Tuesday, October 11, 2016

Should Airbnb's pay hotel taxes?

Airbnb is a San Francisco based company that provides an application and software that matches beds with guests. Anybody with an extra room can play, just like anybody with a car and extra time can drive for Uber.
The sharing economy is probably best known for these two example which allow millions to hitch a ride on the quick or crash in a big city without looking at hotel room prices that look more like monthly apartment rents rates than nightly room rates. 
Add caption

The sharing economy also has allowed millions to become small time entrepreneurs making a few bucks on the side with otherwise unused room or car capacity. A home and a car are pretty much the biggest purchases in anybody's life; to utilize them more effectively has become a savior for the tight budget of many that have a hard time making ends meet, whether they are students, beginners in their professions with low starting salaries or retired with too little Social Security to get by.

The apps bring supply and demand together in a manner of previously unknown efficiency in which both sides get an impression of each other and the product making the whole transaction fairly safe and predictable. 

All that hasn't gone unnoticed by the big guys who provided these services to date as a commercial class. Taxi enterprises and hotel chains with their various models of employment and franchises. Of course, they squawk about the new competition which pretty much sailed for years underneath the radar of licenses and regulations until the new way of doing business got bigger than the biggest taxi enterprises and the biggest hotel chains with over a million rooms in its offerings.
Even though the online app providers have become huge corporations themselves, they went undetected for so long because the law is sluggish and the regulations just didn't capture these new types of doing business. For example, in Baltimore's regulations, something is a hospitality business that has more than five rooms. 
Baltimore Airbnb offerings: map

Sometimes the traditional service provider get mixed up in the new technologies themselves, like in the case of the hotel booking applications like Priceline who buy bulk and then hawk off the lower priced rooms via the internet. Cities collect their hotel taxes on the lower price but not on the service fee that the online services charge their clients. Perfectly logical, since the tax is defined to apply only to the room price, not to the service that makes the connection. But city and state lawyers trying to get the additional taxes succeeded and  passed House Bill 1065, which would apply a 6% sales tax to the service fees or markups that any “accommodations intermediary” in the country charges when booking. Maryland hotel rooms. hotels booked via an online service just became a bit more expensive.

Airbnb is next. More than 24,000 visitors to Baltimore stayed in an Airbnb rental during the 12 months, according to the SUN, based on Airbnb's own reporting since nobody else counts those stays. The City wants to see the hotel-tax applied to the empty kids bedroom that aunt Sallie rents out via the online service, even though the city actually benefits from the small time hospitality offerings by virtue of the added number of visitors that can afford to travel, when before they couldn't.

The regulators who are not known for being the most imaginative folks around don't seem able to get around their usual zero-sum thinking. If 1832 places in Baltimore offer Airbnb, so the logic goes, the hotels loose those bookings. If these same guests sleep in a rowhouse room instead of a hotel, the city looses the tax, Clear case. right? 
There is no doubt that Uber has siphoned off rides from the traditional taxis and that Airbnb has taken some folks away from hotel beds. But in the end the pool increased because more people rent a ride now or stay overnight in some city than before; mobility and hospitality are not finite fixed numbers but grow along with increased supply and sinking cost. These dynamics legislators usually don't see or don't want to see, especially if they have ties to the traditional service fiefdoms.
Baltimore Airbnb couple offering
"bed and bath"

Bottom line: Subjecting freelance drivers or mini-hoteliers to fees, licences and taxes is counterproductive unless those services would clearly become better through those added costs. But bettering the service isn't the objective of the council bill to collect taxes from Airbnb. Its just about the money. "Leveling the playing field" is the mantra. As if aunt Sallie or cousin Paul with their rooms would move up to the level of a Hilton chain simply by being subjected to a 9% room tax.

Especially in a city like Baltimore with huge unemployment and poverty rates the goal should be to allow as many folks as possible to enter the world of business with a threshold as low as possible. Driving for  Uber and renting out a bed through Airbnb are perfect models for the entrepreneurial spirit that is so desperately needed to overcome systemic disadvantages of gender, race or lack of education. 

I don't know about you, but I am rooting for the sharing economy as an economy of opportunity that opens doors to folks that have been shut out way too long, even though the initial adopters of the new technology based services may not yet be in that group. The potential is there.
Airbnb., unusual rooms in big cities:
Loft with keg and kitchen (Philadelphia)

As far as those $300,000 the City thinks to collect in Airbnb taxes per year: That is less than what one of those on-call utility contractors gets to sneeze into one of those sinkholes. In fact, it is about what Prince George's County just forgave the City by returning the payment for their police deployment here after the unrest. Council people should consider that the overall benefits from the additional income residents earn is much higher than that from the tax.

An initial Council committee vote is expected during a hearing of the Judicial and Legislative Investigations Committee on Tuesday, Oct. 11.

Klaus Philipsen, FAIA

legislation
the Baltimore Sun