The summer travel season is nearly upon us and if youโre a fan of staying with Airbnb hosts instead of hotels, you probably already know some locations charge some or all of the same taxes that hotels charge.
If you donโt already know that, surprise! The number of locations charging taxes for that spare room or whole house is only growing. Beginning May 1, Texas will join 30 other states where taxes are charged at either the local or state level or a combination of both.
Clearly, thereโs a financial benefit for the communities levying these taxes. The Dallas Morning News estimates Airbnb wouldโve remitted an estimated $8 million in Texas state taxes in 2016. However, itโs not the states and cities that initiated the effort. For that, you can thank the hotel industry, which has been lobbying hard for the taxes.
Why?
โAirbnb has brought hotel pricing down in many places during holidays, conventions and other big events when room rates should be at their highest and the industry generates a significant portion of its profits,โ Vijay Dandapani, chief executive of the Hotel Association of New York City, told The New York Times in a recent article.
While Airbnb has said on its website it is happy to collect its fair share of taxes, thereโs clearly some negative feelings about how itโs all gone down.
โThe hotel hypocrisy is almost unbelievable,โ Nick Papas, a spokesman for Airbnb, said in an email. โThe hotel cartel wanted Airbnb to collect taxes and when we implemented a way to do so, they changed their position and lobbied cities to leave millions of dollars on the table.โ
The continuing fight has led to a variety of tax schemes across states and municipalities, creating a confusing landscape for hosts and guests.
What It Means for Airbnb Hosts & Guests
For Hosts
If youโre considering becoming a host, be aware that the taxes present some confusion for some people renting out their spaces.
The reasons are numerous and varied. To start, no one really likes paying taxes. But additional layers of frustration can come with the Airbnb taxes. They can be levied and remitted in different ways depending on the tax laws in particular states or municipalities and Airbnbโs agreement with those entities. Then there are the hostโs options of how to charge guests once taxes are implemented. Many hosts get confused when it comes to collecting the tax, where to note it on the listing and the bookkeeping process.
Jeff Cook, who owns several properties in Pennsylvania, said sales and use taxes were already in place when he started hosting with Airbnb several years ago. โThe biggest issue here is that many people werenโt paying it simply because they didnโt think they had to,โ he said. โI paid it from the get-go, because I wanted my business to be legitimate.โ
But it wasnโt easy. Cookโs price for guests bakes in the 6% state and 3% local tax, so he doesnโt note it on his site and doesnโt have to worry about asking for local taxes when guests arrive. His revenue is submitted to Airbnb, but then it gets a little complicated.
Airbnb removes their 9% fee and sends him the remainder, he said. โAnd then I have to figure out what the tax amounts are independently. If something could be done better โฆ perhaps if they distinguished between the tax and the regular revenue that would be helpful. The lump sum is sent to me, I figure out what the correct tax amounts are, and then I submit a return and payment to the appropriate authorities.โ
Laura Jesse, a host in San Antonio, said sheโs ambivalent about the tax that begins in Texas next week. โI live near projects that were funded in part with the [stateโs occupancy] tax,โ she said. โI get a fair amount of convention business as I live near downtown, etc.โ
As for raising her rates to offset the taxes, Jesse said she has no plans to do so at this time.
Of course, taxes arenโt the only costs Airbnb hosts face. Here are a few others youโll want to know about. But the spare money can still help you do things like pay off debt (you can see how your debt affects your credit with a credit report snapshot on Credit.com). Itโs also good to keep in mind that many of the expenses involved with renting out your space are tax-deductible. See which ones you can write off here.
For Guests
Taxes mean your stays are probably costing more โ anywhere from 3% to 15% depending on locale and host. On top of that, the process can become confusing depending on how the host applies those taxes to your bill.
Airbnb addresses how that can be done on its Airbnb Citizen site, but there are no clear-cut guidelines available, so many hosts are left scratching their heads and conferring with other hosts on how they alert guests and even charge them.
Airbnb offers guidance thusly:
โIf you determine that you need to collect tax, you can usually either add it within a Special Offer or ask your guests to pay it in person. In each case, itโs important that guests are informed of the exact tax amount prior to booking. If you choose to collect tax outside of your listingโs rates, please note that it should be collected only upon arrival and that we are unable to assist with collection.โ
So, if your host suddenly asks you to hand over a little cash to cover the taxes, itโs probably not a scam. As Airbnb explains on its site, โthis needs to be clearly stated on the listing prior to booking.โ So, if the host canโt show you where thatโs stated, you should be wary.
Hopefully, however, most hosts will bake in the taxes like Cook does, and you will see only a price increase at your favorite Airbnb homes. (Travel often? These travel rewards credit cards could be right for you.)
โI think separating taxes as a line item [on guest bills] would help clarify the issue for people,โ Cook said. โIโm a big supporter of Airbnb. I think they are an awesome company, and as they evolve and grow, distinguishing tax through line items would be beneficial to everyone.โ
Image: PeopleImages
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