Recode | April 6, 2016

Airbnb is dangling tax money in front of lawmakers to get legalized
Re/Code | Noah Kulwin
April 6, 2016

 

If this week’s Panama Papers revelations have shown anything, it is that rich people will go to great lengths to hide their wealth from tax collectors.

 

For sharing economy companies like Airbnb, which last raised $100 million at a $25.5 billion valuation, it’s a little more complicated. Airbnb’s strategy on taxes is to pay them, or at least help the homeowners who make use of the service to pay them. The startup wants to legitimize itself with local municipalities, partly as a way to fend off future battles that can get drawn out. At the same time, the company is also shielding some of its corporate profits from tax liabilities through a complicated web of subsidiaries, according to a Bloomberg News story.

 

Understanding how Airbnb is framing the debate on how taxes should be applied, both locally and federally, is not only important to the startup but to other sharing economy sharing biggies and hotel industry rivals.

 

In a statement provided to Re/code, Airbnb said that “hosts keep and pay taxes on 97 percent of the price they charge for their listing,” and that the company pays “all of the tax that is due in all of the places that we do business and when we make long term business decisions, we act in the best interest of our community.” The statement doesn’t fully address the findings in the Bloomberg article, which looks at corporate taxes and how Airbnb has shifted some money into tax shelters.

 

For the home-sharing behemoth, taxes are a big deal, especially the local occupancy taxes it wants collect and then remit to city governments. Right now, little is as important to Airbnb as getting laws passed that will technically “legalize” the service and allow it to remit those tax payments. Airbnb has already paid out more than $40 million in tax remittances, including in places where agreements are not in place, according to figures provided by the company. The broader goal of all this is to further normalize its relationships with government, and strengthen its position against hotels, activists and skeptical lawmakers.

 

Outside of heavy opposition in places like New York City, the company has largely succeeded in convincing governments to pass legislation recognizing its service; it now has such agreements signed with more than 160 cities worldwide.

 

Today, the home-sharing service is continuing its legalization push by taking a public swipe at the American Hotel & Lodging Association, the trade organization that represents hotels in Washington. In a strongly worded letter sent to the AHLA, Airbnb accuses the organization of playing both sides, supporting “legalization” agreements in public while covertly working to oppose them.

 

Referring to an AHLA memo that outlined opposition strategies to such policies, Airbnb global policy chief Chris Lehane writes that Airbnb was “pleased [to learn that] the AHLA has changed its position and is no longer fighting to prevent the Airbnb community from paying taxes.”

 

AHLA disagrees. “Our position has always been that all lodging businesses should play by the same rules, and taxes are just one part of that,” said Vanessa Sinders, AHLA Senior Vice President of Government Affairs, in a statement. “The commercial operators that Airbnb and other short-term rental platforms facilitate ought to play by the same rules as the tens of thousands of lodging properties. … In contrast to Airbnb, these properties do not pick and choose which laws to follow or when to pay taxes and especially how much to pay.”

 

Last November, Airbnb won its ugliest fight yet, defeating San Francisco’s Proposition F ballot initiative that would have more tightly regulated the home-sharing service.

 

On the day after the vote, Lehane, an ex-Clinton administration adviser, described a political organizing effort that aimed to use Airbnb hosts and customers as foot soldiers in markets where it faced opposition, which was what it did to beat back Proposition F. Shortly thereafter, Lehane and Airbnb released a “Community Compact,” a document in which the company promised to pay its “fair share” of taxes.

 

In an interview with Re/code, Lehane said that the compact “spoke to the fact that we see ourselves an an incredible value proposition for cities, but it’s important for us to work as a partner to cities, as well.”

 

In New York City, where Airbnb has tussled with lawmakers over the number of “illegal hotels” on the platform — listings operated by professional hosts with more than one home on Airbnb — the Community Compact was not so well received by government officials. State Attorney General Eric Schneiderman referred to it as a “transparent ploy” and a “press release.”

 

“The company has all of the information and tools it needs to clean up its act. Until it does, no one should take this press release seriously,” Schneiderman wrote at the time.

 

The issue of so-called illegal hotels has arguably been Airbnb’s biggest stumbling block in the path to legalization. Airbnb’s critics charge that the company doesn’t actually care about taking down such listings, and that the company isn’t doing enough to make sure its hosts comply with existing laws, like registering with the city.

 

In February, independent researchers found that Airbnb had purged about 1,500 such listings in New York City last fall ahead of a public data dump. Airbnb initially said that it was related to seasonal flux, but later admitted that it was an active purge in a letter to New York users, in which it said that it was part of a good-faith effort to clean up hosts that violated the rules. New York City officials were not pleased.

 

Dale Carlson, a leader of the activist group ShareBetter (which is backed by hotel and tenant unions that oppose Airbnb), says that until Airbnb deals with the low registration numbers and the verboten listings, it is “aiding and abetting illegal activity.”

 

“They don’t care if it’s legal or not, registered or not, they don’t care if you have the property owner’s permission or knowledge,” Carlson said. “If they want to be a good corporate citizen, they should limit themselves to only properly registered units in San Francisco. Anything short of that isn’t acceptable.”

 

But while there are setbacks for Airbnb — the same researchers who first noticed the New York purge say the same listings are coming back, and the company is in trouble in Tokyo — they are minor in the grand scheme of things, as 2016 has been a very good year for Airbnb thus far; the Bloomberg story from today also says that Airbnb expects to turn its first profit this year. That momentum will likely continue, especially as its rivals struggle to put together efforts to compete.

 

Meanwhile, Airbnb has been steadily racking up those legalization agreements, working its way toward the eventual IPO that co-founder and CEO Brian Chesky called a “two-year project” at the Code conference last May. The company is on a trajectory like few other highly valued startups during a period where other unicorn startups have stumbled significantly, and it is focused on maintaining that growth while dealing with the unique challenges in each market. Hence the listing removals.

 

“There are specific needs for specific cities; San Francisco falls into that subset of places with affordability challenges,” Lehane said. In addition to providing supplemental income for hosts, he says that Airbnb “also wants to be a solution” by providing an economic benefit to people living in an unequal economy.

 

“We certainly believe we have a responsibility to be a good partner with cities, add our value proposition, but obviously do so in ways consistent with the laws of those cities,” Lehane added.