The Next Battle in Virginia’s Sharing Economy: Airbnb

airbnbby James A. Bacon

The fracas in Virginia over Uber and Lyft has settled down. The two “transportation network companies” have submitted to regulation requiring background and safety checks of drivers, and nearly 19,000 vehicles have registered with the state, according to the Richmond Times-Dispatch. The next legal front in the sharing economy is likely to focus on Airbnb, the company that enables individuals to rent out houses, rooms and apartments for short-term lodging.

The problem, according to the Commonwealth Institute, is that Airbnb does not collect and remit the lodging taxes on these rentals, meaning that local governments could be losing millions of dollars in tax revenue.

Thousands of Virginians have signed up on Airbnb to offer accommodations to paying visitors. A check this morning showed 692 rentals being offered in the City of Richmond as the UCI Road World Cycling Championships approaches, 288 rentals in beach destination Virginia Beach, 489 rentals in the college town of Charlottesville and more than 1,000 rentals each in Fairfax County, Arlington County and Alexandria near the nation’s capital. Charges can vary from $37 per night for a “very, very rustic cabin by the river” in Hinton… to $225 per night for a three-bedroom house in Blacksburg during football weekends… to $2,000 per night for a three-bedroom house in Old Town Alexandria.

The state requires hotels, motels and campgrounds to collect a sales tax of 5.3% to 6% for reservations of less than 90 days. Many localities also collect a local occupancy tax, which in the case of Richmond, Henrico, Hanover and Chesterfield amounts to 8% to cover debt from building the Greater Richmond Convention Center. Other communities use the occupancy tax to support local convention and visitors bureaus (CVBs) and tourism initiatives.

Airbnb is not collecting taxes in Virginia. According to the Commonwealth Institute, the company suggests that renters charge and remit occupancy taxes on their own. But the taxes can be confusing for casual Airbnb hosts to understand and localities are not set up to monitor and enforce collections on casual rentals.

Earlier this year, however, Airbnb reached an agreement with Washington, D.C., to collect and remit occupancy taxes on all of its rentals in the District. That follows agreements in Portland, San Francisco and Wake County (Raleigh, N.C.) to do the same.

Bacon’s bottom line: I can see why the hospitality industry is up in arms over Airbnb. Airbnb rentals under-price hotels and motels offering comparable accommodations but they don’t contribute to the collective efforts of CVBs to market and promote their metropolitan region as a destination. Forcing casual renters to handle the paperwork would be a deal breaker for many, but Airbnb’s administrative systems should be able to execute the task of remitting taxes with little difficulty. I agree with the Commonwealth Institute that the Commonwealth of Virginia and its localities should seek the same kind of tax-collection deal that North Carolina and several of its jurisdictions have struck with the company. Create a level playing field and may the best competitors win!

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26 responses to “The Next Battle in Virginia’s Sharing Economy: Airbnb

  1. ” I can see why the hospital industry is up in arms over Airbnb.

    Not sure you meant to say hospital.

  2. just a note of caution if you rent your house. Check with your home insurance carrier. Many will not pay for damages if you have rented your private dwelling.

  3. I have long wondered why the political left seems to have an overall distaste for Uber and Uber’s ilk. At first I thought it was just regulation. Does Uber follow the same regulations as a taxi company or a limo company for example. These new companies seem to have pretty quickly gotten past that by complying with the existing regs. As an aside – your Airbnb example is somewhat flawed. It is the hotelier’s responsibility to collect taxes, not the reservation system operator. However, it is in Airbnb’s business interest to make it easy for a layman to become a part-time hotelier. Either way – the upstarts are quickly getting into compliance with traditional regulation.

    Yet the left still wasn’t happy. The new complaint was that the people who gave people rides via Uber were independent contractors rather than employees. Therefore, they didn’t get employee benefits. The left struggles with this because it denies them a point of control. Lots of people are contractors. Independent truckers, movie actors, paid bloggers, eBay traders, etc. Progressives like the idea of extending government control by forcing employers to do certain things – like pay a minimum wage. How would I enforce a minimum wage on a self-employed candy store owner or an Uber driver? More independent contractors = less government control. Plus, those independent contractors do something companies don’t – they vote. Direct control of the contractors may have “unintended consequences” for the left as they say.

