The Taxing Problem of Airbnb

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Everybody loves a bargain. So how about 15 percent off on your next New York City hotel stay. Sound good? Well, it’s easy: just use Airbnb.

That 15 percent is a round figure, of course, not an exact number. It basically represents the hotel tax rate (14.75 percent) in the city. When you stay at an actual hotel, you’re charged this tax. But if you stay at an Airbnb, you don’t have to pay it. That’s one reason the “sharing economy” seems cheaper than a traditional hotel. But those savings come with a price.

For one thing, cities such as New York depend on hotel tax revenue. It helps fund the police agencies that protect visitors. It helps pay to repair the roads and subways those visitors travel on. And these days, we’re not talking about a few missing tax dollars here and there. Airbnb is no plucky start-up anymore, a company struggling to just get by in the gig economy. It’s worth more than $30 billion, about the same as Marriott International and more than twice as valuable as Hilton Worldwide Holdings. Airbnb could afford to pay its fair share; it just doesn’t want to.

In fact, the company is going to great lengths to avoid paying the same rates hotels do. Airbnb says it will agree to voluntary collection agreements (VCA) with state and local officials across the country. These deals would supposedly allow the company to pay taxes on the rooms rented over its platform. However, Airbnb turns out to be less than reliable in paying what should be due.

“This report I commissioned reveals that Airbnb continues to blatantly flout our local short-term rental law — a law that Airbnb itself helped draft,” San Francisco Supervisor David Campos told Skift.com. “The findings make it clear that this company cannot regulate itself, contrary to its claims.” When Airbnb tried to hammer out a VCA in the Florida Keys, the Monroe County tax collector was aghast. “How do we know if they’re remitting the correct amount of tax?” Danise Henriguez told the Miami Herald. “Are these units in areas where they are legally allowed to rent? Do they have a homestead exemption? I don’t know.” And without proper data, tax authorities across the country will have a limited picture of Airbnb’s operations in their jurisdiction and will not be able to properly evaluate the company’s tax bill.

Of course, tax revenue isn’t the only thing Airbnb is taking away from cities. It’s also taking rental property off the market, thus driving up the cost of living in places that are already very expensive.

A study published at CityLab last year “found that for every 10 percent growth in Airbnb listings, a ZIP code’s average rent increased by 0.4 percent.” Furthermore, the site adds that: “During that same period, rents in these neighborhoods grew about 7.7 percent a year from a baseline average of $1,712 per month in 2012—that’s an estimated average increase of $131 every year.” Meanwhile, a spokesman for New York’s governor told the New York Times that Airbnb and similar sharing platforms “compromise efforts to maintain and promote affordable housing by allowing those units to be used as unregulated hotels.”

If affordable housing is important, policymakers will need to crack down on Airbnb, or watch as more properties switch from long-term (a year) to short-term (by the day, as with hotels) rentals.

Airbnb and similar platforms are making it easier for renters to break the law. It’s time to either slash regulations and taxes on hotels, or start treating the sharing economy the same way we treat the lodging industry.

Gary S. Goldman is the nationally recognized host of “Business, Politics, & Lifestyles” a weekly talk show airing on WCRN 830 in Metro Boston MA. Learn more at garyonbpl.com.

 

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