The City of Jacksonville Beach is taking the position that renting residential property within the city constitutes a business requiring a local business tax receipt, an interpretation that could potentially affect individual homeowners, corporate landlords, and property management companies throughout the city.
Under the City’s interpretation, the length of the rental does not appear to matter, so this is not just about short-term vacation rentals.
A residential unit rented for a year, several years, or another period is considered a business for purposes of the City’s local business tax requirements. Nor does the identity of the owner appear to change the result. Whether a residence is owned by an individual, an LLC, a corporation, or another entity, the City considers renting the unit to constitute a business requiring payment for a local business tax receipt.
The issue recently surfaced after the City issued notices concerning numerous residential properties located throughout Jacksonville Beach.
The recipient is a property management company. It does not own the homes. Instead, it provides property-management services to property owners, including marketing available properties, facilitating leases, collecting rent on behalf of owners, coordinating repairs and maintenance, and responding to tenant issues.
The company’s actual business office is located outside Jacksonville Beach. Nevertheless, the city contends that the individual residences managed by the company are locations at which it conducts business and that separate local business tax receipts are therefore required.
This is just about a small bill to the local government. The notices warn that failure to obtain the required local business tax receipts may subject the recipient to criminal prosecution. Thus, the City’s interpretation is not merely a request for payment. Property owners and businesses potentially face the threat of criminal enforcement if they fail to comply with the City’s interpretation of its local business tax requirements.
When Does a Residence Become a Business Location?
The dispute raises a basic question: Does providing services concerning a residence transform that residence into a separate business location?
A property manager typically markets an owner’s property, facilitates leasing, collects rent for the owner, coordinates repairs, responds to tenant issues, and receives a management fee from the owner. The residence remains owned by the property owner and occupied by the tenant.
The city thinks that means each home is a separate business even if the property manager never actually steps foot on the property.
If a property manager just advertises a home for rent online and processes the rent checks? The city thinks they need a business license and failing to pay can be a crime.
Where Does This Interpretation Stop?
The City’s interpretation also raises a broader practical question: If a company earns money to provide services at a residence, does that residence become a separate business location of the service provider?
Consider an air-conditioning company. A homeowner may enter into a multiyear HVAC service contract under which the company performs scheduled maintenance and responds whenever the air-conditioning system breaks. The HVAC company earns money from servicing that particular residence and may send its employees there repeatedly over a period of years. What about a pool maintenance company? What about a landscaping company that cuts the grass every week under an annual service agreement? A pest-control company that treats the property every quarter? A cleaning company that cleans the same house twice each month? A plumbing company with a continuing maintenance agreement?
All of those companies are businesses. All make money from contracts associated with particular properties. Many actually perform more of their work physically at the residences than a property management company does.
Yet that does not ordinarily mean that a landscaper has 200 branch offices because it maintains 200 yards, or that a pool company operates 300 separate business locations because its employees service 300 swimming pools.
If earning money from an ongoing contractual relationship concerning a property is enough to establish a separate business location, there is no obvious reason why that principle would stop with property managers.
That raises a question Jacksonville Beach may ultimately have to answer:
What About Individual Homeowners?
The broader consequence of the City’s interpretation may concern ordinary property owners rather than professional property management companies.
The City’s position is that renting a unit—any unit, for however long—is a business requiring a local business tax receipt. That position is not limited to short-term rentals, vacation rentals, apartment complexes, or large corporate landlords.
Under the City’s interpretation, an individual who owns a single Jacksonville Beach residence and rents it to a tenant is engaged in a business requiring an LBTR just as an entity owning numerous rental properties would be.
That raises practical questions about the number of Jacksonville Beach residences potentially affected and whether individual property owners have historically been advised that long-term rental of their homes constitutes operation of a business requiring a local business tax receipt. If you own property and are renting it, under the City’s current view you are committing a crime if you haven’t paid for a business license.