    However, I think there is a further point. The progressives know that their economic policies aren’t working. More and more working age Americans don’t have jobs (the suspect statistics of the unemployment rate not withstanding). Immigration, legal and illegal, continues unabated giving the left what they presume will be more supporters as one amnesty program after another is implemented. Globalization pushes jobs off-shore under the benign gaze of those on the left and right. Digitization and automation reduce the amount of human labor required per unit of output in many areas. Finally, the left hopes to garner even more votes through a major increase in the minimum wage. Is the left finally starting to see the possible calamity brewing at the intersection of these liberal ideas? Companies like Airbnb increase the efficiency of housing by creating a ready market for the rental of temporarily unoccupied residences. But this increased efficiency comes at a cost. More Airbnb reservations mean fewer traditional hotel bookings, fewer hotel receptionists, fewer hotel maids needed. More money for those already wealthy enough to own their home.

    Are the sharper progressives finally starting to see the folly of their combined policies?

    • Take care of all the systems that rely upon the employer/employee relationship and I’m fine with an independent contractor economy. First though you have to decide : how to collect income and Social Security taxes if there is no employer withholding (hire a lot more revenue workers?, eliminate income taxes); unemployment insurance (what about those mill workers in rural communities), worker’s compensation (who pays when a worker is injured doing a company’s work). All of these could be taken away, but you’d have to find some other way to do it. Uber and its ilk aren’t going to be stopped – the question is do we throw out the old systems that protected the tax base and workers, and if so do they need to be replaced. Do we just move into a free-for-all Ayn Rand economy?

      And finally why do you think it is the progressive’s economic policies that aren’t working? You think progressives control the economy? That progressives have all of the lobbyists and the tax code? You can’t equate progessives with our messed up economic system.

  4. I just don’t see a giant sea of wailing lefties on this issue myself.

    Perhaps you can supply a couple of examples.

    I actually thought Bacon was going to come out in favor of getting rid of the taxes on lodging all together and was shocked when he said extend them!

    I personally – being to the right of Don and others on some fiscal issues – don’t have a problem with Uber, Lyft or Airnb and see all of them as proof the Feds can create jobs!

    You might ask how can that be.

    Well Uber, Lfyt, and Airnb all have business models rooted in GPS technology and good old Uncle Sam with your tax dollars made it all possible! All those nasty overpaid overpensioned government employees who sat at their desks snoozing away until that fabulous day went rockets went airborne to put into place what of the greatest govt job creators in the history of mankind!

    Next up – satellite/gps guided drones! to do everything from flying miraculous life-saving medicines into remote areas to shark patrols to finding downed aircraft – even at dark!

    the only caveat I have about these kinds of “sharing economy” business was touched on – regulations and insurance – both, once again, the purview of that nasty old govt.

    People – not “lefties” will, as they have before, demand regulation as the darker side of voluntary transactions rear their ugly head again and of course – the govt already is the go-to “good guy” to make sure that fly-by-night, insurance-in-name-only shysters don’t get into the insurance game.

    All in all it’s a good deal all the way around and it obviously gives the righties an opportunity to vent their spleen about lefties!

    • I’m more or less of a level playing field type of guy. Things that are functionally the same should be taxed and regulated fundamentally the same.

      I’m not sure what the law is when a person rents out her house for college graduation weekend except that the proceeds might constitute gross income for FIT and SIT purposes. In other words, is there a de minimus exception for lodging taxes? If not, they ought to be applied equally. And when one joins Airnb, I think they’ve made a statement that they are in the lodging business and need to comply with all applicable laws, taxes, zoning, etc.

      I have no trouble making Airnb requiring its members to follow the tax rules. It’s not all that different from Hilton or Best Western. They handle reservations through their system, but most properties are privately owned.

      As far as the changing business model is concerned, DR is right. The world is changing and society and government needs to adapt.

      • I should have added that the arrival of new competitors should also be accompanied by a review of the regulations that apply to the industry at issue. Regulations that affect safety, for example, need to apply to all, but regulations that are really just barriers to entry should probably be removed.

