Short-Term Rentals in the Palmetto State
Understanding South Carolina’s Short-Term Rental Laws
A short-term rental is a property that is leased by its owner for an overnight or short-term stay. These rentals typically fall into the legal category of "transient occupancy" (generally 29 days or less) and are usually provided through your favorite vacation rental platform, such as Airbnb, VRBO, or HomeAway, but can also be found on classified ad websites such as Craigslist (not that we endorse or encourage anything found in Craigslist ads). Of course in the Palmetto State, short-term rentals are not a new concept and we have been informally renting out our homes to visitors for decades.
Short-term rentals have gained in popularity across the nation and here in South Carolina for several reasons, including attractive vacation destinations and continuing population and business investment growth that provide an opportunity for property owners to generate additional income. Some municipalities estimate that property owners have generated substantial income. For instance, in 2013, Charleston, South Carolina was one of the nation’s top five short-term rental markets with estimated revenue exceeding $30 million, and by 2014, there were approximately 1,000 listings in Charleston under short-term rental management and over 2,000 listings in Myrtle Beach .
As a result, the popularity of short-term rentals has driven the need for rental property owners to be more aware of the numerous regulatory issues and laws that may apply to their properties, including the general business regulations, right to light ordinances, registration and licensing requirements, safety and building codes, zoning, including special use permits, civil and criminal liability, and resort area-specific laws. As we’ll discuss later, many of the local governments in South Carolina have adopted ordinances to specifically regulate short-term and transient rental uses. The fact that regulatory and licensing requirements can vary between municipalities presents another hurdle for property owners with multiple properties.
It’s true no one wants to be regulated and you may not be inclined to read ordinances and stare at zoning maps (like a good lawyer does) to determine the extent of your rights and obligations. No worries. That’s why our group at Haynsworth Sinkler Boyd, P.A., a statewide law firm with offices in many popular short-term vacation destinations, is providing this blog. We’re here to help.
Short-Term Rental Laws You Should Know About
Carolina’s short-term rentals market is mostly unregarded by state laws, but several municipalities have taken it upon themselves to enact codes and rules to regulate short-term rentals. As of July 2020, the towns of Folly Beach, Edisto Beach, Isle of Palms, Mount Pleasant, Surfside Beach, Hilton Head and 12 others have their own rules for the short-term rental industry. Most recently, Charleston and Mount Pleasant have amended their ordinances on short-term rental properties. On June 9, 2020, Charleston City Council passed a new ordinance on short-term rentals, which became effective July 1 with a transitional period through September 1, 2020. Some of the most notable requirements include an annual permit fee of $500 for short-term rentals and a $250 fee for VRBO and Air BnB properties, which the property owner is required to obtain, licenses for all employees of the short-term rental (firms in Charleston with over two employees will have to designate four employees to become license holders), inspections every four years as well as random inspections by the city’s chief inspector. In order to be able to operate a short-term rental in Charleston, property owners must apply and be issued a permit from the Director of Revenue Collections. These rules are not related to zoning ordinances and potential zoning issues should always be discussed with an attorney. One of the most prevalent issues in South Carolina’s short-term rental market is tax-related. Many municipalities require short-term rental platforms—such as Air BnB and VRBO— to collect state and local (i.e. transient-occupancy) taxes. Because these taxes are either automatically added to each transaction or already included in the showroom price for a given property, there is no burden on the property owner to make remittances to tax authorities, in most cases. Like many states, South Carolina has a general sales tax in addition to a transient-occupancy tax and remittances from property owners in short-term rental markets are based on how long guests stay. Under S.C. Code Ann. § 12-36-910, A tax is imposed upon the sales price of tangible personal property, other than that excluded pursuant to item (3) of this subsection, or services taxed at the rate of nine percent of the gross proceeds of sales or charges; the tax is to be collected and paid as provided in this chapter. The tax imposed under this item does not apply to the following: . . . (3) the sales price of tangible personal property or charges for services taxable at other rates as provided in items (4) through (15) of this subsection; (A) A tax is imposed upon the sales price of the following: 1. . . 2. tangible personal property purchased with food stamps and food products for human consumption for home consumption; 3. food and food ingredients for human consumption. The tax imposed by this item does not apply to the sales price of: i. (a.) eligible food monthly assistance program foods as provided in the federal Food Stamp Act or as defined by the United States Department of Agriculture; (b.) sales of unprepared food; (c.) bakery products; (d.) bakery goods; and (e.) salad bar products. If the short-term rental is for a period of 30 days or less, the property owner is charged a 9 percent tax on the gross amount paid from the sale of the property or other consideration of the occupancy of a dwelling, however the right to occupancy conveyed is respected. If the short-term rental is for a period exceeding 30 days, the property owner is charged the general 6 percent sales tax. In addition to virtually all other local governments, the South Carolina Department of Revenue recently enacted and adopted regulations (R. 117-190) to collect these taxes.
