Sharing is caring, until it’s a $10 billion (going on $13 billion) company.
The wild success of online home rental service Airbnb has wide-ranging implications for housing affordability, the hospitality industry, regulation of new technologies, quality of life for neighbors and the evolution of zoning and tax codes. We looked at the 10 largest US cities and tried to suss out the legal status of Airbnb and other short-term rental sites such as HomeAway, VRBO and FlipKey.
Currently, just a handful of American cities actively work with Airbnb to collect local hospitality taxes — Portland, San Francisco, San Jose, Chicago and Washington DC. In the case of DC, a taxation agreement doesn’t necessarily indicate legalization; although Airbnb will charge and remit hotel taxes in DC starting February 15th, short-term rentals in the District are technically still illegal, the Washington Post reported.
City populations were taken from the annual estimates in July 2013 by the US Census Bureau. Whenever possible, city codes regarding short-term rentals were cross-referenced with Airbnb’s Help Center for large cities (example here), as well as isairbnblegal.com, which is not affiliated with the online service.
Legality of Airbnb stays: Hoo boy. Under current New York State law, made effective in May 2011, rentals for fewer than 30 days are prohibited if the owner is not present at the property, with very few exceptions. In October 2014, New York Attorney General Eric Schneiderman released a famously critical report arguing that 72 percent of Airbnb listings in New York City violated zoning and tax laws. The “Airbnb in the City” report drew on anonymized data on 497,322 private stays in 35,354 different places for visits that were shorter than 30 days and did not involve a shared room, according to the New York Times. About 37 percent of private short-term bookings secured through the site went to commercial operators, who raked in $168 million by potentially running illegal hotels; one commercial entity allegedly managed 272 units through Airbnb and earned $6.8 million in several years.
Recent developments: Along with the release of the report late last year, Schneiderman also announced the formation of a joint initiative to crack down on illegal hotels in the five boroughs, Law360 reported. The attorney general’s Internet and taxpayer protection bureaus, the city’s Departments of Finance and Buildings and the Office of Special Enforcement would all be involved.
On January 20th, the City Council held an epic eight-hour hearing on Airbnb, in which councilmembers accused the company of aiding landlords in running illegal hotels. When asked if the online platform tracked how many users illegally rent out apartments, Airbnb executive David Hantman said, “We don’t research that,” the New York Daily News reported. Many members of the council are allied with anti-Airbnb lobbying group Share Better, which is funded by the Hotel Trades Council and also affiliated with affordable-housing advocacy groups, Crain’s New York reported.
Meanwhile, Airbnb is looking to change the 2011 state law that forbids short-term rentals in Class A (permanent residency) multiple-dwelling buildings. Before the contentious hearing last week, Airbnb sent a letter to every member of the council and state legislature, claiming that New York could collect $65 million a year if the law were amended to allow taxes on the property-sharing service, Crain’s reported.
Legality of Airbnb stays: In a word, murky. Short-term rentals violate zoning laws in many neighborhoods of Los Angeles, according to a March 2014 city memo by Deputy Director of Planning Alan Bell. In general, city residents may not rent out their apartments and houses for fewer than 30 days if they live in a purely residential zone, which the city defines as single-family areas and lower-density areas (R1, R2, RD, R3, RAS3). Short-term rentals may be allowed in commercial zones and higher-density multi-family residential zones (RAS4, R4, R5), according to the memo. This could mean that neighborhoods such as downtown Los Angeles and parts of Hollywood are fair game for Airbnb, the Los Angeles Daily News reported. In some of these cases, prospective Airbnb hosts may need to get a Conditional Use Permit — and areas governed by specific plans, overlay zones or other specially zoned areas may have different rules. “The rules governing short-term rentals in these zones are complex,” Bell wrote.
Recent developments: Los Angeles law requires that people “engaged in the business of renting or letting rooms, apartments or other accommodations for dwelling, sleeping or lodging” must pay Transient Occupancy taxes to the city. At a September 2014 City Council committee meeting, officials announced that they would start sending warnings to short-term rental hosts, instructing them to collect taxes from their guests on behalf of the city, as a hotel would, the Los Angeles Times reported.
Enforcement is tricky, since officials have had difficulty tracking down the addresses of people who rent out their rooms or properties on sites like Airbnb. At the September committee meeting, as reported by the Times, Assistant City Attorney Beverly Cook mentioned another hurdle: although the property owners themselves are legally bound to collect tourist taxes, Airbnb and other sites that facilitate short-term rentals are not required to do so. In a statement released that month, Airbnb spokesperson Nick Papas said, “When hosts register on Airbnb, they agree to comply with local rules, including tax laws, before they list their space.”
Airbnb released a study last month touting the economic benefits of the platform in Los Angeles, along with a map of the site’s short-term rentals across the city. Between May 2013 and April 2014, according to the report, 4,490 Los Angeles hosts rented out their homes to Airbnb guests.
