State lawmakers are currently considering a law that would require Airbnbto collect a six-percent sales tax for bookings made through its online platform.Known as the “Airbnb bill,” the law would close a loophole that allows Airbnb hosts to forgo collecting Maryland’s sales tax on rentals made through the online platform.If the law is passed, Airbnb would have to itemize the six-percent sales and use tax on its invoices, collect the taxes at the time of booking, and forward the proceeds to the State—just like traditional brick and mortar hotels.While the Airbnb bill is described as a parity measure,it may risk shortchanging resourceful hosts who rely on Airbnbs for income, and receding the State’s tourism revenue.
Technically, Maryland’s Airbnbs have always been required to collect the sales and use tax.However, because Airbnbs are not governed by the same permit or registration requirements as traditional hotels, it is almost impossible for the State Comptroller to regulate collection of the taxes.This is in large part due to Airbnbs privacy policies, which shield hosts’ personal information beyond their first names making them essentially unidentifiable.Moreover, Airbnb does not compel its hosts’ compliance with State tax laws.
Critics of the bill urge that the new law may stifle enterprising homeowners who only offer rentals as a way to generate supplemental income.One Airbnb host that enforces Maryland’s six-percent sales tax points out that once guests realize she charges the tax they often cancel their reservation.Proponents of the bill include large brick and mortar hotel chains and smaller bed and breakfast owners; they argue the bill strikes at fundamental fairness by leveling the playing field.In 2018, hotels paid $125 million in taxes from rentals.Despite operating in the same industry, many Airbnb rentals escaped taxation. Supporters also argue it would be an enormous revenue raiser. In 2018, Maryland Airbnb hosts raked in roughly $57 million of income,which would have translated to approximately $3.4 million in tax revenue under the new law. While Maryland’s proposed legislation may add to State coffers, naysayers forecast declines in tourism and, thus, tangential revenue losses.
In 2018, Maryland grossed $49.4 million from tourism-related taxes, an uptick from $46.7 million in 2017.From 2016 to 2017, tourism revenue increased by about four percent.Maryland’s tourism revenue seems to be in lockstep with Airbnb growth, revealing a direct correlation between both markets. A few factors explain this correlation. For one, it is possible that Airbnbs are filling hotel demand gaps, in turn allowing for more tourism. In Maryland, hotel demand outpaces supply by nearly two percent.In addition to providing more lodging, an Airbnb is generally about twenty-five dollars cheaper per night than a hotel.Next, Maryland’s goal of advancing its image as an attractive leisure destination for vacationers is complemented by Airbnb;studies show that Airbnb’s key demographic is “leisure-oriented” travelers.Given the link between these markets, a decline in Airbnb bookings may yield a reduction in tourism revenue as well.
Maryland’s recent Airbnb bill tracks other opportunistic States that have passed laws to regulate the booming businessof online hosting platforms.To avoid alienating Airbnbs (and hosts) and reducing tourism revenue, legislators should consider amending the bill to incorporate a minimum-threshold tax. For example, if a host’s annual rental income falls below a designated percentage, the host would assess a lower tax rate. However, once a host’s annual rental income exceeds the designated percentage, the host would begin assessing the full six-percent tax for subsequent transactions. If passed, the new law will take effect on June 1, 2019— just in time for summer.While Maryland lawmakers seem quick to cash-in on Airbnb check-ins, legislators should consider potential risks of undermining the bill’s own revenue and impartiality objectives.
Todd Milligan is a third-year law student who joined Law Forum after transferring to UB and completing the write-on competition during the first two weeks of his first semester at UB. After graduation, Todd will sit for the Maryland Bar Exam in July 2019. In the fall of 2019, Todd will be attending Georgetown Law to obtain his LL.M. in Taxation. Todd aspires to become a U.S. Tax Court judge in the future.
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