6 ms·

S.F. could get $11M a year when Airbnb collects hotel tax

28 points by lladnar 12y ago

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rhgraysonii 12y ago
Just a point: Could AirBnB not lobby for something like a tax break on hotels with excessive vacancy, and then utilize the fact that the rooms are always available but often sparsely rented (and if this is not true, get a ton of signups that are horrible via blackhatcheatery and make it look that way anyways)? They could just get a huge tax break that still considers them a hotel but abuses the 'normal' understanding of the hotel business model that they are disrupting. Not saying anyone should ever do it. Moreso just food for thought. Do they pull an Uber and look at the law, then flagrantly laugh, or play a cold calculated game as this gets bigger and their valuation climbs?
jedberg 12y ago
And the best part (for AirBnB) is that it doesn't affect their profitability at all -- the money comes right out of the pockets of the renters and owners.
- mslate 12y ago
  Basic economics, AirBnB suffers too: http://i.investopedia.com/inv/articles/site/micro3.7.gif http://i.investopedia.com/inv/articles/site/micro3.7.gif
  - nostromo 12y ago
    Yes, but how much depends on how elastic supply is, which is always an important consideration with real estate. http://peakwatch.typepad.com/photos/research_images/fixed_supply_and_demand.jpg http://peakwatch.typepad.com/photos/research_images/fixed_su...
    - stefan_kendall3 12y ago
      Given the existence of hotels and craigslist, I'd say extremely elastic.
- yahelc 12y ago
  That's not really how tax incidence works, though. Effects of the tax will be felt by all three at some level.
- dreamweapon 12y ago
  Umm -- "profitability" (per sale) perhaps not, but sales volume most definitely.
- deleted 12y ago
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seeingfurther 12y ago
Landlords and city governments all across the country are getting wise to illegal sublets which is naturally contracting the supply of apartments from folks like myself. (I foolishly rented out my S.F. apt, got caught and politely asked to leave) Between the crack down and the coming tax wave, I think AirBnb for the single traveler becomes less attractive both on price and selection. I already see this happening in New York when I travel there. I'd rather stay in a hotel for the same price and less hassle. Certainly for a family or group Airbnb makes more sense. But I can't help thinking the AirBnb growth slows as it becomes more of a niche option.
- geoelectric 12y ago
  ...which is a really big deal, in a rent control area like SF or NY where breaking lease terms is one of the few ways to get forced out of your current per-month rent.
  - seeingfurther 12y ago
    I was lucky in that I had already moved across country and was using AirBnb only to be able to cover the rent for the duration of the lease.
krschultz 12y ago
I imagine AirBnB will end up paying hotel tax in every locale. That will complicate their software a bit, but that's not overly burdensome. AirBnB actually wins in that it removes one of the most quantitative anti-AirBnB arguments. The other anti-AirBnB arguments are a lot more anecdotal (terrible renter destroyed our apartment building) and speculative (AirBnB increases rental property prices for everyone).
- chimeracoder 12y ago
  > speculative (AirBnB increases rental property prices for everyone) Far from speculative - it's a rather straightforward result from the basic economic principles at play. And even if you hesitate to draw conclusions based on reasoning from first principles alone (which you should), there have been a few studies which have measured this effect empirically. Keep in mind that the economic impact of hotels (both illegal and legal) on nearby rent has been well studied[0], so unless there is a reason to believe that Airbnb specifically is unique, the default assumption should be that they will have this effect too. It's not a smoking gun, no, but it's far from speculative if both inductive and deductive reasoning support that conclusion. [0] Especially zoning, which is a distinct but very related issue.
  - arenaninja 12y ago
    Purely out of interest, do you have a link for any of these studies? It seems like an obvious economic conclusion, but I'd be interested in seeing to what extent. Personally, no one in my building is subletting, but I did an airbnb search and was surprised by the number of apartments available in my area
  - aianus 12y ago
    I don't think it's fair that renting an apartment for a year is so much cheaper than renting it for one night. AirBnB closes the gap to its natural equilibrium level instead of the artificially high one created by zoning laws and hotel taxes.
    - qdog 12y ago
Shivetya 12y ago
