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  • The San Juan Daily Star

Small Inns object room tax bill

By The Star Staff

The Association of Puerto Rican Paradores and Small Inns expressed objections Monday over Senate legislation that would set aside a significant portion of the 7% room tax collected from short-term rentals to municipalities because it does not address the root of the problem.

Penned by Sen. Ada García Montes, Senate Bill 936 sets aside 5% of the room tax revenues from short-term rentals (STRs) each month for the cities to help them with their expenses. Most of the 78 municipalities are at severe risk of shutting down because of budgetary problems.

“Although we object to SB 936 as it needs core amendments, we welcome any legislation encouraging objective and transparent discussion about STRs. We will be participating in public hearings with specific recommendations. The bill identifies some of the challenges and opportunities associated with these types of accommodations and the incremental expenses that municipalities incur due to these unregistered businesses but fails to address the root of the problem,” Association President Xavier A. Ramírez said.

The Association pointed out that the real opportunity to raise new revenues for the municipalities lies in equitably applying municipal laws and ordinances against these companies. The Municipal Code empowers cities to implement appropriate measures to regulate all businesses within their territorial boundaries, including STRs, as hundreds of jurisdictions in the United States do.

According to Ramírez, conservative estimates from various independent sources show over 22,000 STR units in Puerto Rico, but less than 5,000 are legally registered. Over the past three and a half years, revenues from STRs exceed $1.3 billion, and the gap in the regulatory payment of room taxes, patents, permits, insurance, CRIM, income taxes, and other applicable charges exceeds $350 million.

For years, leading hotel and tourism organizations have proposed setting aside a portion of the room tax collected by the STRs to cities. According to the studies, the amounts could reach up to $14 million annually, assuming municipalities can contribute to their registration, inspection, and collection of taxes, as the world’s top cities do.

“We applaud mayors in municipalities with high tourism activity for recognizing that the majority of the operators of these STRs are businesses with dozens of units and significant sales; and that they must contribute equitably to maintain the infrastructure and public services they use to operate their businesses. Therefore, the correct thing is to register these STRs, so they pay city taxes and meet all requirements and minimum standards of community coexistence, just as all businesses of a similar size and even much smaller do,” Ramírez said.

They indicate that they have studied this issue for the past ten years and favor the sharing economy while acknowledging that these STRs have expanded uncontrollably. Over 80% of these accommodations are businesses managed by local and foreign commercial operators and have become “illegal hotels with 20, 30, and even 200 rooms.”

“We recognize the need for our municipalities to raise new funds to maintain essential services for our people. However, we must be careful in reinvesting the room tax we are producing. The priority in using these funds to obtain a return on investment is towards the Destination Management Plan to improve our tourist attractions; and increase funds allocated for Destination Marketing. The combination of both will attract more visitors to the 78 municipalities, creating more jobs and increasing the room tax collection and the sales and use tax (IVU) in thousands of businesses,” Ramírez said.

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