Legality of Airbnb stays: Legal. Airbnb hosts must obtain a license for a vacation rental, defined as a dwelling unit with up to six sleeping rooms that are available for rent, or for hire, for transient occupancy by guests. Before any vacation rental license is issued, Department of Buildings officials may conduct an on-site or administrative inspection of the property. Also, the homeowners association or board of directors must approve the dwelling unit for use as a vacation rental. A max of six dwelling units per building can be licensed as a vacation rental at the same time.
Recent developments: Chicago has joined San Francisco, Portland and San Jose as the first batch of US cities to actively tax Airbnb stays. In November 2014, Airbnb announced that it was working with Chicago to collect and remit tourist taxes on behalf of local Airbnb hosts and guests. Later that month, the City Council approved the 2015 budget, which included an ordinance that held Airbnb and similar sites responsible for collecting the tax on vacation rentals set up through their online platforms, DNAinfo Chicago reported. A 4.5 percent tax was added to Airbnb listings in the city, which could rake in a total of $1 million in new tax revenue.
Legality of Airbnb stays: Unclear, as Airbnb-type short-term rentals are not regulated. The Houston Code of Ordinances (Section 44-102) indicates that a 7 percent tax is levied for the rental of a hotel room that costs $2 or more per day. This tax applies to “hotels, motels, tourist homes, houses, or courts, lodging houses, boarding houses, inns, rooming houses, or other buildings where rooms are furnished for a consideration, but shall not include hospitals, sanitariums, or nursing homes.”
Austin is the only Texas city with clear rules for short-term rentals, according to the San Antonio Express-News. Austin law requires property owners to pay $285 for a license to rent out a residential unit for fewer than 30 consecutive days, and the proportion of short-term rentals in a defined district cannot exceed 3 percent.
According to a June 2013 Priceconomics study, Houston was one of the few major US cities where the average hotel rate per night of $87 was lower than the average rate of $100 for renting out an entire apartment through Airbnb (Las Vegas was another notable exception, with an average rate of $94 per night for hotel rooms versus $135 for Airbnb apartments).
Recent developments: In December 2014, the Texas Hotel & Lodging Association urged the state Legislature to pass uniform regulations for short-term rentals booked through Airbnb and other platforms, the San Antonio Express-News reported. For lawmaker consideration, the THLA drafted a bill requiring property owners to collect hotel occupancy taxes and follow health and safety protocol for hotels. Justin Bragiel, general counsel for the association, told the Express-News last month that one lawmaker had agreed to file the bill. “Luckily for our standpoint, Airbnb and HomeAway have been more of a partner than an adversary,” Bragiel said. “They very much want to be able to operate in all these jurisdictions and find a way to do it – and of course want their guests to have a safe and enjoyable experience as well. Our intent is not to surprise anybody.”
Legality of Airbnb stays: Legal, but only in very specific situations.
Any entity or individual renting out any type of housing unit must obtain four things: a housing inspection license, also known as a housing rental license; a business privilege license (waived if the property has four or fewer units and the owner lives on the premises); business tax account number and zoning approval for the property to operate as a dwelling for rent. The fourth factor, zoning approval, is the sticking point: short-term rentals, which include hotels and B&Bs, are only permitted in certain areas, usually commercial districts, NewsWorks reported.
In 2013, developers PostGreen and Equinox Management & Construction announced their plans for a new East Kensington apartment building with a unit specifically reserved for short-term rental via Airbnb. The developers declared their intentions during the permit application process, and got the necessary approvals from the city, possibly creating the first legal Airbnb rental in the city, the Philadelphia Inquirer reported. The eight-unit project, named Amber on Amber, was slated to break ground last year.
Rendering via amberonamber.com
As of January 2014, Philadelphia’s Revenue Department is not pursuing collecting the 8.5 percent hotel tax or the 6.45 percent business income and receipts tax on Airbnb rentals, according to the Inquirer. “We’re not collecting taxes, and we’re not contemplating collecting them,” administration spokesman Mark McDonald told the Inquirer, referencing the city’s fruitless bid to get unpaid hotel taxes from Expedia between 2001 and 2005.
Recent developments: In early 2014, pro-Airbnb City Councilman Bill Green told KYW 1060 that he wanted to call for hearings on “sharing economy” sites, in hopes of legalizing Airbnb listings. “It’s a product that I use when I travel,” he said. “And it’s something that’s clearly being used here, and we’re not enforcing the law. So we might as well figure out a way to create a registration process, and tax it, (so) that (it) works with our zoning code.” However, in February 2014, Green left City Council to become chairman of the School Reform Commission.
Legality of Airbnb stays: Legal. People renting out their property to guests for fewer than 30 days must get a license and pay hotel taxes. The city’s tax rate on income from transient lodging is 5 percent, and the state tax is 7.27 percent on top of that. However, a person who owns fewer than three apartments, houses, trailer space or other housing spaces available for rent in the state are exempt from paying those taxes — provided he or she does not receive income from renting, leasing or licensing any commercial units, according to city code.
