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AirbnbAgreementswithStateandLocalTaxAgencies
AFormulaforUnderminingTaxFairness,TransparencyandtheRuleofLaw
DanR.Bucks
March2017
NoteontheAuthorandThisReportDanBuckshasservedasDirectoroftheMontanaDepartmentofRevenue(2005-2013)andasExecutiveDirectoroftheMultistateTaxCommission(1988-2004).PriortothatheheldexecutivepositionsinbothMontanaandSouthDakotastategovernmentsbackto1971.HecurrentlyservesasarevenuepolicyandadministrationconsultantandisacontributortoStateTaxNotes.ThisreportrepresentshisexpertandindependentevaluationoftheAirbnbtaxagreementswithstateandlocalagencies.Theanalysis,judgmentsandconclusionsofthisresearchdocumentareentirelytheworkoftheauthor.Mr.BuckshaspreparedthisreportwithsupportfromtheAmericanHotelandLodgingAssociation.
TableofContents
SummaryofReport..............................................................................................................................1
SectionA.AirbnbandNeighborhoods:AnIntroductiontotheReport..................................................6
SectionB.AirbnbAgreements:ComparisonwithVoluntaryDisclosureAgreements.............................8
1. WHATARETHEAIRBNBDOCUMENTS?......................................................................................................82. INTRODUCTIONTODESCRIPTIONANDANALYSISOFAGREEMENTS..................................................................93. VOLUNTARYDISCLOSUREAGREEMENTS...................................................................................................114. AIRBNBAGREEMENTS...........................................................................................................................13
a. IntroductiontoAgreementsandTheirProvisions....................................................................13b. PerplexingStructureandScopeofAgreements.......................................................................17c. TheFactsNotEstablished—AFailureofBasicAdministrativePractice...................................19d. AccountabilityLost:AirbnbGainsControlofProcess—OperatorResponsibilityDisappears...21e. LessonsfromtheVW“Dieselgate”Scandal..............................................................................24f. PreferentialAmnestyforAirbnbandLodgingOperators.........................................................26g. MultipleLayersofSecrecy........................................................................................................27h. UnjustifiedConfidentialityofAirbnbAgreements....................................................................29i. SummaryofComparisonsofAgreements................................................................................30
5. WHYALLTHESECRECYINTHEAIRBNBAGREEMENTS?...............................................................................31
SectionC.ThePublicImpactoftheAirbnbAgreements......................................................................34
1. TAXPOLICY:FAIRNESSANDALEVELPLAYINGFIELD...................................................................................34a. UnequalTreatmentofCompliantTaxpayersComparedtoAirbnbandItsOperators.............34b. UnfairCompetitionforTraditionalLodgingFacilities...............................................................35c. UnfairCompetitionforCommunityResidents..........................................................................35
2. DEMOCRATICGOVERNANCE:INTEGRITY,PUBLICTRANSPARENCY,ANDIMPROPERFAVORITISM........................35a. Integrity....................................................................................................................................35b. TransparencyandPublicParticipation.....................................................................................36c. DotheAgreementsViolateAgencyAuthoritythroughFavoritism?.........................................37
3. UNDERMININGTHERULEOFLAW...........................................................................................................39
SectionD.CommentaryonShort-TermRentalLegislation..................................................................41
SectionE.AchievingEquityandIntegrityinShort-TermRentalTaxation............................................44
1. ACTIONBYTAXAGENCIES.....................................................................................................................44a. SupportforPositiveLegislation................................................................................................44b. AComprehensiveTaxComplianceProgram.............................................................................45c. PublicParticipationandReevaluationbyTaxAgencieswithAirbnbAgreements...................46
2. ACTIONBYSTATELEGISLATURES............................................................................................................473. ACTIONBYCOMMUNITYANDBUSINESSORGANIZATIONS...........................................................................47
Appendix.RatingtheTaxAgreements................................................................................................49
ListofTables
Table1.AirbnbAgreementsbyState—ListedAlphabetically..............................................................13
Table2.ProblematicProvisionsofAirbnbAgreementsbyJurisdiction...............................................16
Table3.ComparisonofTaxpayerResponsibilitiesandBenefitsforVoluntaryDisclosureAgreements
andAirbnbAgreements.................................................................................................................18-19
Table4.SecrecyProvisionsinAirbnbAgreements..............................................................................27
Table5.RatingsofAirbnbAgreementsCombinedwithSupplementalMeasures................................50
GlossaryofTerms
Term DefinitionAirbnbagreements AnagreementbetweenAirbnbandastateorlocalgovernment,labeled
“VoluntaryCollectionAgreement,”thatpertainstolodgingtaxesamongothermatters.Becauseofthenatureandextentoftheircontent,theyarereferredtohereinsimplyas“Airbnbagreements.”
