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UncategorizedAirbnb hearing shows serious problems with taxes, enforcement

Airbnb hearing shows serious problems with taxes, enforcement

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Sup. Jane Kim wondered why Airbnb’s representative had such a hard time answering questions

By Tim Redmond

SEPTEMBER 17, 2014 — It’s remarkable that every single person supporting Airbnb at a Land Use Committee hearing on Sup. David Chiu’s legislation Monday used the term “home sharing.” It’s become almost a propaganda term, kind of like “hosting” and “guests.”

As Tony Robles, who works as an advocate for seniors and disabled people, noted, “it’s as if this was some sort of philanthropy.”

But it’s not “sharing.” It’s rent. It’s a form of commerce.

Nearly everyone who spoke in favor of short-term rentals talked of the extra income they get from Airbnb. This is about money. Some openly said that they were running this as a full-time business.

Among other things, the Chiu measure would limit short-term rentals to a total of 90 days a year. Only full-time San Francisco residents could rent their units, and they would be limited to one unit each.

Sup. Jane Kim said early on that “if this is more than 90 days a year, then you’re running a small bed and breakfast.” She suggested that maybe people could apply for a different sort of permit for that use. But she didn’t try to sugar-coat it or use different words.

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This is all about making money. It’s a ton of money for Airbnb, VRBO and others; it’s a fair amount of money for people who rent out apartments as hotel rooms. “Airbnb is not just a platform for connecting people,” Kim said. “Airbnb makes a profit off it.”

For two years, it’s been making that profit without paying the city’s hotel taxes. And despite a promise that taxes would be collected by this summer, the tax avoidance continues.

A few critical issues came out at the hearing, among them insurance and taxes, as well as enforcement. And numerous speakers and some supervisors suggested that the measure is so far from ready that it should be delayed.

For the first time in a public hearing on this issue, an Airbnb representative, David Owen, showed up to take questions – and some of them were serious. Both Kim and Sup. Scott Wiener asked Owen what sort of insurance Airbnb had for people doing short-term rentals. That’s particularly important for renters who are renting out their apartments – they may have no insurance, and their landlords’ insurance might not cover liability from commercial operations.

Wiener asked Owen what insurance Airbnb provided, and Owen said the company had $1 million in liability. But he agreed that there is no current insurance policy on the market to cover people who use his service.

“I’m sure the market will develop and that product will exist,” he said.

Kim pressed the point: What if someone who visits the city and stays in an Airbnb unit slips and falls and is injured. Who would pay?

Owen, in a world-class display of not answering, went round and round about how this was something Airbnb was thinking about all the time, and was worried about, and was considering …

And Kim said, with all due respect, you didn’t answer the question. If a tenant rents out an apartment with Airbnb, and the landlord is on the hook for liability, should the landlord be notified?

“We are very focused on that at Airbnb,” he said.

I haven’t seen such an amazing job of ducking a question in years.

And it went on. Kim said that if the city was going to limit Airbnb hosts to 90 days of short-term rentals a year, then Airbnb ought to use its mighty software to track how many days each unit was rented and report that to the city.

“That’s a concern for us,” Owen said, adding that Airbnb wouldn’t give up that data without a subpoena. Which would leave the city trusting Airbnb hosts to voluntarily report how many days there were renting out their units – and would make enforcement of a limit essentially impossible.

The “trust Airbnb” and its customers concept ran into another buzz saw when the issue of taxes came up. More than two years ago, the city tax collector ruled that Airbnb was legally responsible for collecting the city’s hotel tax on every room rented out. That’s never happened. We’re talking tens of millions of dollars in lost income to the city treasury.

Earlier this year, Airbnb agreed to start collecting that tax money – but as of today, not a penny has been paid. Chiu politely asked Owen how the process was going. “We are working diligently with the tax collector and city attorney,” Owen said. “You will hear more in the near future.”

But former Sup. Aaron Peskin raised the critical point: Those taxes have been due for two years. And nothing in the Chiu legislation requires the company to pay the back taxes.

In other cases where illegal uses have been legalized, the city has mandated that owners pay back fees. Airbnb so far would have no such responsibility.

Former Planning Commissioner Dennis Antenore raised the huge, overriding issue of enforcement. The city planning director testified that at least two or three full-time staffers would be needed to monitor the new rules – and there’s no source of funding available. The annual fee in Chiu’s legislation is $50 for two years; even if that were doubled or tripled, it wouldn’t cover the cost of enforcement.

