State lawmakers are close to approving a new tax on short-term rentals, and business leaders say a new study shows how much the state could lose from artificially inflating those costs. 

The short-term rental industry generates $4.7 billion and employs 35,000 people across the state, according to a report commissioned by the Association of Washington Business. Adding to the cost of renting someone’s home or apartment for a short period could not just affect those businesses but ripple out to other related sectors and the tax revenues they generate. 

“Short-term rental guests book 5% to 10% of total overnight stays in Washington and on average spend $185 a person per day. What’s more, short-term rentals directly contribute more than $300 million in state and local fiscal revenues,” said Chris Mefford, president and CEO of Community Attributes, Inc., an economics consultant. “A new tax levied on short-term rentals would increase prices for guests, and could decrease demand for visitors to the area, resulting in a reduction of visitor spending and economic benefits to the area.” 

SB 5576 would levy a 4% tax on short-term rentals to fund affordable housing efforts if approved. The bill originally called for a 6% tax but that was changed after short-term rental operators told lawmakers how the tax could impact them. The bill already passed the Senate and passed out of committee in the House on its way to the floor for a vote. 

While the new tax would potentially generate a new tax revenue stream, it could cannibalize other tax revenues in the process. Short-term rentals contributed more than $300 million in state and local fiscal revenues in 2024, from retail sales taxes to lodging taxes, according to the report. 

Consumers could also choose to use short-term rentals less, which would not only affect short-term rental businesses. Surveys of Airbnb hosts indicate that the income they derive from renting out rooms helped over half of those hosts stay in their home, and that it helped 12% of them avoid foreclosure on their home.