allow us to identify short-term rentals, and the lawsuit will allow us to collect the accommodations taxes and business license fees we are owed."
In recent years Airbnb and other payment hosting services have faced legal action and increased enforcement. The company has collected taxes through "voluntary compliance agreements" with local governments, but critics have said the agreements fall short.
The Post and Courier reached out to Airbnb for this story but received no response by the afternoon of May 11.
Earlier this year, Airbnb in an annual financial report filed with the Securities and Exchange Commission acknowledged the risk of mounting lawsuits.
“We are currently involved in a number of lawsuits brought by certain states and localities involving the payment of lodging taxes,” the company said to its investors. “These lawsuits are in various stages and we continue to vigorously defend these claims.”
The move toward more government oversight has picked up across the U.S. particularly in areas with vibrant tourism economies — like Charleston, Myrtle Beach and in recent years Greenville.
As supply of homes for purchase remain low nationwide, housing real estate has become a prime investment as investors buy single-family homes and rent them out short term. Lack of regulation has invited commercial activity into neighborhoods and left hotels to bear the load of the higher price of government oversight.
Yet governments must weigh the popularity of the listings, which are an affordable, unique lodging experience that has become an integral piece of tourism accommodations.
Last month, one of the Charleston-based attorneys bringing the suit, Jesse Kirchner, said the aim is to bring short-term rental companies into compliance with local tax laws.
The group of lawyers has been successful before. A 2014 lawsuit filed against online travel companies such as Expedia, Travelocity and Priceline resulted in a multimillion-dollar settlement for local governments seeking tax payments.
The momentum for regulation comes as bookings for short-term rentals in South Carolina increased by 74 percent from 2019 to 2020, according to data provided by Granicus.
There was a dip during the initial COVID-19 shutdowns but numbers are now above pre-pandemic levels, Brotherton said. Across multiple platforms, as of this week there are 446 listings for 310 units in the city, nearly two-thirds in single-family neighborhoods, she said.
The path to regulating short-term rentals in Greenville is one five years in the making.
In 2016, the city's zoning administrator brought up the issue of regulation for a Board of Zoning Appeals meeting, but the item was removed from the agenda. City leaders at the time promised to address the issue but nothing surfaced until February 2020, when City Council members made regulation a priority.
In the past, Brotherton said, enforcement of the city's regulations prohibiting short-term rentals — through its provisions governing bed and breakfasts — was largely complaint-driven in large part because the method of tracking homes by searching listings and comparing photos to actual houses was inefficient and unreliable.
Last September, the city discussed implementing the third-party compliance system going into place now as well as the potential to create a new land-use category in its zoning laws.
The city is in the process of hiring a consultant to rewrite land-use laws as part of a broader implementation of the 2040 comprehensive plan adopted earlier this year.
Reporting by Andrew Brown was used in this story.