Airbnb Faces Off Against 40-Year Old San Francisco Hotel Laws

By Trevor Gilbert , written on April 4, 2012

From The News Desk

For every one step forward that San Francisco takes to help businesses, it takes another step backwards. Case in point is the recently mandated regulations that are going to end up impairing the ability of Airbnb to operate in the city at current rates.

In a ruling yesterday, San Francisco Treasurer Jose Cisneros decided that Airbnb and similar services are responsible for paying their share of the city's hotel tax.

This is ridiculous.

As part of Mayor Ed Lee's platform, Lee has been pushing the city to be more open to startups and technology companies. Of course, while the technology industry may be excited about this, many of the "we protest because we like to" crowd in San Francisco is unhappy with this push. Look no further than Sarah's post yesterday.

As part of this platform, Lee has been working with lawmakers and tech industry leaders to change existing laws to make the environment in the city less hostile to companies. Part of this has been working with Airbnb and other similar companies to change old laws like the  hotel tax laws that have been in place since 1961. These changes aren't final yet, so technically these companies are still under the burden of the old laws.

To alleviate the pressure, Lee has been working with Cisneros and a government working group to ensure that companies like Airbnb aren't forced to pay taxes that will soon be deprecated. In fact, Lee met with Cisneros earlier this week in an effort to disuade him from publishing the clarified regulations.

Apparently, Cisneros doesn't care about how far along new regulations are and has decided that he is going to do what he feels is right.

This situation is ridiculous because, while Airbnb is technically operating as a hotel under current regulations, the underlying business model of Airbnb is entirely different from that of a hotel. A hotel is an establishment that rents out rooms on a short term basis, most frequently at a daily rate, which is a business-to-consumer transaction.

Airbnb isn't business-to-consumer, it is consumer-to-consumer. Instead of Airbnb owning the locations and renting them out, users of the service are renting out their spare space via Airbnb, space that would otherwise remain vacant. While Airbnb should be taxed for this, and that tax should be pushed on to users, it shouldn't be at the rate of 14%. That is excessive and unnecessary, as it will disuade users from subletting their homes out at all.

To be clear, it is the responsibility of the city treasury to tax the appropriate people and to clarify the law when needed. That's all well and good, but there's a point at which the city needs to stop putting an excess burden upon companies just for the sake of "simply explaining existing law."

That point is now, with part of the city government actively trying to make the environment less hostile towards companies like Airbnb, and with another part of the city actively "clarifying" deprecated regulations, with the result being that companies need to pay more to the city in taxes. It is this sort of split personality behavior that will scare companies away from operating in the city.

Most ridiculous about this entire situation is the fact that Cisneros seems to think that he is doing good. His spokesperson said, "What this is going to do is help out that working group, because we are going to have really clear rules". No, what this is going to do is give Airbnb's PR team a headache, drive prices up temporarily, and then confuse consumers on what is better, a hotel or a stay with Airbnb. That is not good, no matter how you spin it.

The Treasurer has every right to enforce the law as he sees fit, outside of the oversight of Ed Lee. At the same time, Lee has every right to work on changing the existing regulations. But the two sides need to stop thinking that they can operate entirely independently of each other and start working together in a way that makes sense, otherwise nothing good will come of this.

Airbnb has responded to the updated regulations with the following statement:

There are several different ordinances in the City seem to be overlapping and possibly conflicting rules in this area, for example between the Administrative Code and the Planning Code.  There are a number of older and conflicting provisions in these codes that need to be clarified and updated.

We look forward to the Mayor’s working group and believe that is the right approach to bring the various interested parties together and figure this out.