Carmel, Indiana, is a beautiful and completely modern community of more than 85,000 folks, just north of Indianapolis. Its 100 traffic roundabouts are the most of any U.S. city and, last year, one of them was named the most beautiful in the world. Carmel’s charming Arts and Design District hosts the annual Carmel International Arts Festival and is marked by the Museum of Miniature Houses and public sculptures by John Seward Johnson II. The 1,600-seat Palladium concert hall in the Center for Performing Arts is home to the Carmel Symphony Orchestra. In September, the city hosts the Rollfast Gran Fondo cycling tournament.

A lot of people want to be in Carmel and some of them want to stay overnight, both for these attractions and for the major sporting events frequently hosted 13 miles to the south in Indianapolis. The Indianapolis market has about 33,000 hotel rooms, which were sold out in March for the Indianapolis 500 on Memorial Day weekend.

Airbnb, an online short-term rental service, has been a very popular option across for lodging across the Midwest, and is particularly adept at making rooms available during busy times when hotel rooms sell out. In the Indianapolis area, the service grew by more than 200 percent last year. That includes about 300 spaces available for rent in Carmel.

But building commissioner Jim Blanchard recently sent out notices to city homeowners that they had 10 days to remove themselves from the Airbnb website and similar services or face city code enforcement for illegal activity. While apartment dwellers could continue to list with the services, due to differences in zoning requirements, single family dwellings cannot. City officials maintain they’ve received complaints from residents distressed about noise, traffic and other issues they associate with short-term rental visitors. But it means Carmel residents who relied on the extra cash from those rentals—the typical Airbnb host rents about 22 nights per year and earns about $3,000—were suddenly left out in the cold.

In response to actions like Carmel’s, House Majority Flood Leader Matt Lehman, R-Berne, is proposing legislation to pre-empt communities from completely banning rentals of less than 30 days. Lehman has gained recognition for his work on insurance issues with state lawmakers from across the country. He helped to craft a compromise approach on the insurance aspects of ridesharing services offered by companies like Uber and Lyft, which has since gone on to become a national model. He sees no reason why Indiana couldn’t similarly become the pace car for national effort to work out differences between hotels, homeowners, bed-and-breakfast establishments and elected officials passionate about local control.

While his bill would prevent cities and countries from banning spacesharing services outright, it includes a number of sensible limits. If a property is rented out for more than six months, the owner would have to acquire a regular business license and pay merchant innkeeper taxes. It specifies that local regulation of fire, safety, sanitation, pollution, sexually oriented businesses, nuisances, noise, traffic control and the like would continue unimpeded, as long as the regulation and enforcement is applied equitably to all residential housing. The measure also includes minimum insurance requirements, as hosts would have to maintain primary first-dollar liability coverage of one at least $1 million.

After two tries, the Lehman bill passed its house of origin this past week, squeaking by after fending off several amendments from legislators who are more sympathetic to local control than emerging technology businesses. Because of the narrow passage in the House, there may need to be more work done in the Senate to address some of the perceived problems. The main issue, as in many other areas in the emerging “sharing” economy, is how to draw the line on how much professional activity a nominal amateur can engage in before he or she is recognized as a business competing with other businesses, and paying the requisite licensing fees and taxes.

The answer may not come easily, but it seems likely that a reasonable compromise can be found on short-term rentals. This issue will likely get a hearing or two in a great many laboratories of democracy across 21st century America.

Image by sevenMaps7