Morning Fizz

Surprise Testimony at City Hall: Please Tax Us

Airbnb hosts tell council to tax them rather than regulating them out of business.

By Josh Feit June 16, 2016

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The city council’s affordable housing and neighborhood committee held a hearing yesterday on mayor Ed Murray and Tim Burgess’s proposal to regulate Airbnb and similar short-term online rentals where people rent out rooms for short-term stays. The proposal focuses on rentals in non-primary residences—rentals where the host lives somewhere else and rents out rooms at a secondary property. Airbnb says only 13 percent of their 2,900 Seattle hosts rent secondary property—or about 300 units.

Those hosts, who said the new regulations would put many short-term rental firms out of business, showed up in force yesterday, packing the room and testifying against the proposal on the grounds that it would decimate a vital source of income that’s helping them pay mortgages, send kids to school, and cover the bills. One West Seattle resident who rents out a secondary property next door to his house on the short-term market said “my job’s been phased out” and the rental “is the only way we can go forward.”

Murray’s and Burgess’s proposed regulation would cap the amount of time secondary residences could be rented out at 90 days. They say non-primary residence rentals are taking long-term rentals off the market and exacerbating the affordable housing crisis; they acknowledge that the number of units makes up a minuscule percentage of Seattle’s housing stock (300 out of more than 320,000), but argue that every unit helps. The short-term rental hosts argued, conversely, that their small business operations were creating jobs and bringing tourists and dollars to the city; Airbnb says they generated $180 million in economic activity for Seattle in 2015. Additionally, one opponent of the regulations named Andre Zita, who owns four off-site short-term rentals, testified that the city was operating under a false premise because Airbnb "inventory has never been a candidate for affordable housing in the first place." He concluded: "Even if we had to revert to long-term [rentals], it'd still be the high end of any kind of investment."

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Murray policy staffer David Mendoza, who presented to the council committee after the public testimony, said that the 90-day limit was intended to incentivize people to shift from short-term rentals to long-term rentals. “Everyone would make more money with a long-term rental than renting under 90 days,” he said. Council member Lisa Herbold drew sustained applause, though, when she pointed out that not everyone wants to become a landlord, which is a much different responsibility than running an Airbnb. (And as some short-term rental businesses who testified yesterday pointed out, they can’t simply switch over because their business model is based on short-term visits for people who are getting cancer treatment in town, for example, or they're hosting the patient's families. Indeed, one person suggested that Ronald McDonald House would be impacted by the bill.)

The opponents of the proposal had a surprising alternate recommendation for the city: Make us pay more taxes. “I’m here to ask you something you probably don’t hear very often,” Courtney Kaylor, an attorney who represents Sea to Sky Rentals, told the council “Please tax us.”  

Short-term rental operators are already supposed to pay taxes and get business licenses, but traditional hotels pay an extra seven percent convention center tax on top of the 9.6 percent sales tax that both hotels and Airbnb-style house sharing rental operators pay.

This suggestion certainly jibes with the mayor’s original housing affordability and livability agenda (HALA). Under the HALA report’s section on “New and Expanded Resources” for funding affordable housing, the report specifically identifies Airbnb.

Meanwhile, the HALA report is silent about converting Airbnbs to long-term rentals as a strategy, but rather, it explicitly recommends taxing Airbnb.  

The city should, in conjunction with the county and state governments, explore regulating and collecting hotel taxes from short-term rentals such as Airbnb or VRBO. Under such an approach, short-term rentals would collect and remit taxes to the county that originate directly from guests as an extra charge on their bill, the same way that hotels collect them…The city should commit to dedicating these taxes to affordable housing.

Council member Rob Johnson picked up on the tax pitch. Johnson asked Mendoza why Airbnb wasn’t paying the seven percent convention center tax that traditional hotels pay? The answer: You have to have 60-plus rooms to be hit with the extra tax. Johnson posited that Airbnb’s platform was much like a hotel and would easily meet that 60-room hotel threshold. “It’s strange to me that we wouldn’t be collecting that [extra seven percent tax],” Johnson said. After the hearing, Johnson told me specifically he’d like to explore using that tax for affordable housing. “That’s the simplest answer,” he said.

Council member Mike O’Brien took it further and, citing the testimony from people who wanted to be taxed, asked if the city could also create a brand new tax to pay for affordable housing. Mendoza told O’Brien the city didn’t have that authority.

O’Brien drew cheers when he quipped back: “We can ask all these folks in the audience to come with us to Olympia.”

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