Star-Adv Sun Nov 19, 2017: ...On Monday, AirBnB executives circulated a memo to lawmakers describing the “voluntary collection agreement” it has with other jurisdictions, and is seeking here....
Airbnb Agreements with State and Local Tax Agencies
A Formula for Undermining Tax Fairness, Transparency and the Rule of Law
by Dan R. Bucks, American Hotel and Lodging Association, March 2017 (excerpts)
Summary of Report Subject
This report evaluates twelve publicly released agreements that Airbnb has entered with state or local governments that directly address lodging taxes, but have impacts on other state and local laws. The agreements are from across the nation and have effective dates ranging from 2014 into 2017. Because of their variations in geography and time, the report assumes that these 12 agreements are reasonably representative of the larger body of approximately 200 agreements that Airbnb has signed. The large majority of Airbnb agreements are being held secret from the public….
Airbnb, founded in 2008, provides lodging by supporting and marketing a network of lodging facilities. Airbnb states that it offers 3,000,000 listings in 65,000 cities in 191 countries. Airbnb began with and continues to cultivate an image of offering “home-sharing” rentals—lodging in people’s homes where the owners or long-term lessees reside. Increasingly, however, Airbnb’s growth is dependent on “commercial-style” operations where the holder of the property does not reside in it, but operates a lodging business based in a separate home or one or more apartments available for transient rental year-round. “Home-sharing” is often legal under local zoning and housing laws. “Commercial-style” transient residential rentals often violate zoning and housing laws.
Immediate Action Needed
The report details major problems that the Airbnb agreements create in terms of:
• Unjustified favoritism for Airbnb and its lodging operators,
• Improperly ceding tax authority to Airbnb,
• Granting huge benefits to third-parties who have not signed the agreements,
• Unfair treatment of other taxpayers, businesses and citizens,
• Violating standards of transparency and democratic governance,
• Undermining compliance with tax and regulatory laws, and
• Spreading undesirable precedents through state laws patterned after the agreements.
Because of the serious problems created by the agreements, the report recommends that tax agencies stop signing Airbnb agreements and oppose legislation that would incorporate those features in law. Agencies that have signed those agreements should reevaluate them and consider termination. As a better alternative, agencies should seek legislation updating lodging tax laws to ensure proper compliance and undertake a comprehensive lodging tax compliance program.
Findings and Impacts
Major findings in the report include:
• The Airbnb agreements are more than tax agreements. They are, in fact, wide-ranging special rules benefitting Airbnb and its lodging operators. There is no proprietary or confidential information in these agreements (or any comparable ones that have not been released) that justify withholding them from the public. The policies in these agreements should be treated as rules subject to public disclosure, scrutiny and participation.
• The structure of these agreements is perplexing and should be reviewed for legality. The agreements provide major benefits to third-parties, especially lodging operators, who are not signatories of the agreement and do not commit to any performance in exchange for benefits received.
• The Airbnb agreements do not guarantee accountability for the proper payment of lodging taxes because tax agencies cede substantial control of the payment and audit processes to Airbnb. The agreements provide a shield of secrecy for lodging operators that prevents their discovery by public agencies and creates a de facto tax and regulatory haven for those operators.
• The Airbnb agreements provide overly generous and unjustified benefits to Airbnb and its lodging operators and occupants as compared to the benefits provided taxpayers entering voluntary disclosure agreements. In accordance with observation that “bad practices drive out good ones,” the negative precedents in the Airbnb agreements threaten to undermine the use of voluntary disclosure agreements that have yielded large revenue, tax equity and compliance benefits.
• By agreeing to prospective lodging tax payments, the accuracy of which cannot be fully verified, Airbnb “purchases” from tax agencies a shield of secrecy that they “resell” to lodging operators to attract more owners or long-term lessees of residential property to conduct Airbnb lodging businesses. That secrecy is most valuable for the commercial-style lodging facilities that now fuel Airbnb’s growth, but that are also most likely to violate zoning and housing laws. Thus, the agreements facilitate unimpeded and often illegal conversions of residential property into commercial-style lodging facilities. Tax agencies signing these agreements enable this process.
• The Airbnb agreements, because of the unjustified benefits provided, are unfair to taxpayers who file and pay their taxes diligently. The agreements also allow Airbnb lodging to compete unfairly with traditional lodging facilities. Finally, the agreements provide unfair competition for community residents and citizens seeking a place to live.
• The Airbnb agreements conflict with standards of democratic governance designed to ensure integrity in public policy and civil society. They fail to conform to requirements of transparency and public participation in decision-making. The agreements also violate agency authority through favoritism offered Airbnb and its lodging operators and occupants.
