San Diego’s attempt to generate revenue through a tax on vacation rental properties has backfired, with the city reportedly losing approximately $10 million annually.
A large number of short-term rental property owners are not complying with the Transient Occupancy Tax (TOT), which they are required to pay.
This tax, varying from 8% to 13.75%, affects popular platforms such as Airbnb and VRBO and applies to stays of 30 days or less. It is applicable in areas including the City of San Diego, Fallbrook, Borrego Springs, Julian, Spring Valley, and parts surrounding Escondido.
The tax was introduced to leverage the thriving vacation rental industry. However, the system that relies on owners to self-report has led to significant compliance issues, transforming what was expected to be a lucrative revenue stream into the county’s largest category of uncollected taxes.
As reported by The San Diego Union-Tribune, the county managed to collect only $9.5 million from this tax in the last fiscal year, with just around 1,200 short-term rentals registered.
According to The San Diego Union-Tribune, the county collected just $9.5 million from the tax last fiscal year from about 1,200 registered short-term rentals.
But roughly 700 more properties are operating off the books in Unincorporated San Diego County. Fallbrook leads with 114 noncompliant listings, followed by dozens in other communities.
That lost revenue could nearly triple the size of the county’s controversial Community Enhancement Program, which doles out millions in grants for everything from festivals to nonprofits — often in shadowy behind-closed-doors meetings with limited public oversight.
Critics argue these programs have been prone to political favoritism. Now, the very tax meant to fund them is bleeding millions.
Stephen Brooks, a Clairemont resident who owns a vacation rental in Borrego Springs, claims he is doing everything by the book — and paying the price for it. He bought the property after a memorable 30th birthday stay there and now rents it on Airbnb. But the tax eats into already thin margins.
“It’s very frustrating when you’re doing something the right way and paying your fair share, and you find out there are people who aren’t,” Brooks told the Union-Tribune.
His sentiment echoes what many law-abiding property owners feel: Why bother complying when enforcement is slow and penalties feel distant?
The San Diego County Treasurer-Tax Collector’s office started using third-party software two years ago to scan Airbnb and VRBO listings against registered properties. The first sweep found 1,600 unregistered listings versus just 400 compliant ones.
The office has since brought about 900 into compliance, but 700 remain.
Penalties include 5–10% fines plus 1–2% monthly interest, and eventual liens on properties after 120 days of noncompliance. According to Treasurer-Tax Collector Larry Cohen, officials offer payment plans and say they’re “here to help,” but the process is slow, sometimes taking months per property. Many owners claim they weren’t properly notified earlier of the taxes.
Rules differ sharply between the City of San Diego and unincorporated county areas.
The City of San Diego has a strict Short-Term Residential Occupancy licensing system with four tiers and caps on whole-home rentals, especially in high-density areas like Mission Beach. As of May 2026, over 8,400 licenses were issued.
Meanwhile, Unincorporated San Diego County has a much lighter touch, with no specific rental caps or extensive operational rules beyond paying the TOT and displaying a compliance certificate. This hands-off approach appears to have encouraged widespread noncompliance.
Vacation homeowners, many using platforms like Airbnb and VRBO to advertise their properties for supplemental income or retirement, see the tax as just another cost in a state already burdened by high property taxes, regulations and living expenses.
Instead of fostering compliance, the system has created resentment among those playing by the rules and a literal cottage industry of (perhaps accidental) dodgers. The county’s slow enforcement and reliance on self-reporting — and with some homeowners blaming the quagmire on a lack of communication from tax officials — have turned a “sure thing” revenue source into a $10 million black hole.
It “requires everyone to be honest about what’s going on,” Cohen admitted.
