Sales Tax Slice: Unlike OTCs, Paying Lodging Tax May be Vital to Airbnb’s Success


I’m sure you all watched the Super Bowl. Hopefully, you didn’t miss Beyoncé’s outstanding halftime performance. A contributing factor to her radiance might have been a pleasant stay at a nearby peer-to-peer lodging arrangement. By now, it seems as though Airbnb has become an accepted part of U.S. culture. Some cities have decided to “put a ring on it” and implemented plans to tax and regulate the emerging business model. But not every jurisdiction wants to come to this party. New York City remains as one of the notable holdouts.


With transient lodging occupancy in the communities surrounding Levi’s Stadium anticipated to swell like a sated bed bug during Super Bowl 50, thousands of Bay Area residents listed short-term rentals on Airbnb for the weekend. As Vanity Fair reports, Beyoncé and family stayed in one such rental and evidently enjoyed the experience. In case this endorsement weren’t enough to prove that peer-to-peer lodging is more than a flash in the pan, a just-out Goldman Sachs survey indicates that across cohorts people who stay in peer-to-peer lodgings increasingly prefer them to traditional hotels.   


To ensure that it can continue to be the leading company to meet this increasing demand, Airbnb has adopted a stance seemingly ripped from the marijuana industry’s playbook: Legalize, tax, and regulate us. Airbnb began collecting occupancy tax in San Francisco in October 2014. This followed the city’s passage of legislation both legalizing short-term rentals of residential property and requiring that Airbnb and similar companies collect and remit the city’s occupancy tax.


Airbnb was quick to underscore the city’s benefits from this compromise in what turned out to be a controversial ad campaign. While this campaign was short-lived, Airbnb has persisted in the underlying strategy of getting state and local authorities to bless its business model in exchange for tax revenue.


In Florida, Airbnb began collecting transient occupancy and sales tax on peer-to-peer lodging in December. Also last year, Philadelphia enacted an ordinance requiring booking agents such as Airbnb to either collect the city’s occupancy tax on behalf of peer-to-peer hosts or file information reports on hosts listing accommodations with them.


The company hasn’t got everyone lookin’ so crazy right now. In New York City, where Airbnb estimates that its rentals have an economic impact of almost $2 billion annually, the city council introduced a bill last year that would increase to $50,000 the maximum fine that could be imposed on peer-to-peer hosts that run afoul of the city’s prohibition on illegal hotels.   


Meanwhile, online travel companies (“OTCs”) are still fighting not to collect tax on the full amount paid to reserve lodging through their websites. Late last month Maryland’s state legislature overrode Gov. Larry Hogan’s veto of a bill to impose tax on this full amount. In OTCs’ favor, Orbitz prevailed on this issue in a Wisconsin case decided last week.


Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are you more likely to use Airbnb based on Beyoncé’s endorsement?


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