In other words, what’s on the table right now is something of a mess, that’s going to need a long list of amendments. Kim asked for a three-week continuance to give her time to sort some of this out; Cohen and Wiener pushed for two weeks.

Which is where it stands now. But there’s a long way between what Chiu has put forward and a bill that the Board of Supervisors can take up.

 

 

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.
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31 COMMENTS

  1. There has to be a middle ground or compromise somewhere. I’m glad you chose to buy a home instead of using your money for travel. Yes, it is all about choices!

    Understand that you don’t want to live next to a hotel, but what’s next? You’ll want to control who can visit your neighbors because you don’t “know” them?

  2. Yes Sam. Like being on the freeway where slower drivers block the overtaking lanes. So based on an emotional reaction we now have another $$$ grab and intrusion into our lives by our elected leaders…. great!

  3. I’m not aware of any data, statistics or facts that support or explain the premise that there is an issue.

    Unfortunately this is San Francisco and people don’t need data. They just need a negative feeling and the idea that someone somewhere is getting something that they are not getting.

  4. No I don’t think the governments focus is reducing spending on anything and I agree that this is an addiction to money. Unfortunately the lower you are on the social scale the bigger the target on your back. Please remember at voting time that this is nothing more than GOVERNMENT GONE WILD

  5. I’m not understanding the compromise that David Chiu is working on. What data do we have to say there is an issue with renting out a room in your home?

  6. Municipal governments all around the country are now grappling to fit this phenom into the tax picture.

    A grand compromise has to be reached.

    And I think David Chiu merits some respect for doing the hard work to seek a compromise.

  7. Once again, fellow citizens, if we, as a community are unwilling to demand our due revenue from land values, we will devolve into diatribes, consternation, and intrusive government legislation.

    The proposed legislation, the brouhaha, the invective are all on account of private interests rent-seeking the value of “location, location, location.” An appreciation that community generates the whole of aggregate locational value directs properly calibrated public policy to socialize land values, while removing intrusions into whether folk rent out their homes or not. Socialize land values and the speculation in land values will end!

  8. If the building next to you is rented out at all, then the argument could be made that it is “commercial”. Whether that rental lasts for 7 days or 7 years is the only difference.

    You are arguing for all homes in SF to be owner-occupied and a ban of them ever being rented out. And that implies every bit as much privilege as your apparent disdain for those who love to travel overseas.

    You know what I want for this city? For it to be a place where people mind their own business and stop trying to control what others do.

  9. Do you really think any government entity will reduce their spending on anything? Bureaucrats are like drug addicts. They always need more money. They can never have, or admit to having, a surplus.

  10. I have no doubt you like to have options when you travel internationally. I am sure your world travels are educational. It is unfortunate that many people don’t have the resources to have your rich travel experiences to expand their horizons.

    I also like options. My option was to buy a house in a single family residential area. I don’t want to live on a commercial street. It is a lifestyle choice. I don’t want to live next door to a hotel. I oppose this wholesale rezoning of the City. I would like to keep vacation rentals illegal to maintain our residential neighborhoods.

  11. Guss, my understanding is that the hotel tax is paid by the guest, in the same way as is done currently with real hotels, where it is an extra line item on the bill. The hotel collects it but the guest pays it.

    So the presumption here is that Airbnb will start adding this tax onto the payment for the stay. It won’t cost the host anything, except insofar as the extra cost might deter some guests.

    And this explains why Airbnb can;t/won’t go back and collect back taxes. The reality is that they cannot because many of the guests are from other nations, and it is unlikely that anyone overseas would be happy to get a tax bill from months ago, when that obligation was not disclosed to them at the time. The hosts are in this jurisdiction but they are not the ones being asked for the tax.

    So the reality is that taxes will only be collected going forward, and until/unless a court is asked to rule on whether it is legal to regard a home share in the same way as a hotel.

    The other point to make here is that this really should not be about Airbnb at all. They are just one of many players i this space and, to my knowledge, their competitors will still not collect any tax. So the main effect here is to put Airbnb at a disadvantage versus the alternatives.

    Why just Airbnb? Because they happen to be located in the city, and so can be pressured in a way that an enterprise elsewhere would not. We’d better just hope that Airbnb don’t decide to move elsewhere and give the city the finger.

