The question: Should Airbnb users be forced to pay the same 15% room tax that standard hotels pay?
Background: Those of you who have been following the evolution of the access economy are likely big fans of Airbnb – the popular website that allows people to rent out their apartments when they’re out of town. One thing about access economy companies is that they are generally disruptive towards an entrenched establishment and the government and tax structure that is built around it. Generally, this is a wonderful thing – erasing inefficiencies and opening up widespread earning and saving opportunities for the general public.
For example, AirBnb is potentially disruptive to the traditional hotel industry. AirBnb offers substantially discounted places to stay via a simple and flexible interface – with none of the added fees, taxes, or impersonal hassel which often accompanies a hotel. As an added bonus, residents can offset some of their monthly rent or mortgage by helping someone out. On the other hand, a hotel can offer myriad services and a level of comfort that the spare bedroom at some guy’s pad can seldom achieve. This is one reason why the hotel industry is in no danger whatsoever of being driven out of business by AirBnb – it may only be forced to evolve a bit.
Nonetheless – a proposed 15% tax on “transient occupancy” is being considered tomorrow (March 28th) at San Francisco city hall. The rule would force Airbnb to collect an additional 15% on rentals – a move that some say may severely hinder its ability to function.
What’s driving this?
Currently, those who make money from AirBnb pay no city tax for the privilege of doing so – they do pay income tax, just not city hotel tax. In contrast, traditional hotels pay a 15% occupancy tax to the city on every room rented. Such hotel taxes are a common global practice and give a city funds to use on tourism promotion, infrastructure and more. Say what you will about the efficiency by which a city spends its tax money, but it is an important part of the budget. By this logic, it would seem that taxing AirBnb rentals would be a windfall for city coffers (whether justified or not).
But is AirBnb really a hotel rental?
Despite some similarities, subletting a room isn’t the same as selling a hotel room – there is no expected level of service, only an agreement between two people which may be completely different every time. Furthermore, by making it more difficult for tourists to visit San Francisco on a budget the resulting price increase would reduce their numbers and reduce local economic spending.
There are also logistical problems: the tax is only possible with companies that keep records to enforce it - no one who sublets their apartment for the summer on Craigslist is going to pay this tax. This might mean an exodus from Airbnb to places like Craigslist that don’t facilitate the exchange of money – increasing risk and doing nothing for the city. The city doesn’t tax long term rentals (i.e., landlords), so why should they tax renters for stepping into the position of the landlord for a short period of time? San Francisco should be trying to encourage companies that put unused resources to use, not penalize them so hotels can build more buildings.
Finally, is there any evidence that AirBnb is currently hurting hotel occupancy in San Francisco? Based on anecdotal evidence it doesn’t look that way. Therefore, is the city really losing any revenue by not implementing this tax? Might this tax really be nothing more than a power grab by entrenched hotel interests and a money grab by city officials eager for a piece of a new pie?
Or is this just the access economy just growing up?
Please leave your comments below!
Full disclosure – I’m a fan of AirBnb and have been renting out my apartment regularly for over a year as well as using the service in other cities.