Virginia localities say no thanks to Airbnb’s terms for tax collection agreement

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Blacksburg was one of the first localities in Virginia to sign a tax collection agreement with Airbnb earlier this year, but others around the state aren’t sure that’s something to brag about.

Airbnb’s standard tax collection agreement stipulates that localities won’t receive a list of addresses where the rooms are booked or names of the taxpayers — basic information the government typically checks to ensure taxes are being assessed properly.

Airbnb does make it significantly easier to collect the money by adding taxes onto bills when customers pay online. That means localities don’t have to collect from hundreds of hosts individually.

An Airbnb spokeswoman added that the company is willing to provide details of each transaction under audit, but it will be anonymized in order to protect hosts’ information.

Maggie Ragon, president of the Commissioners of the Revenue Association of Virginia, said that means Airbnb is asking Virginia communities to take the company’s word for it while accepting tax revenue from unknown taxpayers. Localities also must forfeit their authority to audit Airbnb hosts, a standard tool for tax administrators.

Airbnb says it has tax collection agreements with more than 23,000 localities across the globe. But in Virginia, only Blacksburg and Alexandria have agreed to the company’s terms so far.

“It’s really not even a decision as to whether or not it’s a good thing or a bad thing. It’s just — that’s not what the law says you have to do,” Ragon said. “We [commissioners of the revenue] can’t do what we’re prescribed to do under the code of Virginia if we sign those agreements.”

Airbnb’s tax collection duties hinge on a key distinction: The company is a platform where homeowners list their properties for rent, not a provider of rentals itself. So each homeowner is their own business responsible for collecting and remitting its own local taxes — not the platform.

That means localities that wish to tax the smaller rentals typically inside a property owner’s home — known as homestays — need to track down each host to collect what would be a small amount of money from many people.

Airbnb offers to simplify the process by collecting hotel, lodging or other applicable taxes on behalf of localities whenever a customer pays for the booking online. In Blacksburg, for instance, guests find an additional 7 percent fee at the bottom of the bill before they check out.

Roanoke was offered a similar deal as Blacksburg and Alexandria, but City Manager Bob Cowell said in a written statement that the proposal didn’t provide proper mechanisms to verify the taxes were being accurately collected and remitted. The city rejected the agreement but is willing to reconsider if the terms change.

Helen Royal, commissioner of the revenue in Montgomery County, which contains Blacksburg, also says she would recommend not signing the agreement right now. So would Todd Divers, Charlottesville’s commissioner of the revenue.

Stephanie Benson, a spokeswoman for the Virginia Department of Taxation, declined to disclose whether or not the state has entered into a tax collection agreement with Airbnb and what the terms of that deal may be, citing taxpayer confidentiality laws. According to Airbnb’s website, the company does not currently collect state taxes for Virginia.

Neal Menkes, a consultant for the Virginia Municipal League, said the agreement doesn’t violate any laws, but it is “very atypical.” He said that the league’s position is that localities should decide for themselves whether to sign tax collection agreements.

“This is using a third party, a non-public entity, to remit these taxes without identifying who’s actually paying them,” Menkes said. “It really is public money, and the elected officials and the citizens have a right to know that the correct amount is being submitted.”

Alexandria’s Assistant Director of Finance Kevin Greenlief takes a more practical view of the situation.

Before its agreement with Airbnb, Greenlief said, Alexandria collected virtually no taxes from Airbnb-style homestay rentals. The city was expecting around $100,000 from Airbnb in its first year under the agreement, but has already reached that goal in the first four months.

Greenlief said Airbnb reports the number of rooms booked in Alexandria each month, and the total amount of receipts paid. He said more information would be ideal, but he also has to consider the cost of collecting the tax from so many hosts without Airbnb’s help.

“Philosophically, I share their opinion that I would like to get the discrete data,” Greenlief said. “I don’t think any tax administrator wouldn’t like to get the discrete data. But if it’s not available, I need to look at what’s most reasonable in the alternative.”

The situation highlights the struggle localities face as they try to regulate a new technology with no precedents and for which formal rules are scant.

The homestay industry is led by a billion-dollar California company with an army of lawyers, deep pockets and more political clout than most local governments.

Some, like Blacksburg, have chosen to write new rules to accommodate Airbnb in order to collect taxes — even if only on the company’s terms. Others, like Roanoke, are standing behind their age-old principles of tax collection.

Ulrik Binzer, founder and CEO of Host Compliance, runs a startup that helps localities that fall into either category deal with homestay regulation.

Some localities choose to hire Host Compliance to get help identifying renters and collecting taxes without an Airbnb agreement. Others, including Alexandria, use the startup to augment data provided by Airbnb and to target renters that use other sites to list their properties, such as Expedia or HomeAway.

“Some cities — where the money is really, really important to them — sort of take the deal knowing it isn’t good and it also potentially sets some disturbing precedents,” Binzer said, noting it’s often a choice between money and virtue.

In an email, Blacksburg Town Attorney Larry Spencer said localities have to consider their own ability to audit Airbnb hosts.

He wrote that when Blacksburg chose to sign the agreement, it considered the cost effectiveness of auditing individual hosts, as well as convenience for the hosts and the fact that the agreement can be canceled on relatively short notice if it doesn’t work out.

“All assessment of taxes is supposed to be fair and equitable,” Ragon said. “It would be difficult to argue it’s fair and equitable to have company A saying, ‘Here’s money we collected on your behalf, but you’re going to need to take our word for it that it’s the right amount.’”

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