  12. I still don’t understand the problem with Airbnb. So far is the only ACTUAL issue related to the local Governments inability to take money away from residents who can make some income off a spare room? We should be discussing the need for our local government to reduce spending. Then they could reduce the 14% transient occupancy tax that hotels are complaining about. Sorry but to develop more regulations, permits, taxes etc. for this is ridiculous and adds to the bureaucratic (meaning: overly concerned with procedure at the expense of efficiency or common sense) quagmire (meaning: an awkward, complex, or hazardous situation) that we already live in. IMO the government needs to stop spending and taking money from all of us. SF sup’s leave Airbnb people alone and reduce the need to fleece hard working Americans and American businesses.

  13. I guess any activity that generates income in exchange for a service then is “greed” according to you then. Is panhandling also greed?

  14. “It’s remarkable that every single person supporting Airbnb at a Land Use Committee hearing on Sup. David Chiu’s legislation Monday used the term “home sharing.” It’s become almost a propaganda term, kind of like “hosting” and “guests.””—-Tim Redmond

    Yes. “Home sharing” = corporate newspeak, and newspeak is the trend now for corporate ass-eaters..

    ““Holy F***! Why am I not in this racket?” — it’s not racket — it’s called WORK. People who run airbnb’s have to WORK, give up their time, open up their homes, work with guests, etc. If you actually tried it you would know.”—Desert Rose

    It’s absolutely a racket. It’s about someone’s GREED, which is what is currently ruining this city. No one is forced to “give up their time,” or to “open up their homes,” or to “work with guests.” One CHOOSES to do that… out of greed.

    Why did someone censor the word “fuck” up above? I thought we were all adults here? “Fuck” is a very useful and colorful word in our language. I know this city is being sanitized into some prudish little town (for techies), but that doesn’t mean that its (long-time) residents have to sanitize themselves/become more conservative too to satisfy the prudes.

    Has anyone noticed how over-crowded this city is becoming? And it’s because of tech. And this corporatist mayor wants how many more people here?

  15. @Tim – what the heck? This article so slanted and biased. I would respect you more if you actually made an attempt to sound impartial and present facts. Very disappointing.

  16. FYI – airbnb is going to start collecting the 14% as is paid by hotels, starting with bookings made Oct. 1st onwards. My question is — what do airbnb operators get from this tax? I presume hotels benefit themselves when they pay this tax, but why should airbnb’s pay the same tax? Guests will be required to pay this.

    Misinformation during the hearing included spreading the rumor that “airbnb is not paying taxes.” That is nonsense. As a company airbnb is paying all the taxes it should (income tax/etc). They have not been collecting or remitting hotel taxes on behalf of the users, but the users have been responsible for paying their own taxes all along. It was difficult to pay them because the city tax collector had not caught up with the concept yet.

    The truth is that change hurts and is difficult to navigate sometimes. I can’t say enough about what airbnb has done for me as a traveler. It would be a sad, sad world of only having hotels as options when I travel. I am thrilled and delighted with airbnb has done for me when I travel internationally, particularly. Rich experiences I *never* could have had through a typical hotel.

    Glad San Francisco will continue to be a world class city that embraces change and keeps up with the times. Airbnb has taken an age old idea, added magical technology to it, and created a beautiful way for us to expand our horizons.

    The hotel industry doesn’t seem to be hurting in San Francisco, btw, so really don’t know what they are crying about. Same with hotel workers — the can change jobs and work for an airbnb operator if they want. Times change, keep up.

  17. @David Carlos – “but their rent-controlled tenants can and do scam the system by leasing an apartment and becoming mini-landlords.”

    Rent controlled tenants are not allowed to make more than the proportional rent off their unit. That is already in the rent ordinance, in case you are not aware of it. Many “master tenants” are already mini-landlords.

  18. @David Carlos –

    “Holy F***! Why am I not in this racket?” — it’s not racket — it’s called WORK. People who run airbnb’s have to WORK, give up their time, open up their homes, work with guests, etc. If you actually tried it you would know.

  19. I was shocked at Sup. Kim’s ignorance. She suggested that the “CC&Rs” be an interested party to be notified of short term rental activity. Just about fell out of my chair! Really? This is a woman in charge of public policy?? She doesn’t even know what CC&R’s are? Has she never owned a home? Oh wait, that was only second the fact that she obviously paid absolutely no attention during the testimony period. One of the speakers actually talked about CC&R’s and gave context right then and there. It’s a scary, scary world.

    Sup Wiener had no knowledge of insurance existing for short term vacation rentals, and yet just by a simple google he would have seen that such insurance is available and has been available for years!! Airbnb is not inventing the wheel here.

    Given the total ignorance on the insurance matter, I don’t see why he arbitrarily raised the limit from 150,000 that was proposed to 500,000. Why is no study being done ahead of time to assess the additional risk? The insurance companies have already done this and there are products out there available. I was shocked to see the utter ignorance around this matter.

