Taxation-Federal | Taxation-State and Local | Tax Law
In this report, Professor Pomp debunks the claims presented in several reports commissioned by the American Hotel and Lodging Association (Hotel Association). Despite hotel profits reaching all time highs, the Hotel Association has continued to attack Airbnb.
Part I serves as an introduction to Airbnb and its solution to an administrative challenge confronted by tax jurisdictions. Airbnb operates a platform that links guests looking for short-term rental opportunities with hosts offering such services.
There are potentially millions of hosts who are unaware that they are subject to municipal taxes on short-term rentals. Municipalities lack the resources required to track down all these hosts. Airbnb has entered into more than 200 voluntary collection agreements (VCAs) with municipalities to collect taxes on behalf of these hosts.
Part II details the Hotel Association’s attacks on Airbnb’s VCAs. In 2017, a report commissioned by the Hotel Association accused Airbnb of undermining tax fairness, transparency, and the rule of law. The Hotel Association repeated many of these claims in a 2018 press release: “Tax Day: Hoteliers Call for More Transparency and Oversight in Taxing Airbnb.” In 2019, it presented another press release emphasizing a new, and equally misleading, report by the author of the 2017 report.
Part III attacks the falsehoods promoted by the 2017 report and 2018 press release. Tax jurisdictions face a sizable administrative dilemma: millions of hosts, untrained in tax accounting and law, are potentially unaware of the tax consequences of short-term renting. Furthermore, the hosts are likely not prepared to confront tax liability on profits they have already spent. Airbnb has helped to ameliorate this problem by entering into VCAs with municipalities.
Contrary to the Hotel Association’s claims, Airbnb supports taxes on short-term rentals. And it is untrue that Airbnb does not pay its fair share of taxes; the VCAs cover municipal hotel taxes that Airbnb does not owe. These VCAs are groundbreaking, not “atypical;” there is not anything relevant to compare them to.
Despite the Hotel Association’s assertions, the content of the VCAs is publicly available. Many jurisdictions have openly announced when they have entered into these agreements, and municipalities provide information regarding their VCAs to those interested. Airbnb also has a web page that lists the states and municipalities in which it collects and remits taxes.
Although the Hotel Association suggests that public officials have been duped into entering these agreements, the article provides numerous quotes from public officials praising Airbnb for its tax collection efforts.
The 2017 report misleads by comparing VCAs to Voluntary Disclosure Agreements (VDAs). VDAs are fundamentally different from VCAs. They allow a business the opportunity to pay some of its owed taxes from prior years, and in return a municipality will ignore penalties and forgive a portion of the taxes owed. In contrast, the VCAs cover taxes owed by the hosts, not taxes owed by Airbnb. Airbnb is not a hotel, thus it is not liable for those taxes.
The Hotel Association’s comparison is misleading: VCAs are not a mechanism for Airbnb to pay back taxes (it owes none). Rather, VCAs guarantee the payment of future taxes by hosts to municipalities. The claim that Airbnb has secured tax amnesty through these VCAs is fueled by the false assumption that Airbnb owed taxes to begin with.
Airbnb does not disclose the names and addresses of hosts. Airbnb has a legitimate interest in protecting the privacy and security of the hosts. And this information is not relevant to the collection of taxes, so the Hotel Association’s suggestion that the lack of disclosure could lead to something resembling the Volkswagen Dieselgate scandal is pure paranoia.
Part IV addresses the myths emphasized by the 2019 report and press release. The report argues that Wayfair renders Airbnb liable under lodging and sales taxes. The outcome of Wayfair is irrelevant; Airbnb has not made arguments premised on its physical presence relative to the states. Rather, it has argued that those taxes never applied to Airbnb in the first place.
Platform statutes, passed in response to Wayfair, do not eliminate the need for VCAs. VCAs fill the gaps between platform legislation and the collection of hotel taxes. Furthermore, the landscape of platform legislation is chaotic. Municipalities benefit from VCAs while the scope of platform statutes is gradually teased out through litigation and legislative change.
And contrary to the report’s suggestions, Airbnb already files returns as required under the IRC.
Part V, in reaction to the Hotel Association’s distorted picture of Airbnb, emphasizes some of Airbnb’s innovations outside the realm of tax collection. Airbnb uses a scoring system which utilizes artificial intelligence and predictive analytics to flag suspicious activity. All hosts are screened against watch lists, and U.S. residents are submitted to background checks. Airbnb has a Trust and Safety team, composed of a diverse selection of experts, including response agents who are on call 24/7. Airbnb offers the hosts insurance, safety workshops, and free smoke and carbon monoxide detectors.
Part VI concludes by reaffirming that the VCAs cover taxes owed by the hosts, not taxes owed by Airbnb. Thus, the Hotel Association’s claim that Airbnb does not pay its fair share of taxes is vacuous.
The appendix contains more statements from public officials praising Airbnb for its innovative VCAs.
Pomp, Richard, "Myth vs. Reality: Airbnb and Its Voluntary Tax Collection Efforts" (2019). Faculty Articles and Papers. 560.