Short-Term Rentals and City/County Ordinances
Not all of our local jurisdictions have embraced short-term rentals, and there are a number of restrictions for those in otherwise short-term rental-friendly areas that make it more difficult for owners to rent their properties. South Carolina is unique in that most jurisdictions across our state have passed ordinances restricting or prohibiting some type of short-term rental activity. Many of these ordinances prohibit advertising or renting your property as a short-term rental (e.g. Charleston), but a number of other short-term rental ordinances do not prohibit owners from renting their property and only restrict the location of such rentals. The resultant patchwork of ordinances could be confusing for owners because of the difference in regulations of each jurisdiction.
A majority of municipalities around Charleston require a short-term rental license before owners can advertise their short-term rental property. Currently, Charleston is the only municipality around Charleston that restricts short-term rentals to residential properties occupied by a non-paying guest. For this reason, many owners within the Charleston city limits have decided to rent their homes to a paying guest for less than 30 days a year.
While Columbia does not prohibit or restrict short-term rentals, they do require a special license for owners who wish to rent their property. Even owners who plan to rent their home less than 30 days a year must obtain a license. Some nearby municipalities that require a special rental license include Folly Beach, Isle of Palms, and West Columbia. Several municipalities around Myrtle Beach also require owners to obtain both a special license and an annual business license in order to rent their property, even if the rental period is for fewer than 30 days. Though we have not yet seen a Supreme Court opinion addressing whether such licensing requirements violate the equal protection rights of owners, the patchwork of different licensing requirements for short-term rentals severely limits the right of some owners to rent their property when compared to others. Accordingly, it is unconstitutional to treat like property differently, absent a rational basis for the difference in treatment. In order for this type of ordinance to pass constitutional scrutiny fair, courts will likely require a showing of a legitimate governmental interest served by the means chosen to achieve that interest, including whether there are any obvious alternatives to the licensing requirement that would serve the same purpose.
Short-Term Rentals and Taxes
One of the questions we get a lot from prospective and current short-term rental owners is what taxes need to be collected on their rental income, and how do they pay them? The short answer is that owners should collect and remit sales tax, accommodations tax, and income tax.
For short-term rental owners in South Carolina, the South Carolina Department of Revenue ("SCDOR") considers short-term rental owners to be the operators of retail accommodations and therefore subject to sales tax. S.C. Code Ann. § 12-36-910(9). Short-term rental owners must register their business with the SCDOR and apply for a retail license in order to collect and remit sales tax on their bookings. S.C. Code Ann. § 12-36-910(10); 61-63.1(A).
In addition to sales tax, the short-term rental owner must remit accommodation tax pursuant to S.C. Code Ann. § 12-36-920. Accommodations tax is paid on the total amount charged to the customer for the rental of the room(s) or space(s) and is nine percent of the gross proceeds from the rental of any room or space in a hotel, inn, lodge, motel, or other facility furnished with two or more rental units where sleeping and/or parking space is provided to tourists on a daily or weekly basis. S.C. Code Ann. §§ 6-1-1, et seq.; 12-36-920.
Sales tax, accommodations tax, and income tax are reported and paid on the owner’s quarterly and yearly income tax filings with the SCDOR.
