A local woman who rents out her Ukrainian Village condo on Airbnb says she has nothing but great things to say about doing so. Using the service has introduced her to cool strangers and changed her perspective on people for the better—and it often makes her as much as two times more money in a month than she would make with a standard tenant. But she’d rather not be named because of a lingering fear of being caught in a gray area that had become familiar territory to people participating in the sharing or peer economy.
Airbnb recently took a big step toward legitimacy in Chicago when, on February 15, it agreed to start collecting a 4.5 percent tax on rentals, but that hasn’t appeased everyone. Hoteliers in particular, who have to contend with the city’s 16.4 percent tax, have called for the city to crack down, enforce existing regulations, and require all property owners using the service to obtain vacation rental licenses.
“If they get a license and pay the full 16.4 percent tax, then maybe they’re competition, and we have no problem if they do it legally,” says Marc Gordon, president and CEO of the Illinois Hotel & Lodging Association, an industry trade group. “If they do it illegally without being a licensed renter in Chicago, we do have a problem with that. They get away with not paying the hotel tax, and they’re not providing the guests with the same security and putting the guests at jeopardy. As soon as there’s a major incident, people will go crazy about why nobody is enforcing the rental ordinance.”
City budget director Alexandra Holt predicted the new tax on Airbnb would raise a million dollars annually; the new 9 percent lease tax on car-sharing services such as Zipcar (the same applied to standard car rentals) is also predicted to bring in a million a year. (Requests for the numbers behind these estimates from the city’s Office of Budget and Management haven’t been answered.)
Chicago’s joining a growing number of municipalities across the country who are taxing the ever-increasing sharing economy, which brings legitimacy and, eventually perhaps, leverage to these start-ups. In addition to Chicago, Airbnb has started collecting and remitting taxes in Portland, San Francisco, San Jose, and Washington, D.C., according to Christopher Nulty, an Airbnb spokesman. The company has already sent $5 million to San Francisco and Portland alone since last summer. Taxes may be a small price to pay for guaranteed income over the long run.
“From the start, we’ve been focused on making neighborhoods better places to live and visit—and part of that includes working with lawmakers to do the right thing on taxes,” says Nulty. “The tax issue is particularly challenging, as the rules vary city to city, and were designed without companies like Airbnb in mind.”
According to Kim Rueben, a senior fellow at the Urban Institute, the shift reminds her of how other governments have adapted and followed the money when it comes to collecting taxes, such as getting Amazon to agree to collect and remit sales taxes to having Expedia and other hotel aggregators figure out a system to collect hotel taxes. Neither Zipcar nor Airbnb would release financials suggesting how much they’re making in Chicago. But there’s little doubt the services are making an impact on the market; many in New York have even cast Airbnb, which recently completed a new funding round valuing it at $20 billion, as a contributor to the city’s affordable-housing crisis, since it keeps potentially affordable real estate off the traditional rental market.
The anonymous Airbnb-er worries that moves to legitimize these companies may crush the spirit of the sharing economy with reams of red tape. The introduction of the current tax won’t change her routine—it’s applied by Airbnb and automatically collected and remitted to the city, so renters don’t need to deal with collection and payment. But she doesn’t think hotels and home rentals should be treated the same way since they offer such different experiences, and believes if the full hotel tax was levied, it might start eating into customer savings—which is the reason many people use the service to begin with.
She compares it to applying a law used for big dairy farms to a small artisanal ice cream producer; one size doesn’t fit all.
“I feel like it’s such a different experience,” she says. “Airbnb is such an amazing community builder, one they can’t get in a hotel. I don’t have a problem with the tax and how it’s been applied so far, but regulation hasn’t caught up with the technology—just transferring all the regulations to Airbnb properties doesn’t make sense at all.”
What’s also striking is, as momentum builds to tax these companies, some are claiming that not only are the taxes burdensome, they’re also unfair. According to Zipcar Chicago general manager Charles Stephens, “It’s our position that the value cities receive by fostering the growth of car-sharing members far outweighs any perceived tax benefits. Car-sharing members live car free or car lite, use public transit, and are interested in alternative sustainable transportation—behaviors we believe cities should promote, not tax.”
Chicago’s difficult financial situation may be a driver behind new or creative taxes, but with the sharing economy showing clear signs of being a fixture, not a fad, more governments will become involved.
“I spent all last summer on Divvy bikes, went to weddings in Rent the Runway dresses,” says the Airbnb landlord. “It’s these old, rather staid systems that aren’t growing or adapting. It’s like trying to turn the Titanic. I’m fine if a cash-strapped city like Chicago sees a way to make money off the money I’m making—as long as they don’t make it so inconvenient or unattractive for me that I’d rather not do it.”