California Plans to Tax Airbnb; Company Fights Back

For California cities and counties, Transient Occupancy Tax (TOT) for short-term hotel rentals rose from $1.38 billion in 2010 to $1.67 billion in 2012. Collection of the 13 percent average tax on short-term occupancies would have been much higher, except that Airbnb online rentals has never collected a dime. Now, State Senator Mike McGuire (D-Healdsburg) os pushing Senate Bill 593 legislation to require “online vacation rental sites” to collect TOT and report big data–such as number of guests or length of stay– to cities and counties. And Airbnb and hosts are warning about consumer privacy.

California’s county treasurers collect TOT levies under city and county ordinances in accordance with Revenue and Taxation Code section 7280. The tax rate grew for a decade through 2013 at a double digit rate, since it was one of the taxes municipal politicians could pass by claiming it was mostly being charged to people that do not vote in California.

But while 14 different municipalities voted for TOT increases on the November ballot last year, only four jurisdictions–Palo Alto, Marina, Indio, and Tustin–successfully increased their rates. The big effort to raise the TOT rate, according to the  California Planning & Development Report, was directly tied to lost revenue from rapid increases in Airbnb rentals.

The most avid users of online rental booking companies are millennials, who may know that Airbnb  is essentially extending a competitive discount by not chaging the TOT. It appears millennials voted against TOT increases over concerns new local ordinances would also increase enforcement of TOT collections from online bookings. This is personalized to millennials as the group most interested both in offering rooms for rent on Airbnb and renting from Airbnb.

According to last year’s Reason-Rupe survey of millennials, 54 percent favor “larger government with more services,” while 43 percent favor “smaller government with fewer services.” But introducing tax rates into the mix, 57 percent favor smaller government.

Airbnb public policy head David Owen warnedin a blog post that because “Internet commerce is a universal part of so many Californians’ lives, and sharing economy platforms like Airbnb have a duty to protect the private data of our community,” that Airbnb is “deeply concerned about proposals like California Senate Bill 593.” According to Owen, the measure would force the company to “hand over broad swaths of confidential, personal information to bureaucrats who will sift through it in search of potential violations of local planning and zoning laws.”

Airbnb trotted out the Internet Assn. and Santa Monica’s Consumer Watchdog in opposition. “Should e-commerce sites be required to constantly turn over all purchase and sales data on each of its users to the government just so that enforcement officials can scour through records in search of potential violations of local laws?” asked Consumer Watchdog. “Such an approach amounts to a blank search warrant and, unfortunately, SB 593 opens the door to establishing such inappropriate government powers.”

Senator McGuire thundered in a statement that his critics’ claims are “hogwash and disingenuous,” because SB 593 “does not require anyone to divulge the names or any other information about consumers who rent lodging through vacation rental businesses.” He added: “Nowhere does the bill require any host to provide any information about renters to any government agency. What it does do is make big corporations follow local laws.”

At a recent Sacramento hearing of the Senate Transportation and Housing Committee, Airbnb’s Owen backed by throngs of millennial age Airbnb “hosts,” praised the economic boost they get from home-sharing. Owen described SB 593 as a “blunt instrument intended to stunt the growth of an incredibly valuable industry.”

The Airbnb hosts who extolled the economic boost they get from home-sharing and complained they were being targeted by big government.

Democrat McGuire countered that his tax-friendly measure was backed by municipal governments and their tax-benefiting unions, including the California Police Chiefs Association, the California Professional Firefighters, the California Teamsters Public Affairs Council, and the California Association of Code Enforcement Officers.

McGuire also claimed SB 593 was just an effort to enforce local laws and collect legitimate taxes. He tried to assure everyone that his bill was not intended to in any way stifle the “sharing economy.”

Despite catcalls from the millennial “hosts”, McGuire’s measure, titled “Residential units for tourist or transient use: hosting platforms,’’ passed out of committee on an 8-0 vote.