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Not Taxed: Airbnb (Usually) Not Paying, Still Playing

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The view from atop the area’s tourism industry is looking pretty bright these days.

At the local tourism offices, Connie Del Signore is feeling good about the current 78% occupancy rate for hotels in Anne Arundel County; in Howard County that emotion is shared by Anthony Cordo, with that number hitting 75%.

Lou Zagarino and Amy Rohrer, two other veterans of Maryland’s hotel industry, are also gazing at that warm glow on the horizon, knowing that the taxes the industry generates on those various room rates are reinforcing the strength of the market while providing an assist with other civic improvements.

That’s all well and good, but there’s still an issue.

They, among a host of other industry insiders, are wondering just how much more tax revenue would be generated if companies in the home occupancy sector of the business, like Home Away, VRBO, Slip Key and particularly Airbnb, paid taxes. Just like the hotels and bed and breakfasts are required to, by law.

A bill that was spearheaded by Sen. John Astle was presented during the 2017 session that would have addressed the issue statewide, but it never got out of committee — despite input from executives from Airbnb that indicated they were behind it (more on that later).

There are also concerns in some quarters about how the lack of governmental regulations for such companies could affect the safety of its clientele.

Market Dictates

Zagarino, a long-time BWI-area hotelier who now serves as chair of the Government Affairs and Advocacy Committee with Visit Annapolis & Anne Arundel County (VAAAC), said a given individual’s perspective on Airbnb depends on “what side of the fence you’re on.

“If you’re a tourist, Airbnb gives you another option. That’s a big deal when the major hotels can charge around $500 a night during peak seasons, and more during an event like the [Annapolis] boat shows,” said Zagarino, “and I have no doubt that we get more tourists due to Airbnb; in some markets, I think its presence actually increases demand and gives [potential visitors] opportunities” to rent a room.

But if you work in or operate a property that pays taxes next door to an Airbnb property, he said, you’re not feeling that sense of empowerment. You have some legitimate questions.

“There are about 2,000 Airbnb rooms in Annapolis,” Zagarino said, “so if they’re running 50%, that gives you an idea of how many more rooms are being occupied that STR [formerly Smith Travel Research, a Nashville-based company that tracks data for multiple market sectors, including the global hotel industry] doesn’t have data for.

“Then if you multiply that figure by 365 days,” he said, “that’s a considerable amount of tax revenue that Anne Arundel County and the VAAAC have lost.”

The Bill Died

It’s from that financial point of view, Zagarino said, that observers must consider the competitive disadvantage the hotels and the bed and breakfasts experience when Airbnb doesn’t have to pay any taxes or fees.
“That has some of the B&Bs saying, ‘The heck with regulations and licensing,’ and becoming Airbnbs, too,” he said.

That fact is even more glaring because STR’s recent occupancy figures, as strong as they are, “indicate that our booking rates are slightly down the past couple of years,” Zagarino said, “but they’re not accurate, because the Airbnb rooms are not reported within their figures.

“So,” Zagarino said, “we’re not getting a complete picture.”
Del Signore, the president and CEO for the VAAAC, echoed Zagarino’s observations. She said she’s “thrilled to have as many options for travelers as possible,” but that it was “very unfortunate” that Sen. John Astle’s aforementioned bill — “that everyone was in favor of, including Airbnb, which testified on our behalf” — never got out of committee.
“We’ve lost hundreds of thousands of dollars in tax money because legislators thought it was a new tax,” Del Signore said, adding that there “will be no new bill” during the 2018 session “because we think it’ll die.”
So, what to do before the 2018 legislative session? Del Signore said the VAAAC will work with Baltimore Mayor Catherine Pugh, representatives from the Baltimore Office of Promotion and Tourism, and others, to educate legislators on the effects of Airbnb not paying any taxes or fees.

What They Say/Do

What Del Signore said about Airbnb offering to pay taxes and supporting the bill is interesting, because representatives of “Airbnb will often say that they want to pay hotel taxes,” said Amy Rohrer, president and CEO of the Maryland Hotel Lodging Association, “but what we’ve seen is that [the company] is only willing to do so on its own terms.

“They set the rules, then submit what they like. That’s not transparent,” Rohrer said. “What are they trying to hide?”

