Rhode Island’s new tax on short-term residence rentals, commonly known as the Airbnb tax, has generated less revenue for the state than expected this year. While it was intended to raise between $2 million and $3 million by the end of the first quarter of the fiscal year, the expanded sales tax only raised between $60,000 and $100,000 in that time, Tax Administrator David Sullivan told the Providence Journal.
The bill, passed June 30 as a part of the state’s budget, aims to place a hotel tax on all previously untaxed short term rentals, including rentals in private homes through hosting sites such as Airbnb.
The revenue has not met the estimates for a number of reasons, said Neil Downing, chief revenue agent for the Rhode Island Division of Taxation.
The revenue estimate was $7.1 million for the entire fiscal year, which does not end until June 30, and the $60,000 to $100,000 figure only includes taxes paid from July through September.
Scott MacKay, a political analyst for Rhode Island Public Radio, said the original estimate may be inaccurate because it was essentially “guesswork — the state had no experience with it in the past.”
Another reason the estimate missed the mark is that the Division of Taxation determined that hosting platforms or private renters with signed rental bills before the law took effect July 1 would be exempt from the tax, MacKay said.
Additionally, whenever policymakers introduce a new tax or extend a tax to a new area, “there is always a period of time spent educating consumers about the provisions,” Downing said. As a result, many people lack awareness of the new tax and therefore have not yet filed it. Because the tax is primarily applied to small inns or private individuals renting extra space on a short tem basis, it is difficult to reach everyone, Downing said.
While tax administrators have “gone out to accountants, bookkeepers, real estate professionals and others, we’re never going to be able to reach everybody who is going to rent out a room in their house or apartment,” Downing said.
“Airbnb and the big players have been helpful” in tax collection, but for small businesses it is less simple, MacKay said.
Individuals “may have to hire a professional to file the taxes and fill out a lot of complicated forms,” said Rep. Robert Jacquard, D-Cranston.
“It’s a real burden on someone who is just trying to supplement their income these days,” Jacquard, who was initially opposed to the tax, said.
Downing said he anticipates more revenue will be generated later in the year as more small businesses become aware of the new tax. In the meantime, the state is “deploying tools to encourage compliance with the tax on short-term rentals,” he said.
Though the tax will raise prices for users of Airbnb and other hosting sites, Jacquard said it will not negatively affect the number of people who use the services. Hosting sites have a market for people with a specific budget that is not likely to change, he said.
Victor Alvarez ’19 said that while he has heard of students on campus using Airbnb in their travels, the service typically attracts groups of people rather than individuals. For individual nrentals, Alvarez said he prefers hostels because they tend to be cheaper.
“Prices are already high for Airbnb, so people who are using it probably won’t change because of the tax anyways,” he added.
While analysts believe more tax revenue will come in, Jacquard said if the tax “is something that is not going to bring in much money, then it will increase the possibility of it being revisited or eliminated in the future.”
