Industry Insights
Washington State lawmakers are once again debating whether to tax short-term rentals to fund affordable housing—and the stakes have never been higher. House Bill 2559 and its Senate companion SB 5576 would allow cities and counties to impose up to a 4% tax on vacation rentals like Airbnb and Vrbo starting in April 2027. The proposal has triggered a fierce $4 million lobbying campaign from Airbnb, while local governments argue the tax is essential to address the state's housing crisis.
For short-term rental hosts already struggling with Washington State's high cost of living, the tax represents another financial burden. For cities like Leavenworth watching their communities transform into hollow tourist destinations, it's a lifeline. And for travelers, it means higher prices on accommodations that are already expensive.
This guide examines the details of HB 2559, the economic forces driving the debate, who stands to win or lose, and what the legislation could mean for Washington State's 35,000 short-term rental operators. We'll also compare Washington's approach to New York City's restrictive regulations and explore what research reveals about whether taxes like this actually improve housing affordability.
HB 2559 would grant local governments the authority to impose an excise tax of up to 4% on short-term rental bookings. The tax applies to rentals advertised through platforms like Airbnb, Vrbo, and Booking.com for stays shorter than 30 consecutive nights. Revenue must be dedicated exclusively to affordable housing programs, including building new units, maintaining existing affordable housing, providing rental assistance, and funding housing infrastructure projects.
Crucially, this is a local option, not a statewide mandate. Cities and counties can choose whether to implement the tax and at what rate. The legislation also includes an important exemption: units in the same home where the owner lives are excluded, provided fewer than three rooms are rented at a time.
The 4% tax would layer on top of existing lodging taxes in Washington State. Local governments currently levy up to 2% in basic lodging taxes, with some jurisdictions charging additional special lodging taxes. In Seattle, total lodging taxes can reach 15.2%, while most other areas cap out at 12%. If a city imposed the full 4% short-term rental tax, hosts and guests could face combined lodging taxes approaching 20% in some markets.
The current version of HB 2559 looks dramatically different from what Senator Liz Lovelett first proposed in early 2025. The original bill called for a 6% statewide tax projected to raise $50 million annually for affordable housing. However, intense opposition from Airbnb and thousands of host operators forced significant amendments.
The revised legislation removes the state tax component entirely, allowing only local governments to impose up to 4%. This change reduces projected revenue to approximately $21 million annually statewide but emphasizes local control—a key concession to critics who opposed a one-size-fits-all approach.
This evolution mirrors a broader pattern in Washington housing policy. When statewide measures fail, cities act independently. In June 2025, Seattle unanimously passed a ban on algorithmic rent-setting software after similar state legislation (SB 5469) died in the House. The city's action came after ProPublica revealed that 70% of Seattle's Belltown neighborhood apartments were managed by just 10 property managers all using the same pricing software. Interestingly, Seattle's rent algorithm ban explicitly excludes short-term rentals, suggesting the city views vacation rentals and long-term housing as distinct markets requiring different regulatory approaches.
HB 2559 passed the Washington State Senate in March 2025 with a 27-21 vote along party lines, with Democrats supporting and Republicans opposing. However, amendments in the House led to the bill being returned to the Senate Rules Committee in April 2025. It was reintroduced in January 2026 and currently sits in the Senate Ways & Means Committee.
This is Senator Lovelett's eighth consecutive year introducing short-term rental tax legislation. Previous attempts died in committee or failed to advance to floor votes, often due to opposition from the hospitality industry and concerns about economic impact. The persistence suggests strong political will among some lawmakers, even as the path forward remains uncertain.
To understand why the short-term rental tax debate is so contentious, you need to understand Washington State's economic paradox. The state has no personal income tax, which sounds attractive—until you account for the actual cost of living.
According to a SmartAsset study, a $100,000 salary in Seattle translates to approximately $49,000 in real purchasing power after accounting for federal taxes and the region's extraordinarily high cost of living, particularly housing. Median home prices in King County exceeded $800,000 in 2024, while median rents in Seattle climbed above $2,000 per month for a one-bedroom apartment. The state's vacancy rate hovers around 3%, well below the 5-7% considered healthy for a balanced market.
This creates a financial squeeze where middle-income families increasingly turn to short-term rental income not as a luxury side business, but as essential supplemental income to afford their mortgages and property taxes. For retirees on fixed incomes, STR revenue can mean the difference between staying in their homes and selling.