Rohrer cited a study commissioned by the American Hotel & Lodging Association (AHLA) and conducted by CBRE that revealed “that only 20%” of Airbnb’s revenue “is coming from true homesharing, where the owner is present during the stay; 32% comes from unit operators that operate two or more residences.”

In Maryland, Airbnb only pays taxes in Montgomery County, where it participates in a voluntary program. “There are about 200 such situations nationwide,” she said.

That set of circumstances is hardly unnoticed around the industry.
“I think Airbnb is unique among [homesharing] companies in that they are not averse to paying taxes,” said Troy Flanagan, vice president of state and local government affairs for the AHLA, adding that the other companies in that sector are more advertising platforms.

“The distinction and concern here,” said Flanagan, “is that Airbnb wants to pay taxes on its own terms, meaning how they collect and then remit in taxes and fees. They have also cut deals in Washington, D.C., and in [many] jurisdictions around the country,” Flanagan said, “but many other deals have not seen the light of day.”

That’s because Airbnb “wants to pay taxes on an honor system — without having to provide the data to show that they are actually paying the right amount as any other business, like our members, would have to do,” he said.

Taking that route, said Flanagan, is “very opaque and very unique to that one company. The concern is that it’s not good policy for a jurisdiction to just take the money and run, without considering the impact of unchecked short-term rentals on its community. We hope the Maryland legislature will revisit this topic during the next session and take a comprehensive approach to short-term rentals and not be distracted by the revenue.”

Michael Coveyou, ­chief of the Division of Treasury with the Montgomery County government, said that the jurisdiction has “a legal agreement with Airbnb that [the company is] to pay taxes, but we cannot speak publicly about it due to the terms of the agreement.”

Airbnb was contacted five times for more than a week for comment for this story, but its public relations department and Public Policy Director Will Burns did not respond by press time.

Safety First

Aside from the tax issue, Airbnb properties do not always follow legal parameters when it comes to renting the rooms. Airbnb does offer its guidelines to homeowners, but there is virtually no enforcement.
“Guests of Airbnb should also have a way to verify health and safety standards, as should neighbors,” Rohrer said. “[Local residents] may have no idea if they’re living next to an Airbnb property, which is a revolving door of strangers living next door. And [they might not] know who’s listing the property, so there is no way for a neighbor to contact the owner if there is a problem.”

“Airbnb is still like the wild west,” Zagarino said. “When it comes to life safety issues, egress, utilities, windows, etc., they don’t really have any regulations. You can’t open a hotel like that, with no permits.”

His concerns include the use of and return of keys. “[Airbnb clients] don’t need to bring them back,” he said, “so let’s say I check in tomorrow, but the prior renter can still come in while I’m there. That’s why we have electronic cards today. The electronic keys are reset.”

That is one scenario in this scene that is slightly different in Howard County, said Anthony Cordo, executive director with Howard County Tourism.

“Howard County does have regulations in place that cover the security and safety side of the rentals, which is covered by the same laws that protect people who rent their homes out to people for a year, for instance,” Cordo said.

Still, the tax and fee money isn’t being collected from Airbnb for short-term rentals in Howard County, either. That’s for two reasons, Cordo said, one that concerns the county’s threshold of number of rooms in a short-term rental to make a property taxable, and the second because Airbnb simply does not remit that tax.

“If the 100 Airbnbs in Howard County don’t have enough rooms (which is about five) to tax the property in the first place, that’s not an avoidance,” he said. “However, they should be paying that tax.”

Thumb’s Up

While the rise of Airbnb has left plenty of questions to answer, the general overview is that, overall, it offers a great option for travelers that will eventually be presented on an even playing field.

“There are lots of good things, but this submarket is very much a work in progress,” said Zagarino. “Some [jurisdictions] are very organized” when it comes to accommodating Airbnb; “some are not doing anything. We’re kind of in the middle. People need to be enlightened to the pros and cons of the service.

“My issue now isn’t the money as much as the safety,” he said. “It seems to be completely ignored. I ran hotels for 40 years, and I slept with one eye open all that time. I was always concerned about something happening.”

Cordo concurred. “We have nothing against them. It’s a growing population, the building owners enjoy” the opportunity to make money; but on the flip side, you don’t want your hotels to get beaten up because the playing field isn’t level.

“We don’t want to crush that industry,” he said, “but we want to find a way to make this work on both sides.”