  20. Tim,

    One very important point you didn’t make (Peskin did raise the issue) was that Charlie Goss, the political director of Small Property Owners of SF, spoke for the many small landlords also at the hearing AGAINST the AirBnB astroturf BS.

    As Peskin noted, there is a strange-bedfellow coalition of tenant activists ALIGNED with property owners against the “shared housing.” Small landlords have lots to lose and nothing to gain. For the most part they cannot rent on AirBnB without great jeopardy, but their rent-controlled tenants can and do scam the system by leasing an apartment and becoming mini-landlords.

    One young woman at the hearing had the gall to tell the supes, “I rent a 5 bedroom house, live in one room and AirBnB the rest. It’s my JOB(!)” If I recall correctly, she was in Vis Valley. So let’s do some rough math… $100 per room per night x 300 nights yearly = $30K gross x 4 rooms = $120K gross annual income as an illegal BnB operator.

    Holy F***! Why am I not in this racket?

    Many of the illegal BnBs are scamming the landlord who does not want the added hassle, the risk of lawsuits, the strangers with keys, the higher water, gas, light bills, etc. But some illegal BnBs have made side deals with the landlords. Cash is king in the gray economy.

    Also, one important point no one has to my knowledge made is that income from AirBnB will soon be factored into the selling cost of housing, driving the base value further into the stratosphere. It is a well known real estate fact that a unit with a mother-in-law commands a premium because of the income generation potential. Once AirBnB is legal, higher housing prices and ever higher rents result as a micro-economic fact of life.

    Another point you missed was the obvious astroturf of the hearing, packed by earnest upper income homeowners with identical “HomeSharing” stickies on their lapels. This had to be organized by some corporate PR firm by the techs. Give me a break!

    Bottom line: Chiu’s bill is better than the first version. But it needs real insurance, real enforcement (I spoke in favor of a $250 annual fee, a pittance, do the math), mandatory data and tax collection from the tech platforms.

    More importantly, SF needs to push back against the tech-platform corps that are privatizing what could be a real sharing economy. There are ways to do that that require a coalition of both progressives and libertarians. Without such coalitions, we’re all F***ed.

  21. Putting the onus on the person renting the unit is the only way to make it work. Much of what Tim says in this post makes absolutely no sense. For example, why would you want to rely on AirBnb to tell you how many nights a place has been rented? When a renter reaches 85 nights on Airbnb they would just switch to VRBO or craigslist.

    And Peskin makes even less sense then usual. The TOT tax is paid by the person renting the place. Expedia,Orbitz, Priceline and the rest are clear about this in their TOS that they aren’t responsible for the taxes. They DO place a separate line item on their web forms to collect the money that they pass along and AirBNB should be doing this as well. But Peskin just seems typically confused.

  22. Other municipalities and and counties put the onus of compliance on the party renting the unit. Sonoma county requires permits for vacation rentals and actively searches online listing to find scofflaws. The enforcement cost are covered by permit fees. AirBNB is just one of many services that is used to advertise these properties. Targeting AirBNB specifically is really missing the larger issue of illegal short term rentals. By not enforcing the law, the City of SF isn’t living up to the social contract it has with it’s residents, and this situation is just one of many instances of this breakdown

  23. Sadly, I don’t think the city will seriously enforce any law about vacation rentals. That’s why the legislation needs to allow private enforcement with attorneys fees. That way, a neighbor who is being adversely affected by one of these vacation rentals can at least get their individual situation solved.

  24. The legislation as stands seems way to complicated and therefor to hard to enforce with out dozens of new city employees.

  25. David Owen on back taxes owed: “We announced earlier this year that by this summer we would have a plan in place for collecting and remitting the transient occupancy tax in San Francisco on behalf of our hosts, where the primary obligation exists with the host to collect and remit hotel taxes…” and “We are extremely close and you will likely be hearing more from us in the very near future”

    The first part of his answer sounds to me like AirBnB will not add the tax to the fee for the rental–they just expect the host to do that, collect it separately from their renter, separate from their AirBnB tab (which I assume has already been paid in advance online), and then expect the host to forward it to AirBnB (who will then forward it to the city). This procedure is so full of holes…

    But the second part of his answer puts him back on message: Zippo. Nada. Zilch. Fuck you. We do what we want, we promise you nearly anything you want, then we ignore our promise and there’s nothing you can do about it. We’re AirBnB.

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