Airbnb looks to secure 700 tax deals with cities
Agreements will help mitigate regulatory risk and reduce complex filings for hosts
Airbnb is aiming to secure 700 tax agreements in cities that generate more than 90 per cent of its revenue by the end of next year, as the Silicon Valley accommodation company tackles regulatory battles in key markets such as New York and San Francisco.
This would more than triple the number of Airbnb’s existing tax deals, which allow the company to collect and remit hotel taxes to local governments, chief executive Brian Chesky told the Financial Times.
Mr Chesky said these deals were important to mitigate regulatory risk. “When you have a tax agreement, you have an explicit agreement, therefore there is not an existential risk,” he said, arguing that regulation did not pose a long-term threat to Airbnb’s business.
Airbnb operates in more than 50,000 cities around the world and has tax deals in 200 jurisdictions, ranging from Amsterdam to Chicago to Nice. In Paris, its largest market, Airbnb collects a tourist and administrative tax of €0.83 per nights per room.
Reaching a tax deal does not always smooth out all the regulatory issues, however. In its home town of San Francisco, Airbnb already collects and remits a transient occupancy tax of 14 per cent — but the company is still locked in a legal fight with the city over host registration rules.
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One of its key battles at the moment is in New York, which recently passed a law imposing heavy fines on short-term apartment rentals, which are a cornerstone of Airbnb’s business in New York City.
Airbnb is currently in discussions with the state in an effort to reach a new agreement, and regulators have not started fully enforcing the new law while those negotiations are under way. The company estimates that it could collect and remit $90m annually to the New York State if fully legalised.
In many jurisdictions, it is often the host, not Airbnb, that must pay hotel taxes, as they are required to have a business licence and work directly with local tax authorities.
“It is quite a task they [Airbnb] are taking on,” says Rob Stephens, general manager at Avalara MyLodgeTax, which provides tax services in the US to people who use HomeAway and Airbnb to rent their homes.
“People that are not in the tax world don’t appreciate the wrangling that goes on, these tax agencies aren’t always easy to work with,” he said, adding that there were more than 5,000 different tax jurisdictions in the US alone.
Striking tax deals will also resolve a key complaint from hosts who have to deal with complex tax filings.
Airbnb bookings could generate US state revenues of $440m this year if fully taxed, but most of that will go uncollected under current rules, according to a study released last month by AllTheRooms, an accommodation booking company.
Airbnb generates revenue by taking a cut of bookings of around 10 per cent, and Manhattan Venture Partners estimated earlier this year that its 2016 revenue would be around $1.6bn — a level that would imply total bookings of more than $10bn.
The company also announced last week that it will be expanding into tours and travel services.