Forbes, Joe Harpaz ,
Here’s something you don’t see every day. Airbnb, the popular room-sharing app, has made a plea to the mayors of the largest U.S. cities asking to be taxed. The company’s head of global policy, Chris Lehane, addressed the attendees of the United States Conference of Mayors earlier this year with a proposal to work together to help cities collect tax revenue from the peer-to-peer transactions that occur on its platform.
In a world littered with stories about corporations trying to limit their tax exposure, this one definitely merits a closer look.
I first wrote about the tax issues confronting Airbnb and other peer-to-peer, sharing economy-type businesses back in 2014. At the time, the New York Attorney General Eric. T. Schneiderman had just brought a suit against the company for refusing to provide the names of its New York customers. Authorities wanted those names because they suspected that Airbnb hosts who rented their homes using the service may not have paid taxes on the income and, in some cases, violated New York housing laws.
A similar phenomenon began playing out in other cities where Airbnb had developed a cult-like following of homeowners eager to earn a buck and travelers happy to get a great price for an authentic living experience in another city.
The root of the issue is the peer-to-peer business model Airbnb uses, which allows individuals to circumvent the traditional supply chain checkpoints for taxation and regulation. In New York, for example, state law prohibits people from renting their homes for fewer than 30 days unless the occupants are also present. Why? Because these types of short-term rentals have traditionally been the domain of the hotel industry, for which the state and local municipalities – notably New York City – have set up special sales and occupancy taxes. By cutting out the hotel, travelers also cut out a valuable chunk of tax revenue for the city and state.
Recognizing that their own pace of innovation has moved faster than the pace of regulation, Airbnb has begun lobbying to change those laws so that the revenue generated through their peer-to-peer room sharing model is taxed appropriately.
When I contacted the company to ask them about it, they sent me this whitepaper which they have been using to make their case to state and local governments. In it, they estimate that by partnering with Airbnb to create clear tax rules for home sharing, the fifty largest cities in the U.S. would have collected a total of $200 million in hotel, tourist, and occupancy taxes in 2015. They also provide this table, which breaks out a sampling of potential tax revenue from five of their major markets:
The report specifically calls out New York, by far Airbnb’s largest market, as area requiring particular attention because the current tax laws in the state would need to be changed significantly before tax could be collected on their home sharing business model.
It’s a fascinating situation. Essentially Airbnb has innovated itself into a corner. To get out of it, they’re looking to municipal tax authorities to move just as quickly. Will it work?
So far, a few early adopters, including San Francisco, California; Portland, Oregon; Ontario, British Columbia; Alabama; and Brevard County, Florida have taken the lead on making deals with Airbnb and are now collecting tax revenue from the company on behalf of property owners. Several other state and municipal tax authorities, including Honolulu, Hawaii and Arizona have also introduced new legislation to make it happen.
Others have been less enthusiastic. The Santa Barbara City Council put an outright ban on Airbnb-style short-term vacation rentals and, in a closely-watched legislative battle in Virginia, in which lawmakers had introduced some of the most progressive room-sharing tax proposals in the country, legislation was postponed largely due to strong opposition from hotel groups.
It’s a complicated situation to be sure, one that will play out in cities and towns throughout the country as Airbnb rapidly becomes the poster child for a new form of business existentialism: I pay taxes, therefore I am.