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  1. 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!
    KonaCoconutz likes this.
  2. There are a lot of different ways people are using AirBnB to host guests. Some hosting styles align with AirBnB’s stated purpose, others less so. While some fall closer on the spectrum of playing nicely with city laws, others veer more towards messy legal quandaries. This article summarizes the different types of AirBnB hosts.

    LA Times recently called one emerging segment of AirBnB properties "rogue hotels". This term feels appropriate for the types of listings operated by those intending to turn a profit. It has become apparent as regulations are adopted, and with subsequent blowbacks, that there is a differentiation being generated between those hosts who are in it for financial gain and those that enjoy hosting guests and are looking to subsidize living costs.

    As new laws are being passed, an ongoing debate is the distinction between owner-occupied properties and those that are not. In New York State, rentals have been restricted to a length of 30 days or more, unless the host is present. Several reports have shown that this law is ineffective and plenty of hosts are maintaining listings on AirBnB that are available for less than 30 days without the host present in the home. In May, Santa Monica adopted a similar policy that permits short-term hosting when the hosts are present. Similarly, San Francisco passed legislation that allows hosts to rent their space as long as they are there 75% of the year, which only allows for 90 days or less of listing an accommodation as an "entire place".

    An article published by Forbes in October last year detailed some entrepreneurial action taking place on AirBnB in New York City:

    "A small group of power users made enormous sums of money running listings on Airbnb. Only 6 percent of hosts ran these large-scale operations but collected 37 percent of all the revenue. More than 100 users rented out 10 or more different apartments regularly through Airbnb. Together, they pulled in $59.4 million in revenue....Airbnb’s most prolific host in New York made $6.8 million running 272 listings."
    http://www.forbes.com/sites/ellenhu...-airbnb-says-most-of-its-rentals-are-illegal/

    These numbers directly clash with the brand AirBnB is striving to portray. AirBnB has unveiled its service with the conceptual notion of staying with a new friend. The marketing department recently released a TV commercial internationally. The narration in the advertisement is a thank you letter from a woman using AirBnB for the first time to travel the world.

    "Then I met your friends... almost like family... I wanted to thank you for sharing your world with me."

    A closer look into the types of AirBnB listings reveals there are three options: shared room, private room, and entire place. In every major market in the US the entire home listings outnumber the combined number of shared and private room listings. In some markets like Los Angeles, entire place offerings compromise upwards of 75% of the listings. Of course, entire home rentals on AirBnB do include hosts that are renting their home as an entire place listing while they are away. But they also include properties where the host never occupies the property, and those where the host is also not the owner.

    Here are the possible hosting scenarios:

    • Rent out space in an owner occupied owned home (this is what I do): I think this is the image that AirBnB is going for. Staying with a local in their home.
    • Rent out space in a lessee-occupied rented home. A lot of hosts are renters themselves. It is necessary that a host has approval from the landlord to sublet for AirBnB. There should be written consent. Most rental property leases have conditions that bar tenants from subletting. Despite this, many people host on AirBnB without the consent of the property owner.
    • Buying properties for the purpose of a short-term rental: There is a wave of hosts who are seeing AirBnB as a lifestyle, and even in some cases a career opportunity. With the right research into demand, pricing, and costs it is possible a host could buy a property with the intent of renting it on AirBnB. The problem I see with this, is that the average home loan in the US is for 30 years and this industry is just beginning to evolve. Regulations, competition, and industry change could all turn this plan into a financial disaster. Getting a home loan for business purposes and with the assumption of the home generating income is risky business.
    • Lastly, there are short-term rental managers who are using AirBnB to promote properties that already conform to existing regulatory guidelines. You can find hotels, motels, and hostels that advertise on AirBnB, as well as the occasional campsite, rv, or boat. There are also a good number of traditional vacation rentals that follow city rules. These listings use AirBnB as an additional venue of advertising for their properties.

    Those who are trying to make the most money are likely to pursue multiple combinations of these methods. However, as regulations come into place these entrepreneurs might find that their plan of having a short-term rental business is no longer viable. It is also apparent that this will be an ongoing hot topic given how AirBnB’s business model throws a wrench into existing laws regarding private and commercial property globally.