Extras on Excise: Airbnb Stands and Delivers (Hotel Occupancy Taxes to Local Governments)


In recent years, the “sharing economy” has proven popular with people seeking quality alternatives to pricier, more regulated market choices. Lyft spares you the shame as legions of cab drivers pass you by. Fon lets you use a consenting neighbor’s Wi-Fi. And with Airbnb and other room sharing services, you can rent someone’s (presumably clean and safe) apartment in Manhattan or many other cities and forego blowing the better part of a paycheck on hotel bills. 

Opponents of this disruptive industry argue that much of the cost savings the “sharing” business model offers stems from these companies’ practice of flying under the regulatory radar of state and local governments.  Recent developments suggest that Airbnb’s days of unregulated activity are coming to an end. 

A number of jurisdictions across the country, both local and statewide, have begun requiring people who provide lodgings through room sharing services to pay hotel occupancy taxes. Austin, Tex. and South Carolina are just a few examples.

Because these services are relatively new, the lack of governmental guidance in many locations has resulted in many sharing companies and their lodging provider affiliates (“hosts”) not paying hotel occupancy taxes. On Oct. 16, New York Attorney General Eric Schneiderman released a report asserting that Airbnb owed more than $33 million in back taxes from lodging activities to New York City alone. 

Recently, Airbnb announced on its website that it will be collecting and remitting hotel occupancy taxes on behalf of its hosts in Chicago and Washington starting on Feb. 15. Airbnb started collecting and remitting the taxes for San Jose, Calif., on Feb. 1 and has also been doing the same in San Francisco, Portland, Ore. and the surrounding Multnomah County.

What will these new obligations look like in terms of dollar signs for Airbnb? Hotel occupancy tax rates vary by locality. In Chicago, the hotel accommodations tax is 4.5 percent. For the District, it is 14.5 percent. San Jose has two transient occupancy taxes of 6 percent and 4 percent. 

San Francisco has also recently released new regulations for short-term lodging providers. Signed on Oct. 27 and effective Feb. 1, the San Francisco Short-Term Residential Rental Ordinance sets for rules for providers. They must apply to register with the city planning department and meet certain requirements. Among these, rental providers must be permanent residents with $500,000 worth of liability insurance and they can only register one residential unit. The ordinance also specifically mandates that the rental platform is responsible for collecting and remitting the transient occupancy tax.

States and localities are sure to respond with more developments to the sharing economy. But once there are regulations on an industry, while the companies can try to check out any time they like, they can never leave.

by Laura Lieberman

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Should Airbnb and other room sharing services be required to collect and remit hotel occupancy taxes?

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