Commercial-styleshort-termrentalorlodging
Ashort-termresidentialrentalorlodgingfacilityinwhichtheoperatordoesnotresideand(a)thatisofferedonafull-timebasisyear-roundorduringlongseasons,or(b)isamulti-unitoperationwithtwoormoreunits.
Home-sharing Ashort-termresidentialrentalorlodgingfacilityinwhichtheoperatordoes
resideandthatistypicallyofferedonanoccasionalbasistooccupants. Lodgingoperator Anownerorlong-termlesseewhooffersandrentsashort-termresidential
rentalorlodgingfacilitytomembersofthepublic.Airbnbreferstolodgingoperatorsas“hosts”intheiragreements,but“lodgingoperator”istheobjectiveterminbusinessandtaxcontexts.
Lodgingoperatoridentificationservice
Asoftwarebasedservicethatidentifiesandlocateslodgingoperatorstoassistgovernmentswithlodgingtaxandregulatorycompliance.Atleastoneserviceexists,andothersmayemerge.
Occupant Apersonwhorentsashort-termrentalfromalodgingoperator.Airbnbrefers
tothesepersonsas“guests”intheiragreements,but“occupant”istheobjectiveterminbusinessandtaxcontexts.
Voluntarydisclosureagreements
Agreementsbetweenastateandpreviouslynon-complianttaxpayerstobringthemintocompliancewithtaxlaws.Theytypicallyinvolvethepaymentofsomeyearsofbacktaxeswithinterest,butnopenaltiesandacommitmenttopaytaxesprospectively,subjecttonormalrequirementsthatapplytoalltaxpayers.TheMultistateTaxCommission(MTC)coordinatessuchagreementsformultistatetaxpayersworkingwithseveralstatesatonce.Individualstatesalsoofferagreementsforresidents,in-statebusinessesandmultistatebusinessespreferringtoworkwiththestatedirectly.
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SummaryofReport
SubjectThisreportevaluatestwelvepubliclyreleasedagreementsthatAirbnbhasenteredwithstateorlocalgovernmentsthatdirectlyaddresslodgingtaxes,buthaveimpactsonotherstateandlocallaws.Theagreementsarefromacrossthenationandhaveeffectivedatesrangingfrom2014into2017.Becauseoftheirvariationsingeographyandtime,thereportassumesthatthese12agreementsarereasonablyrepresentativeofthelargerbodyofapproximately200agreementsthatAirbnbhassigned.ThelargemajorityofAirbnbagreementsarebeingheldsecretfromthepublic.MethodologyTheevaluationisconductedbyexaminingthelanguageoftheAirbnbagreementsinrelationtovoluntarydisclosuretaxagreements,standardsofpublicadministrationanddemocraticgovernance,andcompliancewiththelaw.Inonecircumstance,thereportevaluatesa“sidearrangement”describedinaninterviewwithataxagency.Focusingonthelanguageoftheagreementsprovidesadefiniteandconcretebasisforevaluation.Criticsmayarguethatthisapproachdoesnottakeaccountofverbalunderstandingsorothervariationsfromwrittenlanguageusedtoavoidproblemscreatedbythetextoftheagreements.Iftheagreementsareadministereddifferentlyfromtheirtext,thatlanguageshouldbeamendedaccordingly.ContextAirbnb,foundedin2008,provideslodgingbysupportingandmarketinganetworkoflodgingfacilities.Airbnbstatesthatitoffers3,000,000listingsin65,000citiesin191countries.Airbnbbeganwithandcontinuestocultivateanimageofoffering“home-sharing”rentals—lodginginpeople’shomeswheretheownersorlong-termlesseesreside.Increasingly,however,Airbnb’sgrowthisdependenton“commercial-style”operationswheretheholderofthepropertydoesnotresideinit,butoperatesalodgingbusinessbasedinaseparatehomeoroneormoreapartmentsavailablefortransientrentalyear-round.“Home-sharing”isoftenlegalunderlocalzoningandhousinglaws.“Commercial-style”transientresidentialrentalsoftenviolatezoningandhousinglaws.ImmediateActionNeededThereportdetailsmajorproblemsthattheAirbnbagreementscreateintermsof:
• UnjustifiedfavoritismforAirbnbanditslodgingoperators,• ImproperlycedingtaxauthoritytoAirbnb,• Grantinghugebenefitstothird-partieswhohavenotsignedtheagreements,• Unfairtreatmentofothertaxpayers,businessesandcitizens,• Violatingstandardsoftransparencyanddemocraticgovernance,• Underminingcompliancewithtaxandregulatorylaws,and• Spreadingundesirableprecedentsthroughstatelawspatternedaftertheagreements.
