Late last month, Airbnb acquiesced to paying its share of San Francisco’s hotel tax, and on April 15, Supervisor David Chiu unveiled proposed legislation to regulate the emergent short-term rentals market. Hotel tax revenues are vast in San Francisco, where tourism continues to be one of the city’s biggest industries.
Unlike the revenue collected during the forthcoming “Google Bus” pilot project, which will only go towards covering the costs of the pilot program itself, the money collected from short-term rental platforms will be distributed throughout the city.
The bulk, roughly two-thirds, of hotel tax revenue goes into the city’s General Fund. Last year total hotel tax revenue was $242 million, and this year the Controller’s Office has budgeted for a 13% increase to $274 million. Since the inception of the hotel tax in 1961, a significant chunk of this money is earmarked for San Francisco non-profits and especially the arts community.
Last year, $12.3 million in hotel tax collections were allocated to San Francisco Grants for the Arts, which then distributes the money among a broad gamut of the city’s arts organization. While this represents a small portion of the total hotel tax haul, about 4.5 percent in 2013, it is a vital source of funding for some 200 arts organizations and events in the city.
Grantees include prestige institutions like the SF Symphony, MOMA, and Ballet, as well as many perennial public events such as the Pride Parade and SF Independant Film Festival. The list of GFTA grantees also teems with beloved and long-standing local arts non-profits, many of them neighborhood storefront operations and niche festivals.
Kary Schulman, director of Grant for the Arts, says that while her organization’s budget grew last year, “it had gone down a long way due to the economic downturn in 2008 and 2009, and we still have a ways to go.”
Airbnb has played whipping boy in the past for its failure to pay San Francisco’s hotel tax. When David Hantman, head of public policy for Airbnb, announced the decision to cooperate with tax collectors on March 31, he wrote that “We have repeatedly said that we believe our community in San Francisco should pay its fair share of taxes.”
The announcement coincided with the company’s launch of its “Shared City” program in Portland, OR. As part of that program, Airbnb hopes to direct money to local philanthropic concerns.
“We will make it easy for Portland hosts to donate the money they earn from Airbnb to a local cause, and we will match those donations as a percentage of our fees,” wrote CEO Brian Chesky in a post on Medium earlier this month. In Portland, Airbnb also agreed to pay that city’s version of the hotel tax.
Under Airbnb’s new policy, the company will be responsible for collecting the hotel tax and remitting it to the city, rather than placing that responsibility on its users. This in turn will make it easier for the City of San Francisco to enforce its (long-standing) tax code, dealing directly with Airbnb rather than having to pursue individual hosts.
At this point nobody but the city and the companies in question know exactly how much hotel tax money is at stake. In 2012 Airbnb released a study showing that San Francisco rentals on its platform channeled $12.7 million to hosts. This would account for about $1.8 million in hotel tax. The company has been growing rapidly since. This year, Airbnb, amid struggles with the government of New York City, said its operations there would bring $21 million to that city’s coffers.
Airbnb is only the flashiest and biggest of the companies to be regulated under Chiu’s proposed legislation. Similar platforms like VRBO will also come in for closer scrutiny by the city, as will “unfilitered” platforms such as Craigslist. Per the existing hotel tax code, anyone in San Francisco who rents an apartment for less than 30 days, granted the rates exceed $30/day or $100/month, is subject to the 14% tax.
“We expect everyone to comply with the law and we feel that it is very clear,” said Greg Kato, policy and legislative manager of the SF Office of the Treasurer and Tax Collector. “We have an investigative unit that uses lots of strategies to find folks and follow up. They have audit enforcement capabilities and the power to go to court.”
Kato said that while he wouldn’t comment on the effects of Chiu’s legislation, the hotel tax has long been applicable to all short-term rentals, and in 2012 the Treasurer’s Office issued clarifications regarding the definitions of terms like “room”, “rent” and “operator” in the hotel tax code.
Given this stern language on behalf the tax collector and Airbnb’s newfound respect for the fairness of its paying the hotel tax, it remains unclear what action will be taken to collect taxes owed from years past. And, again, this goes for all the platforms.
At Chiu’s April 15 press conference, the Supervisor responded to questions about back-taxes by insisting that his proposal was “forward-looking”. This is sensible as Chiu’s legislation is aimed to curtail abuse and negative impacts to the housing market arising from short-term rental platforms.
Hopefully someone in the city government is taking the time to look back as well.
Regulating rentals platforms and enforcing the hotel tax code is part of a larger attempt by the City to facilitate the continued growth of the sharing economy while bringing it into full compliance with the law. Most of these efforts focus on protecting the public from bad-actors. Given the importance of the hotel tax for the local arts community, Chiu’s proposal could help good actors as well.
Pando contacted Airbnb ~ 4 hours ago regarding the issue of back-taxes and has not yet received any response. We will update if and when we do.
[image via wikipedia]