Demographic data confirms people are leaving Washington State in significant numbers, primarily due to high housing costs, rising crime and homelessness, traffic congestion, and overall expenses. Popular destinations for former Washington residents include Oregon, Idaho, Arizona, and Florida—states with lower housing costs despite other trade-offs.
Washington State has enacted numerous housing policies in recent years, yet affordability continues to deteriorate. In 2025, the state legislature passed what critics called "the largest tax increase in state history," including expanded sales taxes on business services (ESSB 5814), higher Business & Occupation tax rates (HB 2081), a tiered capital gains tax (SB 5813), and increased estate taxes. These measures aimed to close a multi-billion dollar budget deficit and fund housing initiatives.
Yet housing remains stubbornly unaffordable. A Congressional Research Service report noted that the economic effects of short-term rentals are often overshadowed by other forces, such as zoning laws, construction restrictions, and broader economic conditions. In markets with severe housing shortages like Washington, addressing supply constraints through upzoning, streamlined permitting, and increased construction may matter more than taxing or restricting short-term rentals.
This context is crucial because it raises a fundamental question: Can a 4% tax generating $21 million annually meaningfully address a problem requiring hundreds of thousands of new housing units? Senator Lovelett estimates Washington State needs somewhere near a million new housing units over the next 20 years, with approximately 35,000 currently operating as short-term rentals.
Local governments across Washington State, particularly tourism-dependent towns, strongly support HB 2559. The Association of Washington Cities has advocated for the bill, arguing it provides a critical new revenue stream for workforce housing in areas where seasonal tourism drives up demand for vacation homes and reduces long-term rental availability.
The most powerful testimony comes from Leavenworth, a Bavarian-themed tourist town in the Cascades that has become a case study in how tourism can hollow out a community. Mayor Carl Florea testified before lawmakers: "Leavenworth is losing its community. Every one of these short-term rentals could be, and many of them have been, permanent housing. And now, because of the popularity, they're used as second homes, and it takes away stock. And if we don't get a significant tool to begin to address it, we're going to lose the community completely."
His testimony reflects a fear that Leavenworth could become a theme park with no actual residents—only visitors and absentee property owners. Similar concerns echo in Glacier near Mt. Baker Ski Area, where housing has become "borderline impossible" for hospitality workers who make the town function, according to local reports.
Brian Enslow, policy consultant at the Washington Association of Counties, stated that counties would be open to an even higher tax rate above 4% because they have so few other options to raise affordable housing funding. The tax represents one of the only tools available to local governments constrained by Washington's tax structure.
Airbnb has emerged as the most vocal and well-funded opponent of HB 2559. The company's political action committee, Airbnb Helps Our State Thrive (HOST) PAC, has spent nearly $4 million advocating against the tax, including a $1 million contribution in late November 2024 alone. The PAC's ads appear frequently on TVW, the state's public affairs network, and the campaign includes a full-page ad in The Seattle Times urging Washingtonians to "say no to the vacation tax."
Airbnb Public Policy Manager Jordan Mitchell argues that "SB5576 and HB1763 will make it more expensive for Washington families to travel within the state, while failing to meaningfully address local housing affordability challenges. The proposals target residents who share their homes to earn supplemental income, giving large hotel chains the upper hand."
The company commissioned a study by The Association of Washington Businesses and economic consultant CAI showing that short-term rentals in Washington State generated approximately $4.7 billion in economic activity in 2024 and supported over 35,000 jobs. Short-term rentals and visitor spending contributed more than $300 million in state and local fiscal revenues. Airbnb also collected approximately $78 million in tourism taxes on behalf of Washington State hosts in 2023.
Individual hosts echo these concerns with personal stories. Allison Moser, president of the Washington Hosts Collaborative Alliance and owner of an Airbnb property in Tacoma, represents the human face of opposition. "I never thought that I would end up being the president of a statewide group, because I was just going to be in the garden club enjoying my retirement," she told reporters.
Moser and her husband use their Airbnb as supplemental retirement income. After six years as hosts, winter 2024-2025 was their worst season, forcing them to lower prices significantly just to fill their calendar. An Airbnb survey found 80% of Washington State hosts use their income to cover the heightened cost of living—not as discretionary luxury income but as essential budget support.