to be honest there needs to be a threshold that renters have to pass before they qualify as a hotel for tax purposes. does a straight rental require a hotel tax payment or other onerous tax? Do they have to obtain a business license before they are truly liable to pay the tax? I am not clear on the idea that AirBnB can pay a tax on behalf of the home owner / property owner. How is this law worded? Can those paying hotel taxes charge off wear and tear, capital expenses as a hotel could? It seems as this only benefits the taxing authority and not much else.
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jayshahtx 12y ago
Am I the only one who doesn't think $11M is really going to move the needle for SF OR AirBnB?
- baddox 12y ago
  I would imagine that a 14% price increase to the end user will absolutely move the needle. That's massive.
- refurb 12y ago
  I would guess they won't see anywhere close to $11M. People will simply start listing on Craiglist or other forums and avoid the whole AirBnB hassle.
- stefan_kendall3 12y ago
  You don't collect revenue * tax when you introduce a tax. The artificially increased price pushes down the demand and will likely force suppliers off the market, lowering revenue overall. I could draw the supply and demand curve, but it's pretty straightforward.
skuhn 12y ago
Good thing they got all of their growth and massive valuation stuff out of the way first, before worrying about pesky details like calculating hotel taxes or knowing about residency laws. I guess the lesson for startups is to break the law until you get big enough until the hit from abiding by the law becomes inconsequential, and make sure to salt the earth behind you so that your competitors can't follow your path to success.
- dmix 12y ago
  This is new technology entering the market. Of course neither the startups nor the slow moving legal systems are well prepared to operate in sequence. Why be critical of either? I don't expect existing laws to be instantly relevant to new industry. The typical approach of trying to hammer old regulation down a new hole is dangerous and non-productive to society. There wouldn't be AirBnBs if we constantly crippled every new business with old regulation before we fully understood its worth and risks.
  - kenko 12y ago
    "This is new technology entering the market. Of course neither the startups nor the slow moving legal systems are well prepared to operate in sequence. Why be critical of either?" I feel pretty comfortable being critical of the startup that's breaking the law, in this case. I mean, shouldn't there be a pretty strong presumption in favor of working within the law, even if it is "slow-moving" (heavens forfend! and perhaps it's good to have things like that move somewhat slowly)? A presumption that "but I want to make money now" doesn't quite overpower?
  - skuhn 12y ago
    I don't see how anything has been adapted here. This isn't Uber getting some different deal versus existing taxi companies. Airbnb always owed hotel tax, and now they are getting around to collecting it. They played the "oh, our users will pay taxes on their own" card, which obviously did not actually happen if this change is expected to increase SF revenue by $11mm a year. Airbnb was also always subject to the residency laws of the places it operated in, but apparently didn't know that if you let someone book a place for 30 days in California they establish residency and cannot easily be gotten rid of. Despite that being sort of their entire business -- to be the knowledgable middleman that facilitates a housing rental between two parties that don't do this for a living.
ryanwanger 12y ago
Corporations get taxed ~15% + 14% hotel tax. Individuals get taxed ~30% already on their Airbnb income (plus Airbnb charges the guest 6%-12% and the host 3%). If they're going to charge 14% hotel tax to people renting out rooms on Airbnb, wouldn't it be more fair to tax that income at the corporate rate instead of the individual rate? (Yes, I understand the taxes go to different places in each scenario. But from the "take home" perspective of the person/entity doing all the work here, hosts on Airbnb are already having their transaction taxed significantly more than any hotel chain).
- eurleif 12y ago
  If Airbnb hosts want to be taxed as a corporation, is anything stopping them from simply forming a corporation?
  - dkasper 12y ago
    Will Airbnb let you sign up as a corporation?
- jlebar 12y ago
  > Corporations get taxed ~15% + 14% hotel tax. Individuals > get taxed ~30% already on their Airbnb income Greatly simplifying things: (Big) corporations in the US get taxed 15%, and then when they pay dividends to shareholders, that gets taxed again as income for the individual. In fact many small businesses are incorporated in such a way that they skip the 15% tax rate and pay taxes on all of their income at the individual owner's tax rate.

