Short-term rental tax deals are causing cities and states to lose millions of dollars in tax revenue from “voluntary collection agreements” with short-term rental platforms such as Airbnb, according to a release.
Most short-term rental revenue is simply a diversion of lodging stays from traditional lodging sources, which generally collect and pay lodging taxes through a more transparent and documented tax collection process, according to a report, authored by Dan Bucks, former director of the Montana Revenue Department and previous executive director of the Multistate Tax Commission.
“Airbnb is frequently depicted as a boon for travelers looking for lower-cost or nontraditional accommodations, and for homeowners looking to expand their income stream. But in many local markets, the arrival and expansion of Airbnb is raising questions about its potential negative impacts on local housing costs, quality of life in residential neighborhoods, employment quality in the hospitality industry, and local governments’ ability to enforce municipal codes and collect appropriate taxes,” Josh Bivens writes in a Economic Policy Institute article.
Short-term rental tax deals cause tax losses at all levels of government
“Companies such as Airbnb regularly take credit for producing certain amounts of revenue for states and localities, with numbers that often run into millions of dollars,” Bucks said, in a release from the American Hotel and Lodging Association (AHLA).
“The problem is that they are taking credit for a revenue stream that is, at best, uncertain, illusory and unreliable. Short-term rental platforms are actually responsible for significant, unacceptable losses of revenue at all levels of government,” Bucks said.
Short-term rentals taxed as residential rather than commercial like hotels
The report says that the growth in short-term rentals costs states and cities in property tax revenues. That’s because short-term rentals are primarily residential homes, which are typically taxed at a lower rate than commercial properties such as hotels.
“The amount of property tax revenue foregone or lost in these circumstances will vary, but could be substantial depending on the number of lodging rentals and the degree of differential taxation for commercial and residential properties,” Bucks said. “Given that property taxes are the largest source of revenue for state and local governments, the fiscal impact could, in some jurisdictions, rival or exceed the related lodging tax revenues.”
The report on short-term rental tax deals is the latest evidence that state and local governments should cease current voluntary tax agreements with companies such as Airbnb, according to the release. Earlier this year, Bucks called on government leaders to reject short-term rental platforms’ future pursuit of voluntary collection agreements (VCAs) and look to the U.S. Supreme Court’s South Dakota v. Wayfair, Inc. decision as a pathway to cancel current VCA agreements and bring Airbnb up to code with current industry tax standards and regulations.
Short-term rental companies should not be exempt from regulations
“Airbnb and other short-term rental companies have been pressuring state and local governments into these sweetheart tax deals for years, under the guise of innovation and disruption,” said Chip Rogers, president and CEO of AHLA, in the release.
“The fact is, these companies are engaging in shady business practices while asking for special treatment. They shouldn’t be exempt from existing tax laws and regulations that govern all other accommodations businesses.”
“AHLA urges state and local government leaders to terminate Airbnb’s voluntary tax deals and instead institute a tax policy that will collect taxes from Airbnb and its operators and ensure an even playing field and transparency. In San Francisco, home of Airbnb’s corporate headquarters, the company agreed to pay back taxes and collect city taxes from its hosts. AHLA urges other states and localities to follow suit,” Rogers said.
“These so-called ‘voluntary’ tax agreements are hurting our communities by skirting the tax regulations that fund our education systems, public safety needs and infrastructure improvements.
“Our government leaders across the country must hold companies like Airbnb to the same standards as all other law-abiding, tax-paying businesses in the industry,” Rogers said in the release.