Approximately 70 hosts rallied at the State Capitol in February 2025, with several hundred more contacting representatives. Their message resonates beyond property owners: many emphasize that the tax hurts Washington State residents who travel in-state and rely on affordable short-term rentals, not just out-of-state tourists. They argue families visiting college students, people seeking medical treatment, and workers on temporary assignments pay 30% less than hotel rates while enjoying the comfort of home-like accommodations.
Research on the impact of short-term rental taxes and regulations has produced decidedly mixed results, making it difficult to predict how HB 2559 would affect Washington State's housing market.
In Irvine, California, researchers found that rents decreased 3% after the city effectively banned short-term rentals, suggesting that returning units to the long-term market can improve affordability, at least in some contexts.
However, a 2019 Harvard Business Review study concluded that a 1% increase in Airbnb listings resulted in only a 0.018% growth in rental rates and a 0.026% uptick in home prices. These figures suggest short-term rentals have a measurable but relatively small impact on housing costs compared to other factors like zoning restrictions and construction constraints.
The Congressional Research Service's analysis noted that the economic effects of short-term rentals can be overshadowed by broader forces. In markets with severe housing shortages, addressing underlying supply issues through increased construction and streamlined permitting may matter more than taxing or restricting vacation rentals.
Perhaps most tellingly, Washington State's own experience with aggressive housing policy offers cautionary lessons. Despite the "largest tax increase in state history" and new housing regulations enacted in 2025, the state's housing affordability has continued to worsen. This raises serious questions about whether a 4% short-term rental tax generating $21 million annually can meaningfully address a problem requiring hundreds of thousands of new housing units.
If HB 2559 becomes law and cities implement the full 4% tax, hosts face a difficult decision: absorb the tax and reduce profit margins, or pass it on to guests and risk fewer bookings.
For many Washington State hosts, this isn't about maximizing investment returns—it's about financial survival. With a $100,000 salary effectively worth $49,000 in Seattle's economy, middle-income families often need supplemental income to afford mortgages, property taxes, and rising costs. Retirees on fixed incomes are particularly vulnerable, lacking the ability to increase earnings through traditional employment.
Hosts in high-tax jurisdictions face the steepest challenges. In Seattle, where total lodging taxes can already reach 15.2%, adding a 4% short-term rental tax could push the total tax burden near 20%. For a $200-per-night rental, guests would pay nearly $40 in taxes alone, making short-term rentals less competitive with hotels that can absorb tax costs through economies of scale.
Washington State hosts operating in compliance already navigate complex regulations. Seattle limits most operators to two units, with at least one being their primary residence, requires business licenses and short-term rental regulatory licenses, and conducts random safety inspections. Hosts report being selected for inspections where they had to upgrade electrical outlets, add railings, and fix code violations to maintain their licenses.
One Seattle host operating a small standalone house described the financial reality: "You're not going to pay the full mortgage but you'll recover a decent chunk." This captures the practical expectations—short-term rentals offset costs but rarely generate huge profits, especially after accounting for cleaning, maintenance, platform fees, and now potentially higher taxes.
The threat of unlicensed competition also concerns compliant hosts. Enforcement of short-term rental regulations varies widely across Washington State, and cities with limited resources may struggle to identify operators who evade the new tax. Licensed hosts who follow all rules could face unfair competition from those operating in the shadows.
Cities like Leavenworth, Chelan, and the San Juan Islands face a unique dilemma. Tourism drives their economies, but the proliferation of short-term rentals has made it difficult for hospitality workers, teachers, and other residents to afford housing in the communities where they work.
Mayor Florea's testimony captures the existential tension: "We are fighting to keep a community. We're in danger of just becoming a resort. We don't want that." His fear is that Leavenworth could become a hollow tourist destination where no one actually lives—a theme park staffed by workers who commute from distant, more affordable towns.
The 4% tax would give these cities a new funding source for affordable housing. However, $21 million annually statewide may not stretch far enough. Leavenworth alone would need hundreds of affordable units to house its workforce, and construction costs in Washington average $300-500 per square foot for multi-family housing. A typical affordable housing unit costs $250,000-400,000 to build when accounting for land, construction, and financing. With limited revenue, the tax could fund approximately 50-80 new affordable units per year statewide—a fraction of what's needed.
There's also risk that the tax could backfire by reducing tourism if short-term rental prices rise too high. Small businesses depending on visitor spending—restaurants, wineries, outdoor recreation outfitters—could see fewer customers if accommodations become less accessible or affordable.
