Policy Analysis | March 2016

State and Local Government Efforts to Regulate Airbnb

Sujit CanagaRetna

Generally, the "sharing economy" describes business models that facilitate peer-to-peer exchanges of personal goods or services, such as a car ride through Lyft, Uber, or Sidecar, or a vacation rental through Airbnb, Flipkey, Homeaway, or VRBO. Example number one in this connection is Airbnb, a development confirmed by the fact that in December 2015, the company had a valuation of $25.5 billion, a staggering amount; in the third quarter of 2015, the company also reported revenues of $340 million.

In a trend reflected by other aspects of the 21st century economy, i.e., the emergence of e-Commerce as a major dimension of contemporary commerce and the fact that a large portion of these e-Commerce transactions occur without state and local governments capturing sales taxes, many jurisdictions faced a number of new challenges with the rise of Airbnb as an option pursued by consumers across the country. One of these challenges was that consumers did not routinely pay sales and hotel/motel taxes to state and local governments when utilizing services such as Airbnb. Failure to collect these sales and hotel/motel taxes constituted a further drain on the overall revenues of state and local governments. As a result of these revenue losses, a number of state and local governments began reviewing their options related to instituting a system to capture a portion of the revenue related to the activities of companies like Airbnb.

After much discussions and negotiations, in October 2015, Airbnb announced that it will voluntarily begin collecting taxes on behalf of hosts in Washington, who are renting out spare rooms, apartments or vacation homes to visitors. This collection would include everything from state to local retail sales tax, as well as special hotel/motel taxes and convention and trade center taxes. Since then, Airbnb has expanded its collection efforts to include nearly a half dozen states and many local governments.

State and Local Government Regulatory Actions:

  • Washington: Guests who book Airbnb listings will pay the following taxes as part of their reservation:
    • Washington Combined Sales Tax: 7.0-9.6 percent of the listing price including any cleaning fees for reservations 29 nights and shorter. Washington's combined sales tax is a combination of the state retail sales tax of 6.5 percent and the local retail sales tax, which varies by county and city.
    • Special Hotel/Motel Tax, Convention and Trade Center Tax, Regional Transit Authority Tax, and Tourism Promotion Area Charges: All locally imposed taxes on transient lodging will be collected on reservations in Washington. The Special Hotel/Motel Tax is typically 1-5 percent of the listing price including any cleaning fees for reservations 29 nights and shorter. Other local taxes vary and are only applicable in certain cities and counties.
    • Additional details on the efforts in Seattle, Washington, with "guiding principles on regulating AirBnB," as defined by a Seattle City Council member, may be viewed here.
  • Massachusetts: State Representatives Aaron Michlewitz introduced HB 2618 to regulate short-term housing rentals, like those offered through Airbnb, Flipkey and Homeaway. Details on this bill are available here. An article on the topic may be viewed here.
  • Alabama: Enacted reforms are available here.
  • Florida: Approach available at the Florida Department of Revenue website here.
  • Illinois: Entered into an arrangement with Airbnb and this information is available here.
  • Tennessee: Where a State Representative does not think Airbnb needs to be regulated in his state. Details on this perspective maybe viewed here.
  • California: Legislation would require cities and counties to require rental websites, including Airbnb, to collect and remit sales or lodging taxes." These details may be viewed here.
Other Resources:
  • A University of Chicago Law Review article discusses some of the specific issues that have confronted Airbnb, with a particular focus on New York, one of its largest markets, including details on poorly drafted laws that fail to account for challenges presented by the sharing economy and reactions to the New York attorney general's efforts to obtain the company' user data.
  • The following article details how Airbnb has agreed to collect and remit taxes on behalf of hosts in 13 cities and five states. The states are Illinois, Hawaii, Alabama, Washington and Florida. Some of the cities are Jersey City, NJ and Malibu, CA.
  • More details on how AirBnB is working with governments in Illinois, Chicago, Washington, D.C., Florida, and Seattle. These links demonstrate that AirBnB has programs with the respective state and local governments to collect and remit taxes on behalf of AirBnB hosts. For instance, in February 2015, AirBnB announced that it would collect and remit taxes on behalf of hosts in Chicago. The company expected to contribute approximately $2.5 million in tax revenue to the City of Chicago by February 2016.
  • A summary of the debate carried out by PEW.
The Center for Public Integrity has an effective 50-state U.S. map providing an update on state actions to regulate entities like AirBnB. Details are available here. This article also provides a good summary of the status of legislation in different states and a host of other related topics.