Becauseoftheseriousproblemscreatedbytheagreements,thereportrecommendsthattaxagenciesstopsigningAirbnbagreementsandopposelegislationthatwouldincorporatethosefeaturesinlaw.Agenciesthathavesignedthoseagreementsshouldreevalutethemandconsiderterminaton.Asabetteralternative,agenciesshouldseeklegislationupdatinglodgingtaxlawstoensurepropercomplianceandundertakeacomprehensivelodgingtaxcomplianceprogram.
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FindingsandImpactsMajorfindingsinthereportinclude:
• TheAirbnbagreementsaremorethantaxagreements.Theyare,infact,wide-rangingspecialrulesbenefittingAirbnbanditslodgingoperators.Thereisnoproprietaryorconfidentialinformationintheseagreements(oranycomparableonesthathavenotbeenreleased)thatjustifywithholdingthemfromthepublic.Thepoliciesintheseagreementsshouldbetreatedasrulessubjecttopublicdisclosure,scrutinyandparticipation.
• Thestructureoftheseagreementsisperplexingandshouldbereviewedforlegality.Theagreementsprovidemajorbenefitstothird-parties,especiallylodgingoperators,whoarenotsignatoriesoftheagreementanddonotcommittoanyperformanceinexchangeforbenefitsreceived.
• TheAirbnbagreementsdonotguaranteeaccountabilityfortheproperpaymentoflodgingtaxesbecausetaxagenciescedesubstantialcontrolofthepaymentandauditprocessestoAirbnb.Theagreementsprovideashieldofsecrecyforlodgingoperatorsthatpreventstheirdiscoverybypublicagenciesandcreatesadefactotaxandregulatoryhavenforthoseoperators.
• TheAirbnbagreementsprovideoverlygenerousandunjustifiedbenefitstoAirbnbanditslodgingoperatorsandoccupantsascomparedtothebenefitsprovidedtaxpayersenteringvoluntarydisclosureagreements.Inaccordancewithobservationthat“badpracticesdriveoutgoodones,”thenegativeprecedentsintheAirbnbagreementsthreatentounderminetheuseofvoluntarydisclosureagreementsthathaveyieldedlargerevenue,taxequityandcompliancebenefits.
• Byagreeingtoprospectivelodgingtaxpayments,theaccuracyofwhichcannotbefullyverified,Airbnb“purchases”fromtaxagenciesashieldofsecrecythatthey“resell”tolodgingoperatorstoattractmoreownersorlong-termlesseesofresidentialpropertytoconductAirbnblodgingbusinesses.Thatsecrecyismostvaluableforthecommercial-stylelodgingfacilitiesthatnowfuelAirbnb’sgrowth,butthatarealsomostlikelytoviolatezoningandhousinglaws.Thus,theagreementsfacilitateunimpededandoftenillegalconversionsofresidentialpropertyintocommercial-stylelodgingfacilities.Taxagenciessigningtheseagreementsenablethisprocess.
• TheAirbnbagreements,becauseoftheunjustifiedbenefitsprovided,areunfairtotaxpayerswhofileandpaytheirtaxesdiligently.TheagreementsalsoallowAirbnblodgingtocompeteunfairlywithtraditionallodgingfacilities.Finally,theagreementsprovideunfaircompetitionforcommunityresidentsandcitizensseekingaplacetolive.