Some tourist towns have already enacted strict local regulations independent of state law. Bellingham limits hosts to one short-term rental property that must be their primary residence for 270 days per year, with a 95-day annual rental cap. Kirkland requires 245-day primary residence occupation for whole-unit rentals. These local rules often have more immediate impact than statewide taxes.
Travelers to Washington State would see higher accommodation costs if cities implement the full 4% tax. For a family booking a week-long stay at $200 per night, the new tax would add $56 to the total cost. Combined with existing lodging taxes that can reach 15% or more, the total tax bill could exceed $130 for that same week.
These increased costs disproportionately affect budget-conscious travelers, families, and groups who rely on short-term rentals to access affordable accommodations with full kitchens and multiple bedrooms. Hotels in Washington State are already expensive, with Seattle hotel rates averaging $320 per night as of 2024. If short-term rental prices rise due to the tax, some travelers may choose alternative destinations or shorten their trips.
Washington State residents traveling within the state would feel the impact most acutely. Many short-term rental guests are Washington families vacationing, traveling for work, or visiting college students. Out-of-state tourists may be less price-sensitive, but local travelers could reduce their in-state spending, potentially hurting the broader tourism economy the tax aims to protect.
New York City's experience with short-term rental regulation offers a cautionary tale for Washington State lawmakers considering more aggressive policies beyond the 4% tax.
NY Local Law 18, implemented in January 2022 and enforced since September 2023, effectively banned most short-term rentals by requiring hosts to be present during stays, limiting occupancy to two guests, and prohibiting locked doors between host and guest areas. The results were dramatic: Airbnb listings plummeted by 92%, dropping from 38,500 to around 5,000 citywide. Outer boroughs like Brooklyn and Queens saw listings decline from 17,000 to 1,400.
However, the law failed to achieve its stated goal of improving housing affordability. Median rents in Manhattan exceeded $4,000 per month, a 4.1% increase since LL18's enforcement, with Brooklyn and Queens seeing approximately 5% rent hikes. The city's vacancy rate remains at 3.2%, among the lowest in the U.S., showing no improvement in housing availability.
Meanwhile, hotel prices surged. The average nightly hotel rate in NYC hit $320, a 5.4% year-over-year increase, with a record-high average daily rate of $524 in September 2024. With 80% of hotel rooms concentrated in Manhattan, tourism became less accessible for budget-conscious travelers.
An HR&A Advisors report estimated that outer boroughs could lose $1.6 billion in visitor spending, 15,700 jobs, and $573 million in worker wages due to the decline in short-term rentals. Citywide, losses could reach $2.5 billion, with 21,000 jobs and $902 million in wages affected, plus a $96 million tax revenue shortfall.
Washington State's 4% tax is far less restrictive than NYC's near-total ban, and the local option approach allows cities to tailor policies to their specific needs. However, the New York experience demonstrates that aggressive short-term rental policies may not deliver promised housing affordability while causing significant economic disruption—a lesson Washington State lawmakers should heed.
No. The legislation specifically exempts "units in the same home where the owner lives, so long as fewer than three rooms are rented at a time." This mirrors existing regulations in cities like Kirkland, where hosts who continuously occupy their homes and rent out basements or guest rooms face fewer restrictions than those renting entire properties. If you live in your home full-time and rent one or two spare bedrooms, you would not be subject to the 4% tax.
Hotels pay the same existing lodging taxes as short-term rentals (currently up to 2% basic lodging tax plus additional local taxes). The 4% short-term rental tax would create a disparity. In Seattle, short-term rentals would face up to 19.2% in total taxes (15.2% existing + 4% new), while hotels would remain at 15.2%. Supporters argue this accounts for short-term rentals' impact on housing, while critics contend it gives hotels an unfair competitive advantage.
While HB 2559 doesn't explicitly address grandfathering, local precedent suggests existing operators typically receive some protection when new regulations pass. Seattle hosts operating before the 2019 two-unit cap were allowed to continue under legacy rules. However, tax increases typically apply universally to all bookings regardless of when the host started operating, so even long-established operators would likely pay the 4% tax on reservations after April 2027.
Yes. Homeowners associations, condominium associations, and co-op boards can impose stricter limits or ban short-term rentals entirely, regardless of state or local laws. These private restrictions are enforceable separately from government regulations. Very few post-1990 condominiums permit short-term rentals due to HOA restrictions. Washington State hosts should review their HOA covenants, conditions, and restrictions before operating a short-term rental.