Recent developments: Nothing on the legislation front, but a Phoenix man is renting out his Tesla as a private room (parked inside his garage) for $85 per night. The Model S has a 8” airbed that sleeps two, with air conditioning and heating. Guests do have to wake up by 8am, though, so the Airbnb host can drive to work.
Legality of Airbnb stays: Short-term rentals aren’t explicitly banned, or explicitly regulated, by San Antonio’s city code. Under Section 31-66 regarding hotel occupancy tax, a hotel means “any building or complex of buildings, trailer, converted railroad pullman car, or any other facility in which the public may, for a consideration, obtain sleeping accommodations.” This encompasses “hotels, motels, tourist homes, houses or courts, lodging houses, inns, rooming houses, trailer houses, trailer motels… dormitory where bed space is rented, apartments not occupied by permanent residents.” The person operating the lodging space must collect a 9 percent hotel tax from the guest to remit to the city — unless if the facility is “not ordinarily used for sleeping, such as a meeting room.” So maybe, say, Teslas with airbeds are exempt.
Recent developments: As mentioned earlier, the Texas Hotel & Lodging Association is drafting a bill that would require short-term rental hosts to collect occupancy taxes and follow health and safety standards for hotels.
Legality of Airbnb stays: Legal. Property owners who rent out sleeping accommodations to guests for less than one month must get a Transient Occupancy Registration Certificate. They also must collect and remit the Transient Occupancy Tax (TOT) and Tourism Marketing District (TMD) assessment. The TOT is 10.50 percent, and the TMD is 0.55 percent for lodging businesses with fewer than 30 units. The comprehensible Office of the City Treasurer website explicitly mentions Airbnb: “Any structure or any portion of any structure that is rented out (for less than one month) is subject to the TOT and TMD assessment. The method used to advertise and/or book rentals, whether through a property management company, an online service (such as VRBO, AirBNB, or Homeaway), is not a determining factor.”
In addition, short-term rental operators may have to pay Rental Unit Tax, if the entire property is rented for more than six days in a calendar year. The Rental Unit Tax does not apply if the home is owner occupied or if the owner is only renting a portion of the residence.
Recent developments: Local hotel groups have said that cities including San Diego should place stricter regulations on Airbnb hosts, Voice of San Diego reported in April 2014. Lynn Mohrfeld, chief executive of the California Lodging and Hotel Association, told VOSD, “If someone wants to compete in the hospitality business, they should be able to meet the same regulations.”
In October 2014, a man who rented out his downtown condo via VRBO was fined $106,000 after a Superior Court judge ruled that he violated the building’s rules, U-T San Diego reported. The Mark Condominium Association, which contended that Thomas Stevens regularly rented out his 19th-floor unit, was awarded $16,059 in costs and $90,000 in attorneys fees for breach of contract.
Legality of Airbnb stays: Legal. Operators of short-term home rentals are required to register with the city and collect a Hotel Occupancy Tax of 13 percent total — 7 percent for Dallas and 6 percent for the state. Failure to collect/remit the tax or file a truthful hotel occupancy report will result in a maximum fine of $500.
Recent (sort of) developments: A city memo from August 2011 warned that Dallas lacked processes in place specifically addressing short-term vacation rentals. “As a result, it is unlikely that short-term vacation rental properties operating in the City are registered with the City and paying Hotel Occupancy Taxes (HOT),” City Auditor Craig Kinton wrote. The memo included a case study of short-term rental policies in Key West, Florida and Encinitas, California. Measures the two cities took included updating local ordinance to clarify that hotel taxes apply to vacation rentals, requiring rental owners to register/license properties and pay an annual fee, addressing potential code compliance issues and making it easier for owners to register online.
Legality of Airbnb stays: Freshly legal, as of last month. The zoning ordinance of the San Jose Municipal Code has been amended to allow for and regulate transient occupancy as an “incidental use of primary residential uses.” Hosts must notify the city, and a 10 percent tax will be added as a line item on travelers’ bills. Owners cannot rent their homes for more than 180 nights per year when they are not present.
Recent developments: In December 2014, the City Council voted to enforce a tax on stays booked through Airbnb. With passage of the measure, San Jose became one of the first cities — along with San Francisco, Portland and Chicago — to work with Airbnb to collect taxes.
According to a city memo from November 2014, Airbnb estimates that there are about 300 hosts in San Jose using the platform. City staff calculated that the taxes collected through Airbnb would be approximately $150,000 per year, or just 0.01 percent of the city’s budget, the Mercury News reported. The typical San Jose host rents out his or her residence for 56 nights per year, with an average of 7.4 nights per stay. The tax would add $8.80 to the average nightly rate of $88, so the cost of a week-long accommodation would increase by $62.
Mayor Chuck Reed supported the measure, Law360 reported. “The sharing economy is here whether we like it or not,” Reed said at the council meeting. “We might as well try to get in front of it and generate some revenue in the process.”