Enforcement and Short-Term Rental Penalties
Enforcement in the short-term rental market can occur through several means, including formal legal proceedings and administrative action. By adopting the state-wide short-term rental law, municipalities will no longer be able to adopt enforcement measures that are inconsistent with the types of actions they can take under the new state law. The law makes clear that, at a minimum, a municipality may limit any ordinance adopted pursuant to chapter 32 to "fines and suspension and revocation of licenses or permits or the issuance of citations."
The law grants state district courts original jurisdiction over violations of Chapter 32, and although the penalties established by the new law are relatively modest, repeat offenders can be penalized more severely. Under the law , property owners who are repeatedly found in violation of the statute may be fined for proven actions, up to a maximum of $500 per offense, with each calendar day considered a separate offense. The statutory penalties for violations of the new law are:
• Each violation is deemed a "separate offense" and each day of a violation constitutes a separate offense;
• A violation may be punished by a fine of up to $500 per day (or "a higher amount as may be specified in the municipality’s short-term rental ordinance");
• Fines collected will be remitted to the municipality’s general fund; and
• After the third violation, a property subject to weekly or less frequent rentals is subject to suspension or revocation of operating license for up to 60 days.
Short-Term Rental Legal Guidance
Given the rapidly changing nature of short-term rental regulations, legal advice is a necessity for current and prospective South Carolina short-term rental operators. Owners should take the time to carefully read and understand all relevant vacation rental statutes as well as local regulations and license and permit requirements. Short-term rental owners should also consider regularly seeking advice from an attorney, particularly if they are facing or anticipate facing issues relating to short-term rentals, including tax disputes, homeowner’s association (HOA) and neighborhood association disputes, rental agreements, accidents on their property and other matters related to the operation of a vacation rental.
One way to seek out legal advice for this purpose is to consult with an attorney who focuses their practice on vacation rental issues. An experienced attorney can help short-term rental operators stay informed about legal changes or forthcoming legislation relevant to vacation rentals. Long-term owners may have invested time and effort in determining their local ordinances and regulations, but newly promulgated legislation and regulations can affect how short-term rentals are operated in their area. For example, Charleston, SC recently passed a law that dramatically changed the short-term rental regulatory landscape for South Carolina. New and existing owners should stay informed about new legal developments affecting their vacation rentals. Given the pace of change regarding legal requirements and possible liability, a short-term rental owner would be remiss to avoid consulting with an attorney who specializes in vacation rentals.
What’s Next for Short-Term Rentals in South Carolina
A number of trends may shape the future of short-term rentals in South Carolina. First, as short-term landlords become more common, the demand for vacation rentals in various areas of the state will likely continue to increase. Coastal communities and tourist destinations like Charleston and Myrtle Beach already benefit from a large influx of visitors. A rise in short-term landlords offers an alternative to hotels, motels, and inns. Further, these short-term landlords provide enhanced quality and comfort. As the demand for vacation rentals continues to grow, short-term landlords should take note when advertising their properties.
Second, in areas with a high demand for short-term lodging, the competition will become increasingly fierce for potential renters. Landlords with the most advanced marketing strategies will likely see the most business. Attracting guests to South Carolina, while also complying with local laws, will become crucial for success.
Third, short-term rentals will likely continue to impact the local economy. Supplementing regular housing with short-term rentals will affect the property values of nearby residences. Even though short-term landlords may spend more money on home improvements in order to make their property appealing to tourists , these activities may make life difficult on the neighbors. Regular homeowners may be frustrated with an influx of people renting next door. Homeowners may express their thoughts or pressure their municipalities to alter local short-term rental policies. As a result, the future of short-term vacation rentals may be determined in part by the actions of the neighboring community.
Additionally, it is probable that South Carolina municipalities may consider a one-size-fits-all approach when creating ordinances aimed at short-term landlords. Some areas of South Carolina are better situated for short-term rentals than others. For example, a community with multiple museums will have higher traffic from out-of-state visitors than one located in the hinterlands. Further, counties with abundant lodging options and easy access to airports and public transportation may be better suited for vacation rental markets than a community without these benefits. Thus, short-term rental ordinances should accommodate specific areas accordingly.