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AirBnB Local Taxes: A novice study in Kona, HI

Published by Estuarto in the blog Estuarto's blog.

I have always had an interest in Hawaii. In my travels I have visited Kuai, Oahu, and The Big Island. The Big Island is by far my favorite, and in particular the west side - Kona. Recently a member joined our forums from Kona to share her experience hosting. I was struck by some of the things she said about the excise tax and TAT taxes that hosts are responsible for collecting from guests. These taxes are imposed by the state of Hawaii and total 13.45% of the hosts revenue. With my combined interest in AirBnB regulations and Hawaii, I decided to do a little investigating into AirBnB related taxes in Kona.

Lately I have been doing a considerable amount of reading on the legislative action in regards to AirBnB. This past week there was some interesting data released from the SF Chronicle and AirBnB themselves. These data sets are being used to argue points of short-term rentals affects on housing markets in San Francisco.

AirBnB data: https://timedotcom.files.wordpress.com/2015/06/the-airbnb-community-in-sf-june-8-2015.pdf

SF Chronicle data: http://www.sfchronicle.com/business/item/Window-into-Airbnb-s-hidden-impact-on-S-F-30110.php

These analyses inspired me to do my own amateur research. I conducted a short study of AirBnB rentals available in Kona, HI. I searched as a potential guest for a one night stay, any property type, priced less than $100, with no specific date. I then used the first 50 results for my data set. My main interest was to see how hosts were presenting the tax to guests, given that the AirBnB system doesn't provide any method to include the tax in their pricing system for Hawaii rentals. I wasn't surprised to find that the majority of listings make no mention of the tax. This isn't to say that they aren't paying the taxes to the state. But one must wonder!

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33 of the 50 listings had no talk of tax anywhere in their listing. One listing for $49 a night with 64 reviews was one of those listings that made no mention of the tax. AirBnB will take $2 from that $49, and with the host obligated to pay $6.30 in tax (13.45%), their $49 listing turns into $40 in gross proceeds. It sounds dubious that they would be paying the tax in with their pricing. But it is possible. Why would these 33 listings not mention tax is included in their price if it indeed is.

13 of the 50 listings, or 26%, mention the tax as being included in the listing price. Good for AirBnB - as they make a commission as a percentage of the listing price. Meaning AirBnB is collecting commissions on the taxes. Is this AirBnBs reason to not provide a method for hosts to itemize taxes in their pricing? It could be, but I believe the reason is more the issue of AirBnB acknowledging they are operating in an unsettled regulatory environment.

In the minority of listings, hosts chose the most logical solution to this dilemma, to collect the taxes from the guests in cash. Those hosts indicating that they would collect the taxes upon arrival numbered 4 out of the 50 listings, or 8%. I say this is the most logical, because it follows the local laws, and it doesn't essentially charge the guest AirBnBs commission on the tax. Although perhaps the most logical solution, it still is technically against the AirBnB terms of service to accept any payments in cash. I also think it a downright silly hassle to have to conduct a cash transaction for a 21st century technology based service.

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Another Interesting tidbit I discovered in my search is that AirBnB provides a method to input a hosts Hawaii tax permit number. Talk about counter-intuitive. This option is locally specific, it isn't available in all cities to input a tax number. A host in Kona can input their tax ID into their listing but has no means of collecting the tax other then in a side cash deal? In the table below I have allotted for a row that shows if the listing includes a permit number. Our of the 50 listings I looked at only 7, or 14% displayed a permit number with their listing. I am baffled, why would AirBnB acknowledge the permit requirement but provide no method for hosts to collect the taxes?

The 50 listings I looked at had a combined 2345 reviews, an average of 46.9 per. Based on their default listing price they potentially have generated $174,000 in bookings. At 13.45% that is a potential $23,403 in taxes for the state of Hawaii for these 50 listings alone. There are 2850 listings in Hawaii, and the median listing price is over $100 whereas my study had the median listing price of $80. Making a very rough estimate - with nearly 3k listings in Hawaii, the state stands to collect nearly $2 million in taxes far on AirBnB. That number is based on stays that included a review, while many guests don't leave a review. I am certain the state of Hawaii would like a clear solution for this problem. And I also believe the AirBnB hosts of Hawaii would like to see an across the board resolution as well.

In my mind there is an easy solution this messy problem and it falls on AirBnBs shoulders. AirBnB should

a) Ideally include the taxes as a line item in the pricing to be charged to guests, and pay the taxes to the state for hosts. They currently do this in less then 10 cities in the world. OR

b) At the least provide hosts a tax field to charge guests that does not have AirBnBs commissions tacked onto it.

With these solutions hosts can focus more on hosting then worrying about collecting taxes in cash or including them in their price where lower priced competitors are possibly not paying. It is my hope that AirBnB will resolve these issues, not just in Hawaii, but around the world. And I hope they will do it soon!
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