Pillow Fight! To Tax or Not Tax a Rented Bed

Cities are cracking down on Airbnb’s booming rental business | Visitors spend “in neighborhoods that would never see this money”

Ari Levy and Henry Goldman


New York may be the city that never sleeps, but overnight visitors are still advised to check in somewhere. Staying in hotels is not for the frugal, however, especially when you add taxes, which come to more than 15 percent of the bill. No wonder so many now shop on the website Airbnb.com, where $20 a night secures a bed in a shared Queens apartment, and $285 an entire loft in SoHo. The four-year-old site, an aggregator of private vacation rentals, has increased its listings in New York City from 900 three years ago to close to 15,000 today. That’s made it not only a sizable player in the lodging industry — the city has 90,000 traditional hotel rooms — but a high-tech and potentially expensive headache for city officials.

Under a 2011 state law, residents can rent out rooms in apartments they occupy, but not the entire space. Yet Airbnb features legions of apartments available on a short-term basis. The San Francisco-based company, which operates in 30,000 cities worldwide, insists it can’t police its users and instead relies on them to follow local rules. Overall the city issued 2,587 violations of the state law from May 2011 through June of this year, and in September officials doubled the fines, which can now reach $25,000. City Council Speaker Christine Quinn says unregulated hotel rooms can endanger tourists, irk residents who have to put up with transients arriving at all hours, and put the squeeze on affordable housing.

The city’s hotel tax revenue is declining — it’s projected to drop 3 percent next year — though city officials say it’s impossible to estimate how much of that damage is being wrought by Airbnb. (The company declines to disclose the number and average price of listings booked per night.) Airbnb is fighting City Hall by lobbying for a state bill that would require operators of vacation rentals to pay occupancy taxes, just as hotels do, and to register with their local government for $200. Molly Turner, Airbnb’s head of public policy, says that’s “the most logical approach to legitimize the good actors and regulate the bad, and it would hold short-term rentals to a really high standard.” The Hotel Association of New York City opposes the bill, saying it doesn’t subject private rentals to the same fire and safety standards as hotels.

Uncollected hotel taxes are also causing tension among officials in San Francisco, where Airbnb has nearly 4,000 listings. The city treasurer ruled this past spring that revenue earned from renting out couches and rooms in occupied apartments is subject to the same 14 percent tax that local hotels pay. Jay Nath, the city’s chief innovation officer, wants to find other ways to regulate businesses in what he calls the “sharing economy.” Says Nath: “We had hoped there would be more discussion before applying the tax regulatory rules to this new space.”

In a company survey, Airbnb found that almost half its New York hosts rely on income from the site to make ends meet, spending 80 percent of it, on average, for housing, living expenses, and other bills. “Travelers are coming in and spending in neighborhoods that would never see this money,” says Airbnb board member Jeff Jordan, a partner at venture capital firm Andreessen Horo-witz. (Bloomberg LP, which owns Bloomberg Businessweek, is an investor in Andreessen Horowitz.) Jordan is confident Airbnb will iron out its differences with local governments. The new scrutiny is the price of success, he says: “It’s almost a rite of passage to a high-growth, highly disruptive business to have people look and say, ‘Huh, what do we make of this?’”

The bottom line Airbnb, which has nearly 15,000 listings in New York City, is fighting a state law that forbids some of its users’ rentals.


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