      • TMT – why not just do away with taxes on lodging?

        I’m surprised Don has not advocated that.

        Do both of you support govt taxes and regulation on AirNb?

        • Virginia law allows localities to impose a lodging tax. If reasonable in amount, it diversifies the tax base, spreads some of the tax burden to business and other travelers, and is imposed by most jurisdictions. It seems reasonable to me to impose the tax on short-term rentals made through AirNb.

    • Chris Matthews finally got his leg to stop quivering long enough to complain about Uber on Hardball. Mark Warner publicly worries about “the sharing economy”. Bill de Blasio, Mayor of New York City …

      http://nypost.com/2015/07/20/bill-de-blasios-anti-uber-scheme-is-based-on-misinformation/

      • Uh oh … here’s another example of excellence of execution by the federal government …

        http://hosted.ap.org/dynamic/stories/U/US_IRS_BREACH?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2015-08-17-14-03-54

        “In 2012, the IRS sent a total of 655 tax refunds to a single address in Lithuania, and 343 refunds went to a lone address in Shanghai, according to a report by the agency’s inspector general. The IRS has since added safeguards to prevent similar schemes, but the criminals are innovating as well.

        The IRS estimates it paid out $5.8 billion in fraudulent refunds to identity thieves in 2013.”

      • DOn – you guys kill me. WHO created that mine problem in the first place and abandoned it?

        Do you know how many abandoned mines the US taxpayer has had to pick up the costs on – and yes when you take over a mine that is one step from a failure – bad stuff can and does happen.

        Can you tell me how many abandoned mines and superfund sites the EPA (taxpayers) have taken over and did NOT FAIL?

        where do you guys get your sense of honesty about issues from?

        not from common sense.. that’s for sure..

        everything.. every single misstep is an indictment of government itself right?

    • Also … loved seeing Tim Tebow get a standing ovation and score a touchdown for the Eagles. That must have raised the blood pressure for quite a few Godless Commie Democrats!

  5. The New York Post? are you kidding Don? If by “progressives” you mean most of the world’s cities – then I yield… yes most cities like Don says are concerned about a loss of taxes – that would have to be made up or services cut. If that’s “liberal” then I yield!

    Mark Warner – a businessman, an entrepreneur who himself was an innovative disrupter is, in my view, rightly concerned about – what might end up being more people needing govt assistance if they do not make enough money to pay for their retirement and health insurance.

    http://www.warner.senate.gov/public/index.cfm?p=gig-economy

    Asking tough questions about the gig economy (WaPo)

    if people can’t afford to buy health insurance or save for their retirement who is going to pay for it? When I DO HEAR that we SHOULD REPEAL EMTALA and all ERs will here-to-fore have “Payment REQUIRED at time of service” on their entrances, I will consider it blather.

    The thing is that right now independent contractors DO pay FICA taxes for Medicare and Social Security but not usually in increments – it all comes due at tax time – and many don’t have the money to pay it and end up in trouble with the IRS.

    If, as a country – we are going to move away from the individual mandate of Social Security and Health Insurance then we should have elections on those issues and I’ve yet to see a single idiot Congressman get up and say he advocates repeal of EMTALA nor Social Security or Medicare. When those fools screw up their courage and show some backbone to get up and truthfully say what they want to do – we’ll get the answer to how many real ‘liberals” there are in this country and my bet is if those are the litmus test questions – it’s way more that folks like Don think there are.

  6. I agree, let’s create a level playing field. I look forward to all those Airbnb folks making their dwellings ADA compliant.

  7. Why we have to cast all issues in terms of left and right these days is ignorant.

    I’m sorry but that’s the deal.

    The world is not so simple as that no matter how some feel it is.

    Issues are not sound bites – but that how many process them now.

    In Don’s world these days – if TMT was opposed to not putting the same taxes and regulations on Airbnb as other lodging – it would make TMT a “liberal” like DeBlasio… in fact all mayors of cities who want Airbnb to play by the same rules as other lodging are “liberals”.

    and that’s going to include the traditional lodging businesses .. they become “liberals” also because they want Airbnb to be subject to the same rules and taxes as they are.

    of course it’s WRONG to look at the issue this way – but it don’t stop the soundbite folks..

