With increasing usage in Providence, the short-term rental website Airbnb has garnered support from some residents who praise the site for expanding housing and supplementary income opportunities. But the website’s rising popularity has also led local authorities to consider how to enforce local tax payments by Airbnb users.
Airbnb has facilitated peer-to-peer transactions for more than 430 rentals in the Providence area, allowing hosts to rent out spare bedrooms or entire apartments and taking a commission for performing the service, according to the company’s website.
Founded in 2008 by Rhode Island School of Design alums Brian Chesky and Joe Gebbia, Airbnb started as the pair’s attempt to leverage their empty living room into rent money for their San Francisco, California loft. Since then, the company has expanded to 34,000 cities in over 190 countries, according to the company’s website.
But the hospitality industry and some local lawmakers have called for Rhode Island to close the tax loophole that allows Airbnb’s users to pay lower lodging taxes than visitors at traditional hotels. Under Rhode Island law, short-term rental properties with two or fewer rooms are not subjected to the state lodging tax, a discrepancy that some say causes a loss of revenue for the state, given the rising usage of Airbnb.
A ‘rising tide’ for the city?
While rental services like Airbnb may take away business from “traditional lodging properties,” they may also bring in visitors who would otherwise not have access to the city, said Martha Sheridan, president and CEO of the Providence Warwick Convention and Visitors Bureau. Citing Providence’s ranking as America’s favorite city by Travel and Leisure magazine this month, as well as the city’s recently rising hotel occupancy rates on weekend nights, Sheridan said she believes Airbnb allows the city to accommodate guests who otherwise might have nowhere to stay when hotels are filled.
“A rising tide floats all boats,” Sheridan said.
Even if they choose not to stay in traditional hotels, visitors who use Airbnb bring business to the city in other ways, Sheridan said. “They’re shopping in our retail outlets, they’re dining in our restaurants and they’re experiencing our community. At the end of the day, their impact is still very important to us.”
As Providence adapts to the growing short-term rental business, Rhode Island continues to debate whether to establish an occupancy tax on Airbnb users, an issue which has been a point of friction in larger cities where Airbnb has gained ground.
Rhode Island’s occupancy tax, which requires that any property renting out more than two rooms must collect a 7 percent sales tax and a 6 percent lodging tax, does not affect most Airbnb properties, whereas most hotels are forced to comply with the law.
“There might be something to be said for leveling the playing field, and modifying the statute, but that’s for lawmakers to take up,” Sheridan said.
The state’s 13 percent occupancy tax is the third-highest in the country, according to a study by consulting firm HVS Global Hospital Services, though Providence’s rate is not among the highest nationwide. In 2012, Gov. Lincoln Chafee ’75 P’14 P’17 drafted a proposal that would have extended the occupancy tax to all short-term rentals, but the measure failed to pass the General Assembly.
Host perspectives
When writer Jennifer Jane visited Providence before moving into the city in August, she rented Airbnb-affiliated spaces to gain multiple perspectives on the city. “Airbnb was very helpful in that regard, coming as a guest to get to know places,” she said, adding that staying with local residents helped her learn about Providence.
Weeks after moving to the city, Jane — who has also used Airbnb while travelling to London, Paris and Montreal — began using the website to rent out part of her home as a host.
“I always worked two jobs as a single mom, and having this income enables me to not have to work two jobs, which is great because I’m writing a book at night in addition to my paid job,” she said.
Richard Foley, who moved to Providence with his family last year, said the added income from finding short-term tenants via Airbnb was a strong incentive, especially given high taxes in the city. The Foley family chose to use Airbnb rather than renting to a long-term tenant to avoid the stress of a more complex agreement and to make use of the flexibility of choosing which rooms to rent out.
The website allows guests and hosts to browse each other’s personal profiles and to communicate via message before making any financial agreements, which was how Foley and his family found their first guest, he said.
“Our personalities matched,” Foley said, adding that his family still keeps in touch with its first guest.
While Foley said he has heard of hosts having bad experiences with guests, he said reviews of hosts and guests on the website create a sense of accountability for both parties. “Everybody has to be on their best behaviors.”
National trends
Airbnb has made agreements with local governments to directly collect and remit local taxes in Multnomah County, Oregon, and San Francisco, where it started collecting a 14 percent transient occupancy tax on short-term lodgers Oct. 1, according to the company’s website.
But the company has yet to establish such plans with other municipal governments across the country.
Housing concerns about Airbnb have often emerged in larger cities with more expensive rents and higher occupancy rates than in Providence, Sheridan said.
In recent years, tensions have arisen between Airbnb and the government of New York City, where price gouging by landlords using Airbnb to charge nightly rent reduces opportunities for permanent affordable housing, New York Magazine reported.
Other cities have moved to require all lodging providers to collect an occupancy tax, Sheridan said. “There’s pretty much a tidal wave across the country.”
Airbnb has not made a tax agreement with Providence officials, she added.
But City Councilman Samuel Zurier said signed agreements between Airbnb and municipal governments “might provide a model for other cities like Providence.”
Moving forward
“Just like what’s happening across the country, this community will eventually seek to level that playing field … and see that occupancy tax is collected on all properties” Sheridan said.
Research into how to move forward on the occupancy tax is ongoing, said Dale Venturini, CEO and president of the Rhode Island Hospitality Association, the major lobbying group for the state’s hotels.
“There is going to be a move to tax (Airbnb users), and I know that we’ve been having these discussions for these past couple of months,” Venturini said, adding that the issue is “at the top of the state agenda” as peer-to-peer rentals become a lasting fixture in the hospitality industry.
But tax “enforcement is a very cumbersome process,” Zurier said. “The state loses millions of dollars every year because the taxes on the books are unenforceable and uncollectable,” he said, citing difficulties in past attempts to make agreements with neighboring states on sales tax collections.
“I don’t have a problem with the concept (of Airbnb). It’s just that if other businesses providing the same service are, in fact, registered with the city, and regulated and paying taxes, then you would want there to be a level playing field,” Zurier added.
A previous version of this article failed to mention that though Rhode Island has the third-highest occupancy tax rate in the nation, overall rates in Providence are lower than in many other cities that impose additional levies.
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