• In terms of favoritism, tax agencies should be especially concerned about suspending exchange of information processes related to Airbnb and its lodging operators. Beyond questions of legality, agencies should consider the impact of withholding information from other agencies in terms of adversely affecting the cooperation they receive from other agencies in the future—cooperation that is important to proper tax administration and broader enforcement of other laws
• The Airbnb agreements undermine the rule of law. The agreements create risks of reduced compliance with lodging tax laws, with state and local tax laws more generally, and with local land use, housing and building safety laws.
• The Airbnb agreements have produced legislation in Arizona and consideration of similar action in other states. The law undermines local land use and zoning regulations that might affect Airbnb by severely narrowing local regulatory authority. The law makes the negative tax precedents in the agreements visible and creates incentives for other taxpayers to lobby for those same benefits. The law codifies the anonymous data reporting that undermines Airbnb’s tax accountability. It also blocks the exchange of Airbnb information with the IRS and tax agencies of other states. For the exchange of information that does remain, the law requires notification of Airbnb of potential exchanges and gives it the power to reach into the tax agency and block that exchange of information.
• Signing Airbnb agreements of the type covered here introduces harmful practices into the public life of states and communities. Legislation incorporating Airbnb’s unjustified privileges into law only spreads the damage further. If these practices are expanded in law to other businesses, the consequences for states and localities become severe
As noted, the report recommends that agencies stop signing agreements like those covered by this report and oppose any legislation that would enact those provisions into law. Agencies with existing agreements should consider terminating them.
• Tax agencies should seek legislation updating lodging tax laws to require registration, reporting and collection and payment by online booking companies and lodging operators, with a single payment process coordinated as it is for sales taxes between wholesalers (here, lodging operators) and retailers (online booking companies). Given the community and neighborhood impacts of short-term rentals, the legislation should include a public registry of lodging facilities above specific thresholds. The legislation should strengthen, where necessary, exchange of information for lodging taxes given the significance of that information for regulatory enforcement.
• Alternatively, if nothing else is done, legislation should be enacted that requires online booking companies to provide the names and locations of lodging operators to tax agencies.
• Tax agencies should undertake a comprehensive compliance program under existing law with three elements:
(a) joint, multistate audits of online booking companies for relevant taxes to determine whether the companies have a legal duty to file, collect and pay taxes,
(b) joint or individual contracts with a lodging provider identification service, at least one of which currently exists (Host Compliance), and
(c) a campaign to offer voluntary disclosure agreements to lodging providers to come into compliance with lodging tax laws.
• Tax agencies with existing agreements should publicly release the agreements to the extent that they include no confidential or proprietary information. If any such confidential information is present, that information should be redacted and the non-sensitive material constituting policies should be released and subject to a public rule-making process as a part of a reconsideration process.
• Legislatures should enact the legislation described above.
• Community and business organizations should undertake concerted and detailed open records requests for the release of Airbnb agreements, with redaction for any confidential information. The groups should be prepared to undertake follow-up legal action if requests are denied.
• When agreements are released, community and business groups should petition for any provisions that constitute rules to be subject to public rule-making processes. If rulemaking does not proceed on such matters, follow-up legal action should be considered.
• The groups should actively support the legislative and administrative actions described above….
The solution to tax secrecy for Airbnb is equally simple. Require Airbnb to file tax returns based on real data instead of anonymous numbers that could be fact or fiction. Reject audit rules that leave auditors staring at already filed returns, supporting schedules and unverifiable sheets of numbers. Require Airbnb to provide its real books and records for auditors to examine just the same as all other taxpayers are required to do. Anonymous data and locking up Airbnb’s books and records invites tax abuses, even allowing the company, if it decided to do so, to make profits charging guests the full tax and paying state and local governments lesser amounts. All that is necessary is to ask Airbnb to play by the same rules for tax reporting, payment and auditing that apply to everyone else—and for states and localities to conduct efficient, effective and fair audits.
…Too many governments are signing secret agreements with Airbnb that are, in truth, the equivalent of laws and rules. Agencies should release these agreements, and if not, members of the public should challenge this secrecy and request their release….
read … Full Report
Note on the Author and This Report
Dan Bucks has served as Director of the Montana Department of Revenue (2005-2013) and as Executive Director of the Multistate Tax Commission (1988-2004). Prior to that he held executive positions in both Montana and South Dakota state governments back to 1971. He currently serves as a revenue policy and administration consultant and is a contributor to State Tax Notes.
This report represents his expert and independent evaluation of the Airbnb tax agreements with state and local agencies. The analysis, judgments and conclusions of this research document are entirely the work of the author.
Mr. Bucks has prepared this report with support from the American Hotel and Lodging Association.