Last updated: 11:00 AM ET, Tue July 19 2016

How Will Lodging Taxes Impact Airbnb?

Hotel & Resort | Patrick Clarke | July 19, 2016

How Will Lodging Taxes Impact Airbnb?

Photo courtesy of Airbnb.

Home-sharing platform Airbnb and the city of Los Angeles recently agreed on a deal that will require the San Francisco-based company to collect lodging taxes from hosts before passing them down to the city.

The Los Angeles Times reported the 14 percent tourist tax will go into effect in August.

The estimated millions of dollars in tax revenue — city officials anticipate $5 million this year — are expected to help fund the city's homeless programs. While better news for the city than hosts, the deal isn't designed to penalize or deter hosts from listing on Airbnb.

"The hosts are required to pay that tax," City Administrative Officer Miguel Santana told the Times. "We’re simply creating a mechanism to facilitate that."

What's more, Airbnb applauded the deal, and, speaking for its hosts, said users welcome the tax.

"Our community of hosts wants to pay their fair share and we want to help," the company's public policy manager for Southern California John Choi said in a statement. 

READ MORE: Airbnb Sues San Francisco Over New Law

L.A. isn't the first city to strike a deal with Airbnb to collect taxes from hosts as other states and cities have done so in the past. But the victory signals a trend as hosts in Cleveland and Philadelphia will be required to pay occupancy taxes just in time for this month's Republican and Democratic National Conventions.

"This is a victory for good tax policy, but most jurisdictions still lag behind," Institution on Taxation and Economic Policy research director Carl Davis wrote in a blog post. "Far too many states and localities still need to update their tax systems (and regulations) to account for Airbnb and similar companies."

Although these taxes don't necessarily crack down on illegal listings, they at least put Airbnb rentals on a similar level with hotels and resorts in terms of what they contribute financially to their destination.

READ MORE: How is Airbnb Fighting Racism?

While the tax is significant given that it will cut into hosts' revenue, it remains to be seen whether it will be enough to ultimately trump the convenience and opportunity Airbnb offers homeowners in need of additional income over the course of the year.

For travelers booking through Airbnb, the initial impact of these taxes could result in more expensive nightly rates as hosts look to make that money back. While some may be driven to bypass an Airbnb listing for a hotel room, renters will likely continue to benefit from the sheer volume of listings and the competition that results.

Since L.A. and other cities are still seeking similar agreements with Airbnb's rivals, it's likely the tax could spur some Airbnb hosts to list their apartment or home on a different online rental platform for the time being. A notable dropoff in users or limited growth in hosts could potentially change the way Airbnb approaches future negotiations regarding host tax.

Nonetheless, Airbnb's deals with L.A. and other destinations are likely to set a precedent and it seems that it's only a matter of time before similar platforms begin collecting the appropriate lodging taxes from their hosts.


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