In mid-February, the short-term home rental service Airbnb will begin collecting taxes on behalf of residents in the city of District who treat their homes — or single rooms in them — as a makeshift alternative to hotels. At the moment this applies only in the US.
With the voluntary agreement, the District joins a handful of cities where the tech company has worked out tax deals to resolve at least one of the thorny problems posed by a business model that has turned thousands of people into innkeepers in their own homes.
These agreements could mean millions in additional revenue for cities where residents using Airbnb and other web-based services like it have been unaware or baffled by their legal obligation to pay hotel taxes. For Airbnb, the promise to remit that money straight to city coffers will help legitimise a service that in many places is still not strictly legal.
In the cities where Airbnb has agreed or been required to do this, it will automatically collect the local hotel or occupancy taxes, which run from about 5 percent to 14.5 percent in the District, on every transaction. Airbnb will then pay the cities in a regular lump sum, omitting details about individual hosts or guests.
Airbnb began collecting these taxes in Portland, Ore., last July and in San Francisco in October. Between those two cities so far, the company says it has already paid about $5 million in taxes (it has not put back taxes on the table anywhere). On February 1, it will also begin doing the same in San Jose and Amsterdam. February 15, it will start collecting taxes in the District and Chicago. All of these cities are among the company’s largest markets.
“In many cases, these taxes were designed for hotels and folks with teams of lawyers and accountants, and the reality is that the person who’s renting out his basement in Cleveland Park once a month probably doesn’t have tax experts on payroll,” says Nick Papas, an Airbnb spokesman. “You shouldn’t need a lawyer and a tax specialist if you want to rent out your house.”
Stephen Cordi, the deputy chief financial officer in the Office of Tax and Revenue in the District, acknowledged that some residents in the city haven’t been paying this tax as they should.
“It’s undoubtedly true that people particularly at the bottom end of this probably didn’t know what to do,” he says. Airbnb hosts should have been registering with the city and collecting the tax, which supports both a convention centre fund and the city’s general fund — and, ultimately, services like the fire and police departments. “This will eliminate the need for them to do that.”
Airbnb approached the District, Cordi says, not the other way around. This now means, in Washington at least, that Airbnb hosts have a formal mechanism for paying taxes on an activity that’s still not exactly recognized by D.C. law. The District has yet to pass new regulation that would formally legalise the kind of short-term rentals Airbnb has made possible.