Extras on Excise: State Tax Departments Are Bringing Room-Sharing to Heel

Give state tax administrators a lion skin and call them Hercules, because they have been steadily subduing the Airbnb Hydra, jurisdiction by jurisdiction.

On May 1, Airbnb became responsible for collecting and remitting taxes on behalf of its hosts (the property owners who rent out their houses to guests) in Hernando County, Fla., Cook County, Ill. and Tuolumne County, Calif.

These three jurisdictions are only among the latest in a perpetually growing list. Early last year, Bloomberg BNA’s SALT Talk Blog reported that Airbnb was collecting taxes in six jurisdictions; by December, the number was 19. The company’s website currently lists 23 states, cities and other local-level entities.

For a number of years, room-sharing entities, such as Airbnb and HomeAway, have been operating with minimal regulation in various locations. Some jurisdictions did not (and some still do not) have regulatory provisions for room-sharing and other jurisdictions, like New York City, have strict restrictions on what dwelling spaces can be rented. According to a recent San Francisco policy analysis, a room-sharing economy existed in the city prior to Feb. 1, 2015, when short-term rentals became officially legal. The report also found that most of the rentals in the city violate the local room-sharing regulations.

Taxes have also been an issue for the new industry. A Nov. 2015 Pew Charitable Trusts report found that many room-share hosts did not collect or remit lodging taxes.

As room-sharing becomes more common, it is inevitable that more states and jurisdictions are attempting to bring these companies into the fold of regulation and taxation. But what does this mean for the companies?

For starters, collecting lodging taxes in 23 jurisdictions is not a simple matter. Rates can vary based on specific criteria, such as Phoenix, Ariz.’s hotel tax, which differentiates between non-transient and transient lodging. Some states’ rates are the sum of multiple rental-related taxes.

In some states where Airbnb has agreements with the tax departments to collect revenue, the company must also collect taxes for various county- and city-level jurisdictions. For example, in Florida, in addition to the 6 percent state transient rental tax, the company is also responsible for remitting over 20 counties’ tourist development taxes.

For other states and local jurisdictions, Airbnb does not collect taxes but hosts who rent out their homes are still on the hook.

In December, Tenn. Attorney General Herbert Slatery (R) ruled in Opinion No. 15-78 that rentals via room-sharing website companies are subject to hotel occupancy taxes in local-level jurisdictions that imposed them and that the hosts, not the websites, were responsible for tax collection. In the opinion, Slatery explained that the hosts operate the rented property because they own and control it; because hotel operators collect lodging taxes under state law in normal hotel room transactions, the tax burden falls on the room-sharing hosts.

Airbnb’s website explains that it calculates taxes and collects them when guests reserve their rentals for the jurisdictions where the company collects and remits the taxes. However, for areas in which hosts are responsible, the average taxpayer is likely to find the process more difficult. Additionally, the website notes that in some situations “we are unable to assist with collection.”

While tax departments are doing their best efforts to rope in room-sharing, there are still murky areas for both revenue officials and taxpayers alike. But whether these issues will be akin to the Augean Stables has not been determined yet.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think more jurisdictions will require room-sharing websites or the individual hosts to collect lodging taxes?

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