Short-Term Rentals Costing States Millions: Report

Image courtesy of Airbnb

A new report sponsored by the American Hotel & Lodging Association contends Airbnb’s “voluntary” tax agreements with numerous states and local municipalities are short-changing the governments by millions of dollars in tax revenues, claiming the revenue stream is “uncertain, illusory and unreliable.”

The report, authored by Dan Bucks, a former director of the Montana Revenue Department and former executive director of the Multi-State Tax Commission, notes that Airbnb’s “secret” business model is causing “significant, unacceptable losses of revenue at all levels of government.” While the report calls out short-term rental companies and their growth in general for a lack of discussions on the public impact of the tax revenue losses they allegedly cause, it cites Airbnb by name.

“The terms of the Airbnb agreements not only create uncertainty about the payments made, but they are also illusory because while they create a false impression of revenues gained, they also facilitate revenues lost,” the report notes.

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The American Hotel & Lodging Association calls the tax collection agreements Airbnb has with its global partners in the U.S. “sweetheart tax deals.” The AHLA called on state and local governments to terminate the voluntary tax deals and use a tax policy that would collect taxes from Airbnb and its operator to ensure an even playing field and transparency.

Airbnb outlines tax collections

While Airbnb did not respond to Commercial Property Executive’s request for updated comments on its tax collection process, an April 15 post on its company website stated that Airbnb had collected $1.2 billion in transient occupancy tax (TOT) on behalf of its operators globally through late March. More than $1 billion of that TOT money was collected in the U.S.  At the end of 2018, Airbnb had announced it had helped collect and remit more than $1 billion in TOT globally. The April 15 update noted the company had partnered with more than 500 governments around the world to remit tax. The home-share giant stated it had remitted nearly $4 million in tax revenue in New Jersey since a new tax law went into effect in October 2018.

Image courtesy of Airbnb

However, Bloomberg reported New Jersey lawmakers—responding to complaints from homeowners who don’t advertise their rental properties on Airbnb and other short-term rental sites—recently agreed to roll back the tax, a 6.6 percent sales tax and 5 percent hotel-occupancy tax on vacation rentals advertised by homeowners but keep it intact for short-term rental sites such as Airbnb. The New Jersey homeowners argued they were not running businesses and shouldn’t be taxed as a business. They feared renters would go to other states where they didn’t have to pay extra taxes. Airbnb is reportedly opposed to the amendment, saying that all short-term rental operators should be treated the same. Gov. Phil Murphy has not yet acted on the amendment.

In a section on its website, Airbnb states it automatically collects and pays certain occupancy taxes on behalf of hosts in specific jurisdictions. It notes hosts may need to collect that money themselves in certain other jurisdictions. The company recommends hosts research local tax rules and their obligations to ensure they are in compliance.

Traditional hotels vs. short-term rentals

In his report, Bucks claims the damage to property taxes could be more than an estimated five-year revenue loss of $1.64 billion, particularly if Airbnb gains market share from traditional lodging sources. Many of its property operators would still be taxed as residences rather than commercial properties.

Bucks concluded the property tax issues have been overlooked as short-term rental platforms such as Airbnb have grown in popularity. He notes that both a national review and individual state studies of tax issues are overdue and should be undertaken.

All of these issues are coming at a time when the lines between traditional hotels and short-term rental platforms are increasingly blurring and Airbnb is expanding its offerings. In March, it acquired HotelTonight, a hotel-booking platform aimed at last-minute trip options at boutique and independent hotels. The company also recently expanded Airbnb for Work, its platform for supplying rental space to companies and professionals and also acquired Gaest.com, an online marketplace that provides meeting locations for short-term rentals.