How Short-Term Rental Taxes Can Help Cities

A report from civic engagement software company Granicus outlines how cities can increase their revenue from the short-term rental sector by tightening regulations and cracking down on unlicensed rental properties.

As Kaitlyn Levinson explains in Route Fifty, the report recommends that cities create more robust systems for monitoring and collecting taxes on these properties. “Increasing taxes on short-term rentals, said Jorge González-Hermoso, a research associate at the Urban Institute, could also help ensure that the cities get paid for short-term renters’ use of public services like roads and utilities.”

Other lodgings, such as hotels, generally pay much higher taxes than residential properties — which, in most states, include short-term rentals. In Colorado, hotels pay a 27.9 percent tax while residential properties are subject to a 6.765 percent tax. A failed bill that would have raised the tax on STRs could have generated as much as $293.3 million in revenue in 2026, according to a fiscal analysis.

As Levinson explains, STR revenue can also offset the negative impacts of the industry. In Nashville, STR tax revenue goes toward the city’s affordable housing fund, with over $15 million generated since 2015.