Proposed ordinance would tax short-term rentals in Killeen, require registration

Killeen Daily Herald
By Paul Bryant | Herald Staff
April 5, 2023

Killeen officials have proposed an ordinance that would regulate what they say is the illegal operation of hundreds of short-term rental properties across the city.

“Currently, the way our zoning ordinance reads ... they are effectively not allowed,” Edwin Revell said during a City Council workshop on Tuesday. “The intent of this would be to allow them with certain constraints and policies and controls.”

Revell is the city’s executive director of development services.

The zoning ordinance would require owners of short-term rentals, such as those operated as Airbnb properties and vacation homes, to register them and pass annual inspections. It would also allow the city to collect hotel occupancy taxes on the rentals.

‘Loss of $700,000’

“As you may be aware, we learned there are 400-plus short-term rentals all across the city of Killeen now,” Revell said. “Really, right now, (they’re) unregulated and they’re not paying hotel occupancy tax. We’ve estimated — and these are pretty firm numbers that have been confirmed by our finance department — that’s an annual revenue loss of $700,000 and lost HOT (revenue).”

Hotel occupancy tax revenue for the current fiscal year is projected at $2.1 million.

Texas law requires hotel and motel owners, operators or managers to collect state hotel occupancy taxes from those who rent rooms or space for at least $15 each day. That also applies those who own bed and breakfasts, condominiums, apartments and houses.

According to the state comptroller’s website, local hotel taxes also must be collected on “sleeping rooms costing $2 or more each day.” Property management companies, online travel companies and other third-party rental companies may also collect the tax. In Killeen, the rate is 7%.

Spacing requirements

The proposed Killeen ordinance “includes an annual registration requirement and also includes that an annual inspection has to be passed,” Revell said. “(It) establishes spacing requirements such that we don’t have too many, too close. That spacing requirement would be 200 feet between short-term rentals.”

According to a staff report, Chapter 31 of the city’s code of ordinances provides that “where a single-family dwelling unit is rented, all adult residents must jointly occupy the entire premises, under a single written lease, for a period of at least (30) consecutive days.”

A public hearing is scheduled for Tuesday for council members to consider the new ordinance that would become effective on Oct. 1.

“We believe that this will give the opportunity for those existing 400 to take care of their registration needs and just make sure they can do that before we impose the 200-foot requirement,” Revell said. “In addition to that, it has an intensity requirement. For your multifamily structures ... there can be no more than two short-term rentals per building.”

The proposed ordinance prohibits operating short-term rentals within 200 feet of each other.

‘A problem everywhere’

“We have spoken about that in the past,” Mayor Debbie Nash-King said during Tuesday’s meeting. “For short-term rentals, that’s a problem throughout the nation. People just decide to put on a site and just go ahead, open up the house, leave and come back and collect the money. That’s a problem everywhere. If it’s approved by the council, whose going to regulate it?”

Revell said that responsibility would fall to several city departments, including development services, community services, code enforcement and the Police Department, and a contractor.

“That’s really going to be a city effort,” he said. “If this is approved, part of the first thing that’s going to happen is the registration process. We contemplate that may involve engaging an outside vendor ... as well as for the tax collection.”

$2,000 fines

Owners who fail to register their short-term rentals under the new ordinance may be fined $2,000 a day.

“There’s going to be that one-year delay before we implement that spacing requirement because as you can imagine, for those 400-plus properties all over the city, some of them are probably closer than 200 feet apart,” Revell said.

In April 2022, Leslie Hinkle, then the city’s executive director of community services, said that at least 200 short-term rentals were operating in Killeen, not including those on Craiglist or Facebook Marketplace, and that none of the owners were paying hotel occupancy taxes — a loss of about $194,688 in revenue for the city.

Now the city estimates the lost revenue as much higher.

“Capturing $700,000-plus annually for lost revenue, I think, is an eye-opener,” Councilman Ramon Alvarez said on Tuesday. “All communities go through this. People are doing it, especially with raising property tax bills. This provides some relief for homeowners to be able to capture some revenue back on their property by putting it up as a short-term rental. If this is not approved, it’s not like the city has the staff or the capability or the legal ability to go knocking on people’s doors and raiding their houses to see if they’re running a short-term rental or not.”

‘A nifty idea’

Councilwoman Nina Cobb said the proposed ordinance “is a nifty idea.”

“That (tax) funding will go to our arts,” she said. “To be able to fund activities for families throughout this city with that money, I’m just already telling you where that money’s going.”

Cobb was referring to the city’s annual allocation of hotel occupancy tax revenue to the Killeen Arts Commission.

“When we collect tax ... I think it’s 15% that goes to the arts,” Cagle said.

Under state law, hotel occupancy tax revenue may only be spent on activities and programs that promote tourism and overnight visits.

The Harker Heights City Council in January adopted an ordinance similar to the one proposed by Killeen officials. It impacts around 60 short-term rentals that were operating without being registered and paying hotel occupancy taxes.

The Legislature

State lawmakers have filed several bills that would remove or limit cities’ authority to regulate the short-term rental industry, including House Bill 2665 authored by Rep. Gary Gates (R-Richmond).

That measure would prohibit municipalities and counties from adopting any ordinance regulating the rentals beyond requiring registration and collecting hotel occupancy taxes, including outright prohibiting using properties as short-term rentals.