Legal issues divide hosts and hoteliers
10 FEBRUARY 2014 9:42 AM
While hoteliers say shared-housing sites take revenue from local municipalities, executives at Airbnb and HomeAway say hosts are encouraged to abide by appropriate tax structures.
REPORT FROM THE U.S.—Hoteliers aren’t so much worried about direct losses in demand and revenue to shared-economy hosts as they are about detrimental effects negative experiences could have on repeat travelers, sources said.
Residents who use Airbnb and similar sites to rent rooms to incoming travelers degrade the quality of life for neighboring residents, take revenue from local municipalities and jobs from local employers, and could deter travelers from returning, according to Lisa Linden, a representative for the Hotel Association of New York City.
However, executives from both HomeAway, which encourages homeowners to “turn your second home into a second income,” and Airbnb refute those claims, stating instead they provide online marketplaces for travelers looking for alternative accommodations and therefore expose more people to unique destinations around the world.
And as far as municipalities collecting taxes on overnight stays, HomeAway and Airbnb representatives said while they are simply the marketplace connecting buyers and sellers, they encourage hosts to remit the appropriate taxes and even offer some guidance on how to do so. Executives from both companies told Hotel News Now they are actively working with municipalities to determine the appropriate tax structures.
“We offer assistance and guidance to municipalities to craft fair and appropriate regulations, which include the obligation to collect and remit taxes,” said Brian Sharples, co-founder and CEO of HomeAway, via email. “However, HomeAway is not responsible for the actual collection of taxes as HomeAway serves as a marketplace and not a merchant of record. Vacation rental owners and property managers are responsible for meeting city or state compliance.”
Chip Conley, founder of Joie de Vivre Hotels and head of global hospitality for Airbnb, said there are some restrictions regarding how much advice Airbnb can give hosts on legal matters. However, “we are in the process of working with local municipalities regarding occupancy taxes and safety code restrictions,” he said in an email. “You could imagine that, being in 34,000 cities in 192 countries with each city having different regulations, it's challenging to create a set of common pieces of advice that we can give our hosts.”
Vijay Dandapani, president and COO of Apple Core Hotels and member of the Hotel Association of New York City, said shared-economy sites are “willfully violating” New York State laws.
“They call themselves disruptive. I would call them subversive because they are fully cognizant of the laws of New York State, but are willfully violating it,” he said. “They have taken on an Astroturf campaign by taking on all the moms and pops who were victims of the last recession and doing this to better themselves.”
The legal issues
Before Airbnb was even founded, New York Mayor Michael Bloomberg’s administration in 2006 began fighting transient occupants in Class A residential dwellings. Because of an unclear state law, New York state residents appeared able to rent out their apartments.
After four years of lobbying and debate, in 2010 the New York state senate voted 32 to 28 to change New York’s multiple-dwelling law, making it illegal to rent out unoccupied apartments for less than 30 days in multiple-dwelling entities, which was defined as buildings with three apartments or more, according to Linden.
It was a quality-of-life issue, and the issue of tax was secondary at the time, she said.
“It was protection of our neighborhoods and tenants,” she said.
Today, there are efforts underway on behalf of Airbnb to repeal that law. Airbnb lists approximately 40,000 rooms per night in New York City, Linden said. Some are legal because the host is actually on premises. Others are illegal because they are second homes and the host is never present, hoteliers argue.
Additionally, the hotel association claims the majority of these residential buildings don’t have the proper ingress and egress. Hotels must meet strict building and fire codes, specifically that there must be two ways to get in and two ways to get out of a commercial building. These codes do not apply to Class A buildings. In addition, Class A buildings are not required to be furnished with a sprinkler system like hotels and other commercial buildings.
“The Hotel Association of New York City is comprised of legitimate hotels that comply with building codes, including all relevant fire safety and labor laws,” Linden said. “Airbnb has encouraged the proliferation of unsafe, unregulated business.”
Dandapani of Apple Core said he knows people are “setting up shop full-time renting apartments in places where it is not legal.”
“As an operator, we can underscore the selling points Airbnb will never have, which are that our rooms are all fire-rated. We are fully compliant with not only national standards but also New York City standards,” he said. “And, of course, security issues, which you get from the kind of key locks we have, whereas Airbnb has teamed up with neighborhood coffee shops as a repository for people taking keys.”
The tax issues
Linden said the New York City hotel industry contributes more than $500 million in taxes annually, including a New York state sales tax, city sales tax, occupancy tax, $1.50 per night that goes toward the Jacob K. Javits Convention Center and a Metropolitan Transportation Authority tax. Those taxes amount to about 15% to 16% of a hotel’s revenue, she said.
Linden said peer-to-peer hosts aren’t required to pay those same taxes.
Kyle Lawrence, sales and marketing manager at the 80-room Americas Best Value Inn and Suites Tukwila/SeaTac Airport in Tukwila, Washington, said he lists his property on Airbnb. He said the staff is diligent and calculates what taxes they need to take out when rooms are booked from the site.
“As hoteliers, we have to make sure we do our due diligence and also pay our taxes,” he said.