• TheAirbnbagreementsconflictwithstandardsofdemocraticgovernancedesignedtoensureintegrityinpublicpolicyandcivilsociety.Theyfailtoconformtorequirementsoftransparencyandpublicparticipationindecision-making.TheagreementsalsoviolateagencyauthoritythroughfavoritismofferedAirbnbanditslodgingoperatorsandoccupants.
• Intermsoffavoritism,taxagenciesshouldbeespeciallyconcernedaboutsuspendingexchangeofinformationprocessesrelatedtoAirbnbanditslodgingoperators.Beyondquestionsoflegality,agenciesshouldconsidertheimpactofwithholdinginformationfromotheragenciesintermsofadverselyaffectingthecooperationtheyreceivefromotheragenciesinthefuture—cooperationthatisimportanttopropertaxadministrationandbroaderenforcementofotherlaws.
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• TheAirbnbagreementsunderminetheruleoflaw.Theagreementscreaterisksofreducedcompliancewithlodgingtaxlaws,withstateandlocaltaxlawsmoregenerally,andwithlocallanduse,housingandbuildingsafetylaws.
• TheAirbnbagreementshaveproducedlegislationinArizonaandconsiderationofsimilaractioninotherstates.ThelawundermineslocallanduseandzoningregulationsthatmightaffectAirbnbbyseverelynarrowinglocalregulatoryauthority.Thelawmakesthenegativetaxprecedentsintheagreementsvisibleandcreatesincentivesforothertaxpayerstolobbyforthosesamebenefits.ThelawcodifiestheanonymousdatareportingthatunderminesAirbnb’staxaccountability.ItalsoblockstheexchangeofAirbnbinformationwiththeIRSandtaxagenciesofotherstates.Fortheexchangeofinformationthatdoesremain,thelawrequiresnotificationofAirbnbofpotentialexchangesandgivesitthepowertoreachintothetaxagencyandblockthatexchangeofinformation.
• SigningAirbnbagreementsofthetypecoveredhereintroducesharmfulpracticesintothepubliclifeofstatesandcommunities.LegislationincorporatingAirbnb’sunjustifiedprivilegesintolawonlyspreadsthedamagefurther.Ifthesepracticesareexpandedinlawtootherbusinesses,theconsequencesforstatesandlocalitiesbecomesevere.
Recommendations
• Asnoted,thereportrecommendsthatagenciesstopsigningagreementslikethosecoveredbythisreportandopposeanylegislationthatwouldenactthoseprovisionsintolaw.Agencieswithexistingagreementsshouldconsiderterminatingthem.
• Taxagenciesshouldseeklegislationupdatinglodgingtaxlawstorequireregistration,reportingandcollectionandpaymentbyonlinebookingcompaniesandlodgingoperators,withasinglepaymentprocesscoordinatedasitisforsalestaxesbetweenwholesalers(here,lodgingoperators)andretailers(onlinebookingcompanies).Giventhecommunityandneighborhoodimpactsofshort-termrentals,thelegislationshouldincludeapublicregistryoflodgingfacilitiesabovespecificthresholds.Thelegislationshouldstrengthen,wherenecessary,exchangeofinformationforlodgingtaxesgiventhesignificanceofthatinformationforregulatoryenforcement.
• Alternatively,ifnothingelseisdone,legislationshouldbeenactedthatrequiresonlinebookingcompaniestoprovidethenamesandlocationsoflodgingoperatorstotaxagencies.
• Taxagenciesshouldundertakeacomprehensivecomplianceprogramunderexistinglawwiththreeelements:(a)joint,multistateauditsofonlinebookingcompaniesforrelevanttaxestodeterminewhetherthecompanieshavealegaldutytofile,collectandpaytaxes,(b)jointorindividualcontractswithalodgingprovideridentificationservice,atleastoneofwhichcurrentlyexists(HostCompliance),and(c)acampaigntooffervoluntarydisclosureagreementstolodgingproviderstocomeintocompliancewithlodgingtaxlaws.
