AirBnB growth taxes establishment

AIR TIME: Wendy York has taken advantage of AirBnB as both a host and a guest. / PBN PHOTO/NATALJA KENT
AIR TIME: Wendy York has taken advantage of AirBnB as both a host and a guest. / PBN PHOTO/NATALJA KENT

Hotel rooms in Nice, France were running $400 per night and Wendy York of Cranston needed to find more reasonably priced accommodations in time for her best friend’s wedding.
Like many savvy travelers, York turned to AirBnB, the growing online lodging marketplace that matches people with extra living space to the wandering masses that need it. Not only did she find a room in a house for $125 per night, but a discount to AirBnB “hosts” convinced York to list space in her own Edgewood home.
“I was thinking, it’s Providence and no one will contact me, but before I had left I had several inquiries and no room ready to rent,” said York, who quickly converted a sunroom and extra living room on the first floor into a private area where her quickly arriving AirBnB guests could stay.
A year later, York has rented the space, listed at $85 per night as “Beautiful Victorian Garden View,” more than a dozen times and made a number of new friends among the people who have lived there.
Just a few years ago, the options for capitalizing extra space were limited, but as it has in areas from transportation to used furniture, the Internet has reduced many of the barriers that used to separate supply from demand.
In the process, AirBnB, which was founded in 2008 by two Rhode Island School of Design alumni who parlayed a lodging shortage at a San Francisco design conference into a way to cover their rent, has become a global force in the travel industry.
As of last week, York’s property was one of 255 listed in the Providence area on AirBnB, a number that grows most weeks and includes entire single-family houses, loft apartments and penthouse condominiums.
In Newport a search returns 266 listings, including an 18th-century schoolhouse, a catamaran and a futon.
And AirBnB is not alone. Competitors in the online, shared-accommodation space include VRBO.com (vacation rentals by owner) homeaways.com, roomarama.com and casacasa.com. They join a legion of sites serving the traditional hospitality industry, including hotels.com, bedandbreakfast.com and booking.com, among many others.
For those looking to crash for free, there’s couchsurfing.com.
“There have been lodging reservations engines around for awhile – such as Travelocity and Expedia and many others – the list is long,” said Evan Smith, CEO of Discover Newport. “What is different is [they] are handling larger properties and traditional properties wearing the moniker of hotel, motel or inn. AirBnB changed the playing field because they are playing such a nontraditional role – people selling Johnny’s room down the hall with the Farrah Fawcett poster.” Similar to online taxi services or Amazon, AirBnB’s rise has raised a thicket of legal and regulatory questions that have only begun to be addressed.
In New York City, only a licensed hotel can rent rooms for less than 30 days and AirBnB has thousands of listings, even though hosts have been fined more than $40,000 for using it.
Renters subleasing their apartments through AirBnB, against the terms of agreements with their landlords, is another potential issue.
In Rhode Island, AirBnB’s growth is reigniting old disagreements about the state’s controversial lodging tax and who should pay it.
Right now, any property renting two or fewer rooms is exempt from collecting the 13 percent tax – 6 percent lodging tax and 7 percent sales tax – that properties with three or more rooms must collect.
This has raised questions of fairness and accusations that many inns are gaming the system by claiming they rent fewer rooms than they do.
Last year, Gov. Lincoln D. Chafee proposed ending the “two-room rule” and making all short-term rentals, presumably including AirBnB rentals, collect the 13 percent tax.
Although the proposal died in the legislature, the issue remained and has now grown in stature because of the success of AirBnB.
“What the state was trying to do in the 1980s with the three-room rule was not affect the hobbyist, but those hobbyists now can make a lot of money,” Smith said. “Now you bring in AirBnB and we are seeing people with three to five rooms close the doors, say they are not renting them, and cheat. AirBnB has this unfair market advantage, because if you are calling a legit property you are collecting taxes.”
Chafee’s last proposal to extend the lodging tax would have included not just all short-term room rentals, but summer cottage rentals and was killed by pressure from real estate agents who feared it would ravage the seasonal market and depress property values.
Smith said he would support a new push in the legislature to extend the lodging tax to properties with fewer than three rooms, but keep cottage rentals exempt. This fall, Discover Newport is launching a commission-free booking portal through its website for Newport and East Bay lodging establishments. Smith said Discover Newport will make sure any property using the new booking engine is registered with their city or town and is collecting whatever tax is applicable.
The portal will be run by JackRabbit System Inc., which runs a similar booking engine for the Providence Warwick Convention & Visitors Bureau.
At the Providence Warwick CVB, President and CEO Martha Sheridan said AirBnB had been a big topic of discussion at a recent conference she attended, but it’s still unclear, nationally and locally, whether the service is taking market share from establishment hotels.
“It is definitely on our radar screen and people are trying to find out where the connecting points are,” Sheridan said. “But I am not sure we can measure it yet because there is no way to engage the folks who are listing their homes on AirBnB.”
Indeed, figuring out whether traditional hotels are losing out to Internet room rentals is difficult.
In the first six months of 2013, Providence-area hotel occupancy was basically flat. The share of rooms filled rose 0.6 percent while the average rate charged dropped 0.9 percent compared with the same period last year, according to figures from the Providence Warwick CVB. During the first half of 2012, Providence hotel occupancy climbed 6 percent year over year.
Based on her experience, York said the guests staying at her house would not be staying at a downtown hotel if AirBnB wasn’t around and probably wouldn’t be coming to Rhode Island at all.
“What it does is let a lot of people travel more,” York said “Without it they wouldn’t come or would only stay for a short period of time.”
York’s guests have stayed as long as three months and included visiting nurses and students whose other options would likely be looking at apartments on Craigslist.
As for tax and legal entanglements, AirBnB’s policy so far has been to stay above the fray and leave any risk to the hosts.
Amanda Smith, a spokeswoman for AirBnB, declined to discuss taxes or other legal issues. She referred to a statement on the AirBnB site that said local laws and restrictions can be “confusing” but that by listing a property hosts agree to follow them. •

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