28 points by lladnar 12y ago

deleted 12y ago

[deleted]

deleted 12y ago
[deleted]

rhgraysonii 12y ago

Just a point: Could AirBnB not lobby for something like a tax break on hotels with excessive vacancy, and then utilize the fact that the rooms are always available but often sparsely rented (and if this is not true, get a ton of signups that are horrible via blackhatcheatery and make it look that way anyways)? They could just get a huge tax break that still considers them a hotel but abuses the 'normal' understanding of the hotel business model that they are disrupting. Not saying anyone should ever do it. Moreso just food for thought. Do they pull an Uber and look at the law, then flagrantly laugh, or play a cold calculated game as this gets bigger and their valuation climbs?

jedberg 12y ago

And the best part (for AirBnB) is that it doesn't affect their profitability at all -- the money comes right out of the pockets of the renters and owners.

mslate 12y ago
Basic economics, AirBnB suffers too: http://i.investopedia.com/inv/articles/site/micro3.7.gif http://i.investopedia.com/inv/articles/site/micro3.7.gif
- nostromo 12y ago
  Yes, but how much depends on how elastic supply is, which is always an important consideration with real estate. http://peakwatch.typepad.com/photos/research_images/fixed_supply_and_demand.jpg http://peakwatch.typepad.com/photos/research_images/fixed_su...
  - stefan_kendall3 12y ago
    Given the existence of hotels and craigslist, I'd say extremely elastic.
yahelc 12y ago
That's not really how tax incidence works, though. Effects of the tax will be felt by all three at some level.
dreamweapon 12y ago
Umm -- "profitability" (per sale) perhaps not, but sales volume most definitely.
deleted 12y ago
[deleted]
deleted 12y ago
[deleted]

seeingfurther 12y ago

Landlords and city governments all across the country are getting wise to illegal sublets which is naturally contracting the supply of apartments from folks like myself. (I foolishly rented out my S.F. apt, got caught and politely asked to leave) Between the crack down and the coming tax wave, I think AirBnb for the single traveler becomes less attractive both on price and selection. I already see this happening in New York when I travel there. I'd rather stay in a hotel for the same price and less hassle. Certainly for a family or group Airbnb makes more sense. But I can't help thinking the AirBnb growth slows as it becomes more of a niche option.

geoelectric 12y ago
...which is a really big deal, in a rent control area like SF or NY where breaking lease terms is one of the few ways to get forced out of your current per-month rent.
- seeingfurther 12y ago
  I was lucky in that I had already moved across country and was using AirBnb only to be able to cover the rent for the duration of the lease.

krschultz 12y ago

I imagine AirBnB will end up paying hotel tax in every locale. That will complicate their software a bit, but that's not overly burdensome. AirBnB actually wins in that it removes one of the most quantitative anti-AirBnB arguments. The other anti-AirBnB arguments are a lot more anecdotal (terrible renter destroyed our apartment building) and speculative (AirBnB increases rental property prices for everyone).

chimeracoder 12y ago
> speculative (AirBnB increases rental property prices for everyone) Far from speculative - it's a rather straightforward result from the basic economic principles at play. And even if you hesitate to draw conclusions based on reasoning from first principles alone (which you should), there have been a few studies which have measured this effect empirically. Keep in mind that the economic impact of hotels (both illegal and legal) on nearby rent has been well studied[0], so unless there is a reason to believe that Airbnb specifically is unique, the default assumption should be that they will have this effect too. It's not a smoking gun, no, but it's far from speculative if both inductive and deductive reasoning support that conclusion. [0] Especially zoning, which is a distinct but very related issue.
- arenaninja 12y ago
  Purely out of interest, do you have a link for any of these studies? It seems like an obvious economic conclusion, but I'd be interested in seeing to what extent. Personally, no one in my building is subletting, but I did an airbnb search and was surprised by the number of apartments available in my area
- aianus 12y ago
  I don't think it's fair that renting an apartment for a year is so much cheaper than renting it for one night. AirBnB closes the gap to its natural equilibrium level instead of the artificially high one created by zoning laws and hotel taxes.
  - qdog 12y ago

