At the tail end of November, home-sharing giant and hospitality disruptor Airbnb signed a deal with the state of Idaho to begin collecting taxes on behalf of the company’s hosts. Airbnb has a history of making statements suggesting it is willing to pay taxes, but has also been slow to sign deals with state and local governments solidifying the rules of tax collection. Now, the state of Idaho is making sure the company is collecting on its behalf, and put Airbnb, not its hosts, in the driver's seat.
The new rule finds sales of temporary lodging lasting 30 days or less subject to taxation, and these new rules went into effect Dec. 1. Airbnb came to this agreement with the Idaho State Tax Commission, which makes the company liable for collecting and remitting Idaho sales tax, travel and convention taxes and the Greater Boise auditorium district tax. The act of collecting and remitting these taxes rests on the shoulders of Airbnb, meaning hosts can no longer opt out of collection by the parent company, though hosts are still on the hook for collecting other local sales or auditorium taxes.
Signing the deal knocks out one of the biggest criticisms of Airbnb: that the company has been able to get by without collecting taxes in many areas of the U.S. since its inception. Lawmakers are finally educated enough to learn they have been missing out on their cut and are stepping in to remedy the situation.
Jeremiah T. Lynch, principal at global tax services firm Ryan, compared the rise of Airbnb and the sharing economy to that of Amazon and the e-commerce explosion. Amazon was able to build market share for itself during a period when lawmakers were unaware of the nature of its business model and the impact it would have on competition, and by the time the company was collecting sales tax on a level comparable to other retailers they already had a strong foothold in the market.
Lynch said 2017 is going to be a big year for companies that make up the sharing economy, such as Uber and Airbnb, as regulatory services become fully aware of their business model.
“As it relates to competition and regulation, some jurisdictions are trying to keep [these businesses] out, while others let them in but with specific tax rules,” Lynch said. “In many of the states where they are actively trying to bring Airbnb up to speed the tax rates are coming in either exactly or extremely proportional to hotel rates.”
From where he is sitting, Lynch said Airbnb is likely happy with the model in place in Idaho, which consists of a 4-percent gross receipts-like tax on business and doesn’t force to the property owner to become a tax collector. In addition, Airbnb already offers hidden fees for services such as cleaning (similar to a hotel’s resort fee), and these fees are factored into the final, taxable rate, meaning Airbnb in Idaho is already being treated as if it were a hotel business from a tax perspective.
Lynch also voiced his concern that regulators may stop hounding Airbnb after settling tax disputes. While hotels are held to rigorous safety and security standards, short-term home rentals share none of these regulations or the costs associated with them.
“The tax issue is significant; Chicago alone is at a 21-percent tax rate,” Lynch said. “That’s a huge differentiator, but the other issues are all related to regulatory concerns. Fire codes, security, the [Americans with Disabilities Act], it will be interesting to see what concessions are made to satisfy one group versus the other. The tax issue is important in the hierarchy of concerns, however, and if regulators are able to successfully get [Airbnb] to pay for taxes they may not be able to pound their head over ADA concerns.”
Legal actions are continuing, however. Airbnb recently dropped a lawsuit with the state of New York in order to renew its efforts suing New York City over legislation fining any host selling a room for less than 30 nights. A hearing is set for Dec. 17, and fines ranging from $1,000 for first-time offenders to $7,500 for repeat offenders are on the table. Lynch, however, said New York could be handling the situation better.
“People are still going to do it,” he said. “I would want to have something set up to collect on the business, like what we see now in Idaho. You want consistency around this model. People have skirted the rules and will continue to do so, and the city has no idea what it could be getting back.”