Construction costs in Washington State average $300-500 per square foot for multi-family housing. A typical affordable housing unit costs $250,000-400,000 to build when accounting for land, construction, and financing. With $21 million in annual revenue statewide, the tax could fund approximately 50-80 new affordable units per year, or help preserve and maintain existing affordable housing. This represents a small fraction of the hundreds of thousands of units Washington needs, though supporters argue every bit helps and that the tax can leverage additional federal and private funding.
Possibly. The tax and local operational regulations operate independently, but cities that implement the tax may also consider additional restrictions if they determine short-term rentals significantly impact housing availability. Seattle, Bellingham, Vancouver, and other Washington State cities already enforce licensing caps, primary residence requirements, and operational standards independent of any state-level tax. Hosts should monitor both state legislation and local ordinances in their specific jurisdictions.
HB 2559 remains under consideration in the 2026 legislative session, currently in the Senate Ways & Means Committee. While its passage is uncertain, hosts should prepare for potential changes regardless of the outcome.
Track HB 2559's progress through the Washington State Legislature website and sign up for email updates. The Washington Hosts Collaborative Alliance provides updates on legislative developments and opportunities for hosts to voice their opinions to lawmakers. Even if this version fails, similar proposals will likely return in future sessions.
Regardless of whether the 4% tax passes, short-term rental hosts must comply with existing state and local regulations. This includes registering your business with the Washington State Department of Revenue, obtaining required local short-term rental licenses or permits, installing required safety equipment, and collecting and remitting all applicable taxes. Cities actively enforce these requirements through inspections, listing monitoring, and complaint-based investigations.
If your city implements the 4% tax, calculate how it would affect your profitability. For a property generating $200 per night, the tax adds $8 per night or $240 per month at 30 nights of occupancy. Consider whether you can pass this cost to guests without significantly reducing bookings, or whether you need to absorb it and reduce profit margins. Properties in high-tax jurisdictions like Seattle require particularly careful analysis.
Contact your state legislators to express your views on the tax proposal. Attend public hearings and committee meetings if possible. Submit written testimony explaining how the tax would affect your specific situation. Policymakers benefit from hearing real-world impacts beyond lobbyists talking points and aggregate statistics.
The broader trend in Washington State and nationwide points toward increasing regulation of short-term rentals. Some hosts may need to consider alternatives such as converting properties to long-term rentals (30+ days), selling properties if returns no longer justify ownership, or focusing on niche markets less sensitive to price increases. However, many hosts operating in high-demand areas or during peak seasons may find that despite the tax, short-term rentals remain more profitable than long-term rentals.
Washington State's proposed 4% short-term rental tax represents a more moderate approach than New York City's near-total ban, yet it has sparked passionate debate reflecting deeper tensions about housing, tourism, and community identity.
For local governments, particularly tourism-dependent towns watching their communities hollow out, the tax offers one of the few available tools to fund workforce housing. For hosts already squeezed by Washington State's high cost of living, it represents another financial burden that could tip the balance toward unprofitability. For travelers, it means higher accommodation costs in a state where lodging is already expensive.
The fundamental question remains: Can a 4% tax generating $21 million annually meaningfully address a housing crisis requiring hundreds of thousands of new units? Research from California and other states shows mixed results, with short-term rentals having a measurable but relatively small impact on housing costs compared to broader supply constraints.
New York City's experience suggests that aggressive short-term rental restrictions may not deliver promised affordability while causing significant economic disruption. Washington State's local option approach at least allows cities to tailor policies to their specific needs rather than imposing a one-size-fits-all solution.
What's clear is that the debate over HB 2559 reflects larger questions about housing policy, taxation, and economic development that won't be resolved by a single piece of legislation. Senator Lovelett's eight-year effort to pass short-term rental tax legislation demonstrates both persistent political will and equally persistent opposition.
For Washington State hosts, the lesson is to stay informed, ensure compliance with existing regulations, and prepare for continued evolution of the regulatory landscape. The 4% tax may or may not pass this session, but the political momentum toward regulating short-term rentals shows no signs of slowing.
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Short-term rental regulations vary by location and change frequently. Always verify current requirements with local authorities or consult a qualified professional before making business decisions.
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