Shivetya 12y ago

to be honest there needs to be a threshold that renters have to pass before they qualify as a hotel for tax purposes. does a straight rental require a hotel tax payment or other onerous tax? Do they have to obtain a business license before they are truly liable to pay the tax? I am not clear on the idea that AirBnB can pay a tax on behalf of the home owner / property owner. How is this law worded? Can those paying hotel taxes charge off wear and tear, capital expenses as a hotel could? It seems as this only benefits the taxing authority and not much else.

deleted 12y ago

[deleted]

jayshahtx 12y ago

Am I the only one who doesn't think $11M is really going to move the needle for SF OR AirBnB?

baddox 12y ago
I would imagine that a 14% price increase to the end user will absolutely move the needle. That's massive.
refurb 12y ago
I would guess they won't see anywhere close to $11M. People will simply start listing on Craiglist or other forums and avoid the whole AirBnB hassle.
stefan_kendall3 12y ago
You don't collect revenue * tax when you introduce a tax. The artificially increased price pushes down the demand and will likely force suppliers off the market, lowering revenue overall. I could draw the supply and demand curve, but it's pretty straightforward.

skuhn 12y ago

Good thing they got all of their growth and massive valuation stuff out of the way first, before worrying about pesky details like calculating hotel taxes or knowing about residency laws. I guess the lesson for startups is to break the law until you get big enough until the hit from abiding by the law becomes inconsequential, and make sure to salt the earth behind you so that your competitors can't follow your path to success.

dmix 12y ago
This is new technology entering the market. Of course neither the startups nor the slow moving legal systems are well prepared to operate in sequence. Why be critical of either? I don't expect existing laws to be instantly relevant to new industry. The typical approach of trying to hammer old regulation down a new hole is dangerous and non-productive to society. There wouldn't be AirBnBs if we constantly crippled every new business with old regulation before we fully understood its worth and risks.
- kenko 12y ago
  "This is new technology entering the market. Of course neither the startups nor the slow moving legal systems are well prepared to operate in sequence. Why be critical of either?" I feel pretty comfortable being critical of the startup that's breaking the law, in this case. I mean, shouldn't there be a pretty strong presumption in favor of working within the law, even if it is "slow-moving" (heavens forfend! and perhaps it's good to have things like that move somewhat slowly)? A presumption that "but I want to make money now" doesn't quite overpower?
- skuhn 12y ago
  I don't see how anything has been adapted here. This isn't Uber getting some different deal versus existing taxi companies. Airbnb always owed hotel tax, and now they are getting around to collecting it. They played the "oh, our users will pay taxes on their own" card, which obviously did not actually happen if this change is expected to increase SF revenue by $11mm a year. Airbnb was also always subject to the residency laws of the places it operated in, but apparently didn't know that if you let someone book a place for 30 days in California they establish residency and cannot easily be gotten rid of. Despite that being sort of their entire business -- to be the knowledgable middleman that facilitates a housing rental between two parties that don't do this for a living.

ryanwanger 12y ago

Corporations get taxed ~15% + 14% hotel tax. Individuals get taxed ~30% already on their Airbnb income (plus Airbnb charges the guest 6%-12% and the host 3%). If they're going to charge 14% hotel tax to people renting out rooms on Airbnb, wouldn't it be more fair to tax that income at the corporate rate instead of the individual rate? (Yes, I understand the taxes go to different places in each scenario. But from the "take home" perspective of the person/entity doing all the work here, hosts on Airbnb are already having their transaction taxed significantly more than any hotel chain).

eurleif 12y ago
If Airbnb hosts want to be taxed as a corporation, is anything stopping them from simply forming a corporation?
- dkasper 12y ago
  Will Airbnb let you sign up as a corporation?
jlebar 12y ago
> Corporations get taxed ~15% + 14% hotel tax. Individuals > get taxed ~30% already on their Airbnb income Greatly simplifying things: (Big) corporations in the US get taxed 15%, and then when they pay dividends to shareholders, that gets taxed again as income for the individual. In fact many small businesses are incorporated in such a way that they skip the 15% tax rate and pay taxes on all of their income at the individual owner's tax rate.