• Taxagencieswithexistingagreementsshouldpubliclyreleasetheagreementstotheextentthattheyincludenoconfidentialorproprietaryinformation.Ifanysuchconfidentialinformationispresent,thatinformationshouldberedactedandthenon-sensitivematerialconstitutingpoliciesshouldbereleasedandsubjecttoapublicrule-makingprocessasapartofareconsiderationprocess.
• Legislaturesshouldenactthelegislationdescribedabove.• Communityandbusinessorganizationsshouldundertakeconcertedanddetailedopen
recordsrequestsforthereleaseofAirbnbagreements,withredactionforanyconfidentialinformation.Thegroupsshouldbepreparedtoundertakefollow-uplegalactionifrequestsaredenied.
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• Whenagreementsarereleased,communityandbusinessgroupsshouldpetitionforanyprovisionsthatconstituterulestobesubjecttopublicrule-makingprocesses.Ifrule-makingdoesnotproceedonsuchmatters,follow-uplegalactionshouldbeconsidered.
• Thegroupsshouldactivelysupportthelegislativeandadministrativeactionsdescribedabove.
ThereismuchdetailinthisreportconcerningextensiveproblemsoftheAirbnb
agreements.However,thecoreproblemwiththeseagreementsissimplytoomuchsecrecy.Secrecyallowslodgingoperatorstorunhotelsthatviolatezoninglaws,avoidpublichealthandsafetystandards,andreducethecurrenthousingsupplyforlong-termresidents.SecrecyallowsAirbnb,ifitdecidedtodoso,toavoidaccountabilityfortaxesandeventomakeill-gottengainsfromtaxcollection.Airbnbfirstcreatesthesecrecyproblembyhidinglodgingaddressesontheirwebsite,makingitdifficultforstateandlocalauthoritiestoidentifythefacilitiesandtheirowners.Airbnbthenoffersagreementsasasolution.Buttheagreementsonlymaketheproblemsworse.TheAirbnbagreementsextendsecrecyfurther,givingitanunfairadvantageinlodgingmarketsbyofferingataxandregulatoryshieldtoaffiliatedlodgingoperators. Thesolutiontosecrecyistoendit,notextendit,astoomanystatesandlocalitiesarehelpingAirbnbdothroughtheseagreements.Itisstandardpracticetorequiretransparencyforbusinessesoperatinginstatesandlocalities.Publicregistrationtodobusinessisacenturies-oldstapleoftaxation,regulationandlawenforcement.Itisabsurdtoallowanyonetooperatealodgingbusinessinaneighborhoodandnotregisterthatbusinessinapublicregistry.Itisworsetodenyzoningofficials,taxcollectors,policeofficersandfirefightersbasicinformationtheyneedtodotheirjobsregardingissuesrelatedtolodgingfacilities.Itisalsounacceptablethatlong-termresidentswilloftennotknowtheywillbelivingnextdoortotransienthousinginsteadofhavingneighborstowhomtheycanrelateandrely.Allthatneedstobedoneistorequirelodgingoperatorstoregistertheirbusinessespublicly—akintorequirementsforotherin-homebusinesses—andtorequireonlinebookingcompanieslikeAirbnbtoprovidealistofitsaffiliatedoperatorstostateandlocaltaxauthorities. ThesolutiontotaxsecrecyforAirbnbisequallysimple.RequireAirbnbtofiletaxreturnsbasedonrealdatainsteadofanonymousnumbersthatcouldbefactorfiction.Rejectauditrulesthatleaveauditorsstaringatalreadyfiledreturns,supportingschedulesandunverifiablesheetsofnumbers.RequireAirbnbtoprovideitsrealbooksandrecordsforauditorstoexaminejustthesameasallothertaxpayersarerequiredtodo.AnonymousdataandlockingupAirbnb’sbooksandrecordsinvitestaxabuses,evenallowingthecompany,ifitdecidedtodoso,tomakeprofitscharginggueststhefulltaxandpayingstateandlocalgovernmentslesseramounts.AllthatisnecessaryistoaskAirbnbtoplaybythesamerulesfortaxreporting,paymentandauditingthatapplytoeveryoneelse—andforstatesandlocalitiestoconductefficient,effectiveandfairaudits. Thereisathirdproblemofsecrecy.ToomanygovernmentsaresigningsecretagreementswithAirbnbthatare,intruth,theequivalentoflawsandrules.Agenciesshouldreleasetheseagreements,andifnotmembersofthepublicshouldchallengethissecrecyandrequesttheirrelease.Therulesshouldbebroughtintotheopenairandbrightsunshine—aslawsonpublicparticipationandstateconstitutionsrequire—sothepubliccanhaveasayonwhetherAirbnbgetsspecialruleswithspecialbenefitsorwhetheritwillbeaskedtofollowthesamerulesthatapplyto
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everyone.ThegovernmentsecrecyneedstoendasmuchasdoesthesecrecyforAirbnbanditscustomers.