  8. How long will it be before the city and county tax folks go after them for not having a business license?

    You also can bet Cousin IRS (bless her) and state governments will not miss out for long.

    • or for that matter – operating a commercial business in a residential zoned area?

      I’m not opposed to these things.. I’ve often thought that they are in some respects wasted resources.

      but I’m also of the view that regulations come about in response to issues as opposed to them being the evil creation of govt control freaks.

      for instance, do we REALLY want no regulations and no taxes and no business licenses?

      Some folks are going to start converting rental housing to “lodging” and more than likely in cities where this goes forward – a good number of commercial hotels/motels are going to go away… no longer profitable… the remaining ones are likely going to end up being more expensive.

      perhaps that’s not a bad thing – potentially a good thing but are we prepared for things like that being the outcomes?

      I personally LIKE the “idea” of Uber and AiRnb… the concept…I’d love to be able to drive to a city and rent a room but it’s sort of like eating in a local home-brewed restaurant than a chain… you know what to expect with the chains.. the home-brewed are pretty inconsistent.

      what might be “fun” to someone in terms of “different” might be not so good for others.

      I personally, for instance, would not like to rent a room in a house without a separate private entrance to the room. The idea of coming and going through someone’s private home just seems unappealing.

    • The failure to report income to the IRS is a big problem, IMO. Fairfax County is full of illegal boarding houses that are often ignored based on the Supervisor’s views of the issue. Foust and McKay (both Ds) put pressure on staff to enforce the rules. Gross and Hudgins (both Ds) put pressure on the staff NOT to enforce the rules.

      But in either event, what is the likelihood the operators of illegal boarding houses report their income to the IRS? I suspect some AirNb operators do the same. If I must pay taxes, so too must you.

      • If AirNb folks are conducting cash transactions and not check or credit card – almost surely a good number are not reporting income.

        and I’d also question the umbrella insurance coverage. Most regular motels and hotels have to adhere to fairly rigid facility and code requirements or else the insurance companies won’t cover them.

        Here’s you have a rat’s nest of “facilities” with unknown code and safety issues… of which clients could be seriously injured or killed and lawsuits inevitably filed – and the lawyers going after both AirNb as well as the renters home insurance.

        that’s going to result in home insurance companies putting riders on policies, charging more or just refusing to insure if the owner is operating as a commercial lodging operation.

        I chalk Uber and AirNb up to the average persons lack of understanding of how the real world actually works on issues like this – and to be honest even things like insurance, regulation and government.

        they have an almost child-life perspective of these things along the lines of “sure I have a car and can sell rides” or “sure, I got a spare room and can rent it out”.

        and of course the big kahuna is that most people take insurance for granted. The last thing on their mind is that insurance companies would be deceptive or fraudulent.. they just expect the govt to make sure the insurance companies real and have actual assets to pay off claims.. people take this for granted.. the very same people who complain about how bad govt and govt regulation is…

        I love it when folks with “Don’t tread on me license plates” on their cars end up crying that someone ripped them off and there “outta be a law”…..

  9. I pictured Airbnb to be a link to a homeowner who decided to run something like a boarding house, not a hotel. How is this any different than someone who rents by the week to those foreign students who come here to dish out ice cream or oversee bike rentals? Should those owners pay hotel taxes as well?

    • more like a motel in my mind Darrell.. complete strangers not students or temporary workers.. sign up to stay one or two nights …

      I don’t see why Airbnb could not function as a path to more than one or two nights.. as some motels will also entertain longer staying customers.

      I have relatives that live near Pinehurst where golf is king and apparently it’s the thing to rent out one’s house and head to the beach for an all expense paid week , courtesy of their rented home.

      like you – I don’t see Airbnb as particularly revolutionary .. it’s just using the power of the internet to (significantly) extend and enhance an activity that was already going on..

      but it could well spawn a cottage industry of folks adding on to their houses.. and putting up backyard mini’s or refinishing their basements, etc… I notice on TV .. that some folks are buying houses with the explicit plan to rent out the basement or second floor to help out with the mortgage payments.

      I don’t know that hotels and motels are particularly fearful of this – it may well not be cannibalizing their core business.

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