Airbnb Has $440M Hotel Tax Tab: Report

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Joyce E. Cutler

Oct. 25 — Airbnb Inc. would owe $440 million if state-level taxes were paid on current listings in all 50 states, a new report estimates.

Sixty percent of taxes on the short-term rentals went unpaid, as Airbnb only has tax collection agreements with 26 states and cities. The biggest losers are New York, owed $110 million; Hawaii, owed $51 million; Texas, owed $19 million; and Massachusetts, owed $17 million, according to AllTheRooms.com, an accommodations site that analyzed active Airbnb bookings to project state tax revenue.

“We’d love to be working with any one of these communities to be collecting hotel taxes, but in many cases we are prevented by law from doing so,” Airbnb spokesman Chris Nulty told Bloomberg BNA Oct. 26.

He disputed the $440 million figure, as not all states charge a statewide transient occupancy tax, which is collected on a local level. And Airbnb in many instances can’t submit taxes because the law doesn’t allow it to collect and remit tax at the state level.

“We have a global tax team with people around the world working with municipalities to make it possible to collect hotel tax on behalf of our guests,” he said. “And we would love to be doing this in as many places as possible.”

The issues raised with short-term rentals are familiar to cases involving collecting taxes from intermediaries. “This is somewhat like the use tax issue where governments and others complain that remote vendors aren't collecting the sales tax. But they are not required to. The state needs to go after the user,” said Annette Nellen, professor and director of San Jose State University’s Grade School of Business master of science in taxation program.

“Here, unless the city has changed its law to allow or require Airbnb to collect the TOT, it falls upon the property owner. The cities need to find ways to educate renters about the tax and make it easy to pay,” Nellen said in an Oct. 26 e-mail to Bloomberg BNA.

Finding Balance is ‘Critical'

Tennessee is owed $14 million in uncollected taxes, followed by California, due $8.7 million, and Louisiana, owed $8.3 million.

“Any changes to current legislation governing short-term room rentals needs to take into account, not only the tax implications of the rental market, but also the wide variety of operational standards that the travel industry has been held to for years,” said the study, released Oct. 24.

“Policies governing customer refunds, discrimination, damages to rooms—these are all a part of the regulatory pie, in addition to hotel-specific tax. There are no easy solutions, but with this much money at stake for state governments, individual Airbnb hosts and the rapidly growing peer-to-peer business segment, finding the right balance will be critical.”

Lawsuits Simmering

The report, “440 Million Reasons to Tax Airbnb Vacation Rentals,” was released three days after Airbnb sued New York over a state law imposing fines on New York City residents who advertise their apartments for unlawful short-term stays ( Airbnb Inc. v. Schneiderman, S.D.N.Y., No. 1:16-cv-08239, complaint filed 10/21/16 ).

A federal judge in San Francisco is considering a preliminary injunction that Airbnb and Expedia-owned HomeAway seek to prevent Airbnb’s hometown from enforcing a law that holds platforms liable for unregistered postings ( Airbnb Inc. v. City and County of San Francisco, N.D. Cal., No. 3:16-cv-03615, oral arguments 10/6/16 ).

“We are confident in our legal challenge, which is based on years of precedent, and believe we will ultimately prevail. No matter what happens in this case, we remain eager to work with the City on rules that work for San Francisco’s middle-class residents who rely on Airbnb as an economic lifeline,” Airbnb said in a statement.

More Regulation Coming

San Francisco is proposing tougher regulations on short-term rentals. The ordinance proposed Oct. 13 caps rentals at 60 nights, regardless of whether the host is present. The ordinance grandfathers hosts who already registered with the city at the existing 90-night cap for unhosted rentals and 365-night cap for hosted rentals.

“Instead of fixing the broken registration system, we are concerned this proposal will add one more barrier to compliance for hosts. We remain ready and willing to work with the city on meaningful solutions that protect housing and enable middle class San Franciscans to share their homes,” according to Airbnb's statement.

Addressing a separate issue, as part of its commitment to removing commercial operators from the platform in San Francisco, Airbnb will implement a product change aimed at ensuring hosts are only posting listings at one address in the city, starting Nov. 1.

Toronto is considering regulations that includes taxing home sharing in the city, which has a 1.6 percent apartment vacancy rate.

Taxes Paid, Uncollected

Airbnb to date has collected and remitted more than $110 million in hotel taxes globally from more than 200 jurisdictions, company spokesman Alex Kotran said Oct. 25.

“In the cities, counties, states, provinces and countries where we have tax agreements, we collect and remit hotel taxes on every single applicable transaction that occurs on the platform. We are eager to work with any municipality willing to work with us to collect and remit hotel and tourist taxes on behalf of our hosts and guests,” Kotran said in an e-mail to Bloomberg BNA.

Airbnb is projected to collect $177 million this year in taxes, with the remaining uncollected taxes exceeding $260 million, AllTheRooms said.

Airbnb worked to get laws passed in Hawaii and worked with Tennessee where the bill was killed at the last minute from the hotel industry. New Jersey, Maryland, Virginia and Massachusetts are some of the states the company is working with to pass laws so Airbnb can collect taxes on behalf of guests and remit them, Nulty said. “And we will continue to work with cities, states and counties to collect on behalf of our community.”

To contact the reporter on this story: Joyce E. Cutler in San Francisco at JCutler@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the report is at http://src.bna.com/jC2.

Copyright © 2016 Tax Management Inc. All Rights Reserved.