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SectionA.AirbnbandNeighborhoods:AnIntroductiontotheReport
Wefancyourselvesoutlawswhileweshapelawsandconsiderourselvesdisruptivewithoutsufficientconsiderationforthepeopleandinstitutionswedisrupt.Wehavetodobetter,andwewill--AnilDash,a“technologist”commentingonthetechindustry,quotedbyKristaTippettontheradioshow,OnBeing,January12,2017.AnilDash’swordsareawelcomecorrectiontothetechnologyindustry’scontinuous
celebrationofits“disruptive”capacity.DisruptingoldindustriesthatemployedAmerica’soncethrivingmiddleclassisthetechindustry’sfavoredmodeofoperation.Itproceedsbyextracting,notall,butkeyelementsofthecraftknowledgepreviouslyspreadwidelyamongworkersandmanagersintheoldindustries—craftknowledgethatguidedtheiroperationsandsuccess.Thetechindustryextractsthatcraftknowledge,reformulatesandconcentratesitintocomputercode,andusingthatsoftwaredeploysnewenterprisesto“disrupt”oldindustries.“Displace”isanotherwordfortheprocess.Theknowledgefirstdevelopedintheoldindustriesisturnedagainsttheminanewform.
Theprocessofdisruptionthroughtechnologyhasconcentratedenormouswealthwiththe
techelite.Ithasalsocreatednewjobs,buttypicallyfewerthanthoselostandoftenclusteredinafewmetropolitanareas.Theprocesshasbeenlesskindtotheoldindustries’formerworkerswhosejobshavebeendisruptedaway.Tobefair,theworkers’problemsdonotcomesolelyfromtechnologicaldisruption—globalization(anothertechfavorite)andtaxandlabormarketpolicieshavealsoplayedarole.Buttechnologicaldisruptionisabigpartofthestory.Theresultscanbeseen,inpart,inthefortyyearsofstagnantorevendecliningrealincomesformiddleclasshouseholds.Theresultscanalsobeseeninthe“populist”angerarisinginthepastyearfromcommunitiesspreadacrossthenation—notablyafardistancefromtechcenters.
Airbnb,acompanyfoundedonlyeightyearsago,andotheronlinecompaniesofferingpeer-
topeermarketplacesforshort-termrentalcompaniesareinthebusinessofdisruptingthelodgingindustry.Airbnbisthepeer-to-peerleaderwith3,000,000listingsin65,000citiesand191countries.1Somewhatironically,thecompanypublicizesitselfashelpinghard-pressedmembersofthemiddleclassearnextraincomebyrentingsparespaceintheirhomesonanoccasionalbasistotravelers.Initsearlyyears,Airbnb’simagewaslikelyconsistentwithitsreality.Recentdata,though,suggeststhatimageisblurringintomythasarisingshareofitsrevenuecomesfromcommercial-styleoperationsinsteadofoccasionalhome-sharing.OnestudyofAirbnbbookingsin14majorcitiesindicatesthatfull-timeandmulti-unitoperationsaccountedfor40%ofAirbnb’srevenuefromOctober2014throughSeptember2015.2
ItisunderstandablethatatsomepointAirbnbandsimilarcompanieswouldreachtheouter
limitsofthenumberofpeoplewhosepersonalcircumstancesaresuchthattheywouldengageinhome-sharing.Toachievefurthergrowthandmarketshare,Airbnbismovingbeyondhome-sharingtolistingsofhousesandapartmentsoperatedascommerciallodgingbusinesses.
1“AboutUs-Airbnb,”Airbnb.com.RetrievedJanuary16,2017.2JohnW.O’NeillandYuxiaOuyang,“FromAirMattressestoUnregulatedBusiness:AnAnalysisoftheOtherSideofAirbnb,”PennStateUniversity,SchoolofHospitalityManagement,January2016.
