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Is San Francisco Trying to Kill AirBnb With a 15% Tax?

| Tuesday March 27th, 2012 | 10 Comments

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.


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  • Larke

    A 15% Tax is not going to kill Airbnb. 

    The real question is does the city really need this revenue?  My suggestion is no way – this is simply politicians smelling money and grabbing it.  It’s a terrible way for government to operate and frankly, this is why people vote republican (social issues aside).  

  • Pete Schirmer

    There’s another negative side effect of airbnb and similar sites going on in San Francisco; they have been proven to not only hurt local hotels but also have contributed to the severe lack of affordable rental housing. Landlords have figured out they can get a higher premium renting their properties out by the weekend or week on airbnb or other vacation rental sites than they can via traditional means. This has contributed to drive up the already pricey rental market prices as people are paying closer to vacation rental rates.

    I recently looking at a condo rental and was shocked at the price being almost twice my current space per square foot, only a block away, when asked about the price the owner who wasn’t a land lord said he did the math and decided to simply rent it out on airbnb instead of renting it to a consistant tenant. 

    I hope in part that the tax will help balance this scenario and ease the frustration of anyone looking for an apartment in SF. 

    • http://www.triplepundit.com Nick Aster

      Hmm… I’d be interested to see how may apartments are rented out on Airbnb that are not actually just people away for the weekend.  I kinda doubt it’s that many, and if there are landlords doing it, they’re likely to be doing so as a sort of corporate apartment kind of thing.  Also, I think rent control is probably a bigger problem … rent control gives a strong disincentive for landlords to rent long term – you could be stuck with someone forever!  

    • Tmarsh1

      You honestly think people renting out on abnb could provide long term rentals??

      • Shane

        Dude.  I think he’s saying the landlord saw that he could make the same or more money renting the place out to city visitors renting the place whenever it’s available vs an actual tenant.  it’s not airbnb providing long term rentals.  it’s a landlord not needing to ever have a long term tenant.

  • William Leeper

    The article talks about being disruptive and we criticize industries like the music industry for not adapting to new technology.  Well the city IS adapting and is adapting it’s tax code accordingly. 

     

  • http://www.nicepebbles.com/ Gayle

    I run a medium sized agency offering holiday rental apartments in Nice, France, (www.nicepebbles.com) if you will pardon the cheeky plug. Here, the government insists that we charge taxe de sejour, which is commonly known as tourist tax or stay tax. We take this on all our rentals which is approximately 1 euro a day per person. So, if a family of four come to stay for a week the goverment gets the equiv of around 20 dollars.

    We were scared when we were forced to implement this two years ago, as we had no choice but to simply add this onto our rental prices and those agencies / self renting owners who don’t do things above board and so don’t fall under the government radar could be more competitive than we could on price.

    However, we’ve found guests have rarely bothered about it. The guests who choose to rent our luxury apartments would have previously gone to a hotel, where they would, or already have paid this tax.

    Since we have over 150 apartments to offer we are giving the government some 40,000 dollars equiv a year.  All I can say is that apparently these funds are reserved to do as much as possible to bring tourists into the area and keep them safe and so I am in favour of it. It strengths the possibility of keeping Nice as a very popular tourist area and helps hundreds of local companies who rely on toruist business.

    I accept that it is not fair that the locals should have to pay higher taxes for extra police, tourist board offices, festivals, bin men, ambulances and cycle paths etc that are used as much by tourists as locals. I think its a fair system and if SF is earmarking the funds for this, then its a responsible move on behalf of its people.

    By the government grasping this problem, they can also monitor more closely fraud and other issues that come out of this ever emerging market. 

    On the point that holiday rentals drive up prices for long term lets – I sadly agree. This has certainly happened here, but its not really the maths. We advise owners that unless they don’t want to ever use their place themselves then they may actually do better on long term lets than holiday lets after considering utilities and all taxes. However, the main benefit for holidya lets is that guests arrive with a suitcase and leave with a suitcase having paid up front. We have never had a problem with a sitting tenant and we would be able to remove anyone who outstayed their welcome. In contrast, we hear lots of stories about it taking two years to remove the long term tenant who moves in, pays for two months and then simply changes the locks and the court process here is slow to remove them. If governments concentrated on bringing that law more up to date (I am British and a lawyer and the system in the UK is quick and fair) then landlords might move back to more longer term tenants. landlords have mortgages to pay too and can’t afford years without rent and diffiuclt court battles.

  • Dr Maximus

    There are other issues that NOBODY has addressed: are the airbnb rentals even legal? Do they violate residential zoning laws…HOA rules…do the renters have or need insurance if a rentee has an accident at the home??? Airbnb setup shop without addressing a myriad of questions. I was at the meeting and it sucked! It was an “us against them” show and no more than 4 people spoke out against the tax proposal…hence it was very much a one sided affair…which was high on emotion and poor on content and real facts such as statistics and such. One young lady, who works for airbnb and rents her place said wihout the income from renting…she would not have been able to pay her medical bills from some accident she had…sounds like airbnb are not providing her with adequate benefits!!! I use airbnb to rent my place…and I am FOR the tax…as the man who rents in Nice France pointed out…little will change with this tax. Furthermore…airbnb is making serious money from this website…so if the airbnb owners care so much about their clients…why don’t they pick up part of the tax tab???

  • Dr Maximus

    Correction…no more than 4people spoke in FAVOR of the tax proposal…sorry about that.

  • Cody

    Wow, first time I’m hearing about this. I’m glad it didn’t pass