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Tuesday, September 9, 2014

The Sharing Economy: Taxing Matters for Airbnb

After a thorny week in the weeds studying up on legal and taxation issues surrounding Airbnb and its ilk,
I took my research to WTOP Radio in Washington, DC, where I did an lengthy interview with reporter Rachel Nania. In addition to the radio segment, Rachel wrote the story below based on our joint reporting efforts.

I will continue to report on these complicated matters, as travelers can expect that new regulations regarding sharing economy companies will be enacted by many cities and/or states in the months to come. 

(I have cut a few lines in the interest of length) 

Listing Your House or Apartment on Airbnb? Know the Rules

It seemed like a no-brainer. For one night in Paris, I could pay $300 a night for myself and four friends to stay in a "classic French apartment" -- a tiny, yet charming, unit, complete with crown molding and floor-to-ceiling windows -- just steps from the Notre Dame. The other option was to book two hotel rooms, each $300 a night, in an area of the city that's much farther from the charming caf├ęs we planned to patrol for croissants, coffees and carafes of wine. Lodging marketplaces such as Airbnb, the website I used to plan a recent trip to France, are popular sites for travelers across the globe. In the six years since Airbnb launched, more than 17 million people have booked accommodations through the site, which serves more than 34,000 cities and 190 countries.

Travel expert Laura Powell says the success of the so-called sharing economy, of which Airbnb is a part, is attributable to a few things -- beginning with the bill. "These are ways to stay in places for less," says Powell of The Daily Suitcase. "Another appeal is that you go to cities, or places, and you feel like you are actually living there. You're staying in neighborhoods that might not have hotels available. You're living in buildings or residences where you get a taste of what it's actually like to live somewhere."

Travelers aren't the only ones embracing this approach to travel. More than 800,000 people list their residences for rent on Airbnb -- including more than 1,000 rooms, apartments or homes in D.C.
With single rooms ranging from $75 a night to renovated townhomes that cost more $600 a night, listing a place on Airbnb is a great way to bring in a little extra cash. But before you start writing the house rules for your family-friendly two-bedroom condo, you should be aware of the city's rules.

Permission to List? Renters and Condo Owners Face Obstacles

If you want to lease an apartment or condo in the District, you'll need to check with your property manager first.  "In all likelihood, you will be in violation of your lease, and if you are, and the owner of the property finds out because your neighbors are complaining because it seems like people are running in and out of your apartment, you could very well be booted out of your apartment," Powell says.
Even if you own a condo, you'll need approval from the board or managing body before you hand over the keys to paying visitors -- even if it's just for a weekend. Sam Le Blanc, president of Crescent Property Management LLC,  most of which prohibit short-term leasing, says--"So from our perspective, [renting via Airbnb or other sites] is not allowed."  "I think it really boils down to what kind of community people want to live in. And most of our communities, they're pretty loud and clear that they don't want a lot of traffic in and out. It does create wear-and-tear in the building, and you don't know who is in the building so it does create some security issues." Powell says anyone can list a place for rent on Airbnb (and many do), but there could be implications. "You're taking a lot more risk in your hands if you try to do this under the radar in an apartment or a condo situation," she says. "D.C. kind of falls under this whole new paradigm that cities are looking at -- big cities, where most of the housing stock is apartments and condos." That's not to say listing a single-family house for short-term rent is a walk in the park, though.

Renting Your House: It's a Business

Renting your home through companies and marketplaces is less of an issue for owners of single-family houses, but there are still requirements. (The same goes for condo owners and renters who have approval to list their units.) The first is to obtain a license from the District's Department of Consumer and Regulatory Affairs. "Renting a property is a business activity in the District of Columbia, which means you need a business license to do it," says Matt Orlins, legislative and public affairs officer at the DCRA. "There are not special rules for Airbnb. If you wish to rent your property, everyone follows the same rules."Most people can apply for a license from the DCRA online. The cost associated with the license varies, but Eric Rodgers, business and professional licensing administration administrator for DCRA, says it's no more than $500 for the largest license.

Some areas in the District are not zoned for business, though, and so homeowners in those areas can't get a license to host renters. Orlins says the DCRA has seen an increase in the number of rental licenses issued in recent years, but can't attribute the uptick to the sharing economy. "The population in D.C. is growing -- we've seen estimates of over 1,000 residents a month," he says. "Those folks are going to need a place to live, so you may be seeing more rentals as a result of a population increase, versus services like Airbnb."

Enforcing the Rules: How It's Changing

The thing is, not every renter on Airbnb has a property manager's approval, a business license or zoning rights. What does that mean? Orlins says the DCRA's regulatory investigations unit responds to complaints or reports, and some, but not all, of the unit's cases have been based on ads on Airbnb.
"Inspections or investigations based on reports of illegal rentals are going to be time-consuming in terms of the amount of time the investigators need to put in, and in terms of putting a case together, so they don't always lend themselves to quick resolutions," Orlins says. But this all could change as cities and Airbnb work together to enact rules that are easier for residents to follow. San Francisco and Portland are leading the pack, working on laws to make the previously underground business more transparent.

Powell says additional fees, passed on to travelers, could be next. Hotel associations are upset with Airbnb and other sites, she says, because the new competition isn't required to pay occupancy taxes, a fee placed on hotel guests that ranges from 10 to 15 percent. "That's a significant amount of money when you add that up over a number of nights," Powell says. "And if you're a consumer, looking for a place to stay, wouldn't you rather save that 15 percent?" She says many city revenue departments are looking into the issue. "I think you're going to see a lot of other cities, including Washington, D.C. ... possibly forcing Airbnb to add the hotel occupancy tax to the rates, and then collect and report it." (LP: This is because Airbnb, unlike a HomeAway.com, actually collects revenues on behalf of their clients--the rental properties). 

Will all these rules and regulations cause the sharing economy to lose its appeal? Powell says it's a double-edged sword. On one end, regulations give more legitimacy to room and home exchanges, and "it also gives the consumer a place to go if they have problems." On the other, the uptick in prices could make it less of a deal for consumers. Whether rules and taxes are enforced, Powell says she expects changes to have little impact on the sharing economy's main demographic. "For people under 30, this is the way they travel now. They are coming of age in the sharing economy, so companies like Airbnb and Uber are likely to continue to thrive, regardless of regulations."

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