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By Tripp Baltz
The Multistate Tax Commission has agreed to consider a proposed amendment to its model law on lodging taxes amid reports of major problems with voluntary tax compliance agreements entered into by Airbnb Inc. and state and local taxing authorities.
The amendment would add dwelling, bed, room and “multiple rooms in a dwelling” to the MTC’s 2012 model uniform statute for collection and remittance of lodging taxes by online marketplace-style, short-term rental intermediaries such as Airbnb, VRBO.com, FlipKey and HomeAway. The American Hotel and Lodging Association (AHLA) made the proposal during the MTC Uniformity Committee’s March 8 meeting.
The model statute, if adopted by state and local taxing jurisdictions, would make online short-term rental marketplaces and other accommodations intermediaries responsible for the collection and remittance of lodging, hotel and occupancy taxes. The AHLA’s proposed amendments are designed to “update the model statute so it more accurately reflects realities in the short-term rental marketplace,” Joe Crosby, principal at MultiState Associates Inc., told Bloomberg BNA.
The Uniformity Committee agreed to form a work group to take a fresh look at its accommodation intermediaries model law in light of the AHLA proposed amendments. Idaho Deputy Attorney General Phil Skinner will chair the work group.
The proposal aligns with recommendations in a report funded by AHLA and presented March 9 to the MTC’s Nexus Committee by Dan Bucks, former director of the Montana Department of Revenue and former MTC executive director. The report slams the roughly 200 agreements Airbnb has entered into with state and local governments designed to bring lodging operators into compliance with occupancy tax laws.
In lieu of compelling payment of taxes by the accommodations intermediaries, such agreements aren’t optimal because they don’t guarantee the proper state or local lodging tax is being collected and remitted, Bucks said. These agreements also limit the authority of taxing jurisdictions, which cede control of payment and auditing processes to Airbnb, he added.
Bucks said the core problem with such agreements is their secrecy.
“Secrecy allows lodging operators to run hotels that violate zoning laws, avoid public health and safety standards, and reduce the current housing supply for long-term residents,” he said. “Secrecy allows Airbnb, if it decided to do so, to avoid accountability for taxes and even to make ill-gotten gains from tax collection.”
Bucks said another major concern is that Airbnb is increasingly becoming a listing service for rentals by commercial-style facilities with one to several units where the operators don’t live, but rent them out full-time.
“This is not home sharing,” he said.
Crosby told Bloomberg BNA by email that the AHLA “supports any effort to ensure taxes are accurately and fairly remitted by all commercial operators.”
He said the purpose of the draft amendments presented to the MTC “was to jumpstart the conversation,” knowing that the final MTC version will be different. “So as long as the final version advances compliance, it is a worthy effort.”
Buck’s report recommends state and local taxing agencies stop signing the agreements. Instead, tax agencies should update lodging tax laws to require registration, reporting, collection and remittance of taxes by online booking companies and lodging operators.
Very few state and local jurisdictions impose a legal requirement to collect and remit occupancy taxes on online short-term rental marketplaces like Airbnb, Joe Huddleston, executive director for EY’s Indirect Tax Group in Washington, D.C., told Bloomberg BNA. Airbnb and other online marketplaces are a group of platform service companies, and accordingly don’t have the requisite nexus—otherwise known as sufficient in-state physical presence—to trigger an obligation to collect and remit taxes.
“Handling of platform service providers raises significant constitutional nexus questions,” said Huddleston, a former MTC executive director.
Having a relationship with a host or lodging operator doesn’t establish nexus, he said. “It’s more accurate to say the lodging hosts hire Airbnb, not that Airbnb hires hosts.”
In a March 8 presentation to the Uniformity Committtee on Airbnb’s business model, Beth Adair, the company’s global tax director, said Airbnb enters into agreements with state and local taxing jurisdictions even where it’s not required to by law. The company is required to do so in Chicago and North Carolina, but is now collecting and remitting taxes in more than 200 locations under voluntary compliance agreements (VCA).
Such agreements are legally binding contracts for the company to assume the tax collection and remittance obligations of its hosts for booking transactions completed on Airbnb’s platform. Airbnb doesn’t assume obligations unrelated to tax, such as rental permitting, zoning, and health and safety requirements, she said.
The company decided to incorporate VCAs into its business practices so lodging operators “no longer need to worry about complicated occupancy taxes” and to make it easier for state and local governments to collect from and audit one corporate taxpayer “rather than thousands of individuals.”
“We’re willing to take on the responsibility of operators, shift that burden to ourselves,” she said. “What we’re offering is 100 percent compliance.” She said the company has dropped the practice of requesting that such agreements remain confidential—the details of the agreements aren’t secret, she said, although Airbnb doesn’t provide names and addresses of hosts.
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The AHLA's proposed amendments to MTC's model uniform statute on accommodations intermediaries is at http://www.mtc.gov/getattachment/Uniformity/Uniformity-Committee/2017/Uniformity-Committee-Meeting-3-2017/Industry-Accommodations-Intermediaries-Language-Amended-Draft-2017-03-02.pdf.aspx
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