VRD Tax Considered

Lincoln City leaders are seeking feedback on a proposal to eliminate the rule that exempts vacation rental dwellings (VRDs) from having to pay the City’s occupation tax.

Under state law, the City has the right to impose an occupation tax on any business that operates within the city limits.

The tax is $100 per year for businesses with up to three employees, increasing by $10 for every employee beyond that. There is also a $50 additional fee for first-time applicants.

City Manager David Hawker said VRD operators have historically been exempt from the tax because they pay a separate fee for a VRD license, which staff saw as taking the place of the occupation tax.

“They paid an application fee that we didn’t do much with,” he said. “We just stamped it and moved on.”

However, he said, changes to VRD rules have resulted in the City taking a much more active role in reviewing permit applications, meaning the application fee is now used up by the review process.

At the Oct. 25 meeting of Lincoln City Council, Hawker said it no longer makes sense to retain the exemption, which he said has become a “subsidy” to VRDs.

He told councilors the City requires property owners who rent out homes and apartments on a long-term basis to pay the tax and should not continue to exempt owners of short-term rentals.

In his 2010-11 Budget Message, Hawker said extending the tax to VRDs would raise about $30,000 per year in new revenue.

Noting that the City’s general fund is entering the first of several anticipated lean years, Hawker said he would not have recommended continuing to fund the VRD enforcement officer position were it not for the additional revenue the tax will bring in.

In an Oct. 28 interview, Hawker said the budget has been balanced on the assumption that the tax will be extended to cover VRDs.

“If we take that out of the budget,” he said, “something’s got to give.”

Council is scheduled to hold a public hearing on the proposal at its Nov. 8, meeting, 7 p.m. at City Hall.