Short-term rentals dodge hotel tax in KC, unlike rest of Missouri. Close the loophole

Kansas City is missing millions of dollars in needed tax revenue because of strange language in state law and city ordinances.

That’s the conclusion of a new study by the city’s auditor’s office. It involves short-term home rentals, an increasingly popular — and controversial — lodging option for out-of-town guests.

Home rentals through services such as Airbnb and Vrbo account for 7% to 11% of all hotel rooms available in the city. It’s the equivalent, the auditor says, of two downtown convention hotels — about 1,800 rooms a night.

Yet Missouri law, and the city’s matching code, define a Kansas City hotel as having eight or more bedrooms for guests. Almost all short-term rentals fall below that standard, so their owners and occupants avoid the 7.5% convention and tourism tax that regular hotel guests pay.

The loophole cost the city $2.3 million between July 2021 and August 2022, the auditor found.

Where might that money have been used? More than $1.1 million could have been used for maintenance of convention facilities, such as Bartle Hall. Visit KC, which recruits visitors and conventions, lost almost $1 million. The rest would have gone to the Neighborhood Tourism and Development Fund, which subsidizes scores of local events through the year.

It’s surpassingly silly that a language problem in state law costs Kansas City important revenue. You know what’s even sillier? The issue applies only to Kansas City. Other Missouri cities happily collect the tax, because their hotels are defined differently in state statutes.

State legislators should fix this next year. Once that’s done, local ordinances can be adjusted and the tax collected. It’s a matter of fairness, and fiscal responsibility.

But the work won’t be finished. As it turns out, short-term rentals also dodge the city’s $1.50-per-night hotel occupancy fee because of the same loophole in the city’s ordinances. That costs an additional $350,000 annually.

Repairing this problem won’t require state law changes, the auditor’s office said, but it would likely require a vote of the people. We think City Hall should put the issue on the ballot in April.

These fixes are easy and necessary. At the same time, though, Kansas City officials should undertake a thorough review of current short-term rental regulations and oversight.

Airbnb, Vrbo and similar services are obviously popular with visitors, and some homeowners. We should expect hundreds to rent homes during next year’s NFL draft, and thousands during the World Cup in 2026.

But the services seem much less popular with full-time residents and neighborhoods. Homeowners are less than thrilled with tourists and visitors coming and going at odd hours. And not all short-term rentals are licensed and permitted, as required by city code.

A proliferation of short-term rentals can affect property values. School attendance can slump. Local amenities can be overworked. Parking becomes an issue. Late-night parties plague some locations.

Officials report more than a dozen complaints each week. Some have suggested a moratorium on short-term rental permits, or a cap on how many units can be authorized.

City government must commit more resources to understanding this phenomenon before demand grows out of control. There must be a well-funded enforcement unit dedicated to overseeing the industry and protecting neighborhoods. These are expenses that could and should be paid for with the missing hotel taxes. Tighter rules concerning local ownership and local management should be drafted, enacted and enforced.

The short-term rental industry appears likely to grow. It should not grow recklessly, or endanger long-term residents.

City Hall must do its best to oversee that growth, ensure the integrity of neighborhoods and businesses — and make sure short-term tenants are paying the same taxes as visitors who prefer traditional hotels and motels.