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Theconversionofhousesandapartmentsnotoccupiedbytheirownersorlong-term
lesseesintoshort-termlodgingfacilitiescreatesmajorcommunitycontroversies.3Chargesariseover“illegalhotels”—chargesthataretrueifthefacilitiesviolatezoningordinances,occupancystandards,buildingandfirecodesandotherhousinglaws.Criticsclaimthisconversionofresidentialpropertyintoshort-termrentalsreducesthesupplyandincreasesthecostofplacestoliveforordinarycitizens,thusreducinghousingaffordability—especiallyinmarketswithashortsupplyofresidencesrelativetodemand.Othersraiseissuesaboutpublichealthandsafetyissuesaffectingresidentialneighborhoodsandstretchingpoliceandotherpublicsafetyresourcesmorethinlyacrosscommunity.Long-termresidentsareconcernedthatasneighborsarereplacedbytransientvisitors,thehumanrelationshipsandcommunitylifeonwhichtheyrelywillbelost.Airbnb,foritspart,oftenvigorouslydisputestheseconcernsdirectlyandrespondsindirectlybycultivatingabrandimageofsharing,trustandbelonging.
Controversiesovershort-termrentalshaveproducedlitigationandregulatoryand
legislativeactionintheUnitedStatesandonaglobalbasis.Someofthemostwell-knownconflictshaveoccurredinNewYork,SanFrancisco,Vancouver,BC,andBerlinamongotherlocations.
IntothecontextofcontroversyintheUnitedStates,Airbnbhasinsertedacampaignofferingstateandlocalgovernmentsagreements,whichitdescribesasprovidingforAirbnb’sprospectivecollectionoflodgingtaxesthatapplytoitsrentaltransactionsintheirjurisdictions.Thisreportanalyzestwelveagreementsthathavebeenpubliclyreleased.Airbnbclaimstohaveentered200suchagreementsandhopestosign500morein2017.4 Theanalysisproceedsbycomparingtheagreementstowell-established“voluntarydisclosureagreements”thatstatesusetosecuretaxcompliancebybusinessesandindividualswhohavenotbeencollecting,filingandpayingtaxes.Theseagreementsarecarefullydesignedtoencouragevoluntarycompliancebynon-filers,whilestillretainingsufficientsanctionstomakenon-complianceunattractiveandensuringfairnesstotaxpayersfullycompliantwiththelaw.WeevaluatetheAirbnbagreementsastowhethertheyservetheirintendedpurposesorotherunstatedpurposes,whethertheyarefairoveralltotaxpayersandcommunityresidents,andwhethertheyconformtostandardsofintegrityandeffectivenessintaxation.Chiefamongthosestandardsistheabilityofataxagencytoholdataxpayeraccountableforpayingtherightamountoftaxes.Morebroadly,attentionisgiventowhethertheagreementssupporttheruleoflawbyensuringpropercompliancewithallapplicablelaws.Wealsoevaluatetheagreementtodetermineiftaxagencies,inenteringtheagreements,areadheringtorequirementsfortransparency,publicparticipationindecision-making,andaccountabilitytothepublic.
3AreportbytheNewYorkAttorneyGeneralprovideswell-organizeddocumentationofcomplaintsaboutcommercial-stylerentalsofferedthroughAirbnb.SeeNewYorkOfficeofAttorneyGeneral,“AirbnbintheCity,”October2014,availableathttps://ag.ny.gov/pdfs/Airbnb%20report.pdf.4LeslieHook,“Airbnblookstosecure700taxdealswithcities,”FinancialTimes,November20,2016.
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SectionBAirbnbAgreements:ComparisonwithVoluntaryDisclosureAgreements
1. WhatAretheAirbnbDocuments?
Airbnbdevisesandpresentstotaxagencieswhataretypicallytentotwelve-pagedocumentscoveringback-taxforgiveness,prospectivepayments,informationaccessandmultipleothertermsthatproduce,asthisreportdocuments,seriousnegativeconsequencesforsociety.Airbnblabelsthesedocumentsas“voluntarycollectionagreements,”whichtheymostassuredlