Bowing to complaints that vacationers were spoiling residential areas with excessive partying, parked cars and trash, the City Council in 2005 approved a ban on new short-term rentals.

Landlords protested, saying they should be entitled to rent property as they saw fit.

Citing concerns over public access to the beach, the state Coastal Commission overturned the City Council's action in 2006.

Now, under a proposal heading to the council next month, private homes rented to vacationers for 30 days or less would be subject to the city's 10 percent transient occupancy tax.

"I think it's only fair to let the (owners of) short-term rentals participate in paying for city services," said Mayor Jerome Stocks. "I don't think it's fair to discriminate against them and not allow them to help."

A 'special' tax?
Known informally as "bed" or "room" taxes, transient occupancy taxes in Encinitas apply to hotels or motels with three or more units.

Under state law, voters in the city must decide whether the tax also should apply to homes with one or more rental units.

When the City Council meets Feb. 13, it is scheduled to consider putting a ballot measure before voters in the June 3 election.

Election costs to the city would range from $12,500 to $15,000, said Deborah Cervone, city clerk.

Cervone said the measure needs only a simple majority to pass, but a taxpayer advocate said a two-thirds majority would be required because some of the tax revenue is earmarked for special purposes.

For every dollar of bed taxes collected, 80 cents are directed to the operating budget and 20 cents are apportioned to a sand replenishment fund.

That means the levy should be considered a special tax and subject to a two-thirds approval requirement, said Tim Bittle, an attorney for the Howard Jarvis Taxpayers Association.

Taxpayers prevailed in similar cases in Monterey and Roseville, Bittle said.

"In both of those cases, the cities argued that not all of the money was going to special purposes so it shouldn't be considered a special tax," Bittle said. "What the court ruled is that it's the city's burden to prove that all of the (tax revenue) goes to the general fund."

Most rentals near the beach
According to the city's Finance Department, transient occupancy tax collections totaled $1.1 million in the 2006-07 fiscal year; collections are projected to total $1.2 million in 2007-08.

The balance in the city's sand fund is $1.6 million.

As of last week, finance officials said they weren't sure how much income the taxing of 130 registered short-term rentals would generate.

Internet advertising shows rentals ranging in price from $1,500 to $2,000 a week, although officials say they have seen rates as high as $5,000 a week.

Most of the 130 rentals operating with a required city permit are west of Highway 101, said Patrick Murphy, planning director.

Many of them are found on Neptune Avenue, which runs along the bluff in Leucadia. Still more are concentrated within a 255-unit condominium complex in Leucadia called Seabluff Community.

Real estate agent Chris Carrico, who said she handles many of the short-term rentals at Sea Bluff, was one of the most vocal opponents of the city's effort to ban them.

Property owners most likely will pass costs of transient occupancy taxes on to their tenants, she said.

"Vacationing families have budgets," Carrico said. "If they have to pay the 10 percent (room) tax, they will have less money to pay for food and entertainment in the city."

Carrico warned that room taxes would be difficult to administer and collect in a city where some homeowners run short-term rentals without the required city permit.

A prolonged debate
In a debate that filled the City Council's chambers for nearly two years, neighbors complained that short-term-rental operators were converting their properties into mini-hotels with boisterous tenants.

"On one particularly raucous night, a glass Johnny Walker bottle was forcefully hurled into our yard and broke into smithereens," Candace Kamada of Fourth Street testified in 2006. "Luckily, none of us were in the yard at that time."

That year, the California Coastal Commission barred the city from revising zoning laws to prohibit short-term vacation rentals.

The city succeeded, however, in establishing a permitting program that sets rules for landlords and their tenants and fees for violations.

In two years, the city has collected $38,100 in permit fees, records show. Permits cost $150 and must be renewed annually.

Councilman Dan Dalager has said he worries short-term rentals will spoil the tranquility and character of residential neighborhoods.

Assigning room taxes to short-term rental operators is a "great idea," he said.

"A big chunk of (room taxes) puts sand on the beach," Dalager said. "What brings (visitors) here is sand on the beach. It's only fair that they pitch in."

Beyond that, vacationers and their landlords use city services just like hotel guests and owners, Councilwoman Teresa Barth said.

"So I think they should contribute," she said.

But one owner of a Leucadia condominium, Sunny Maden, said that assigning room taxes to rental homes would drive away tourists.

She said that visitors require no more city services than a tax-paying homeowner would and that the city must provide those services regardless of who is occupying the unit.

The tax would mean Maden would have to raise her rent.

"That could mean a loss of tenants, especially in this economy," she said. "I don't especially think this is going to be a whopping summer anyway. Real estate is in the tubes."

Contact staff writer Adam Kaye at (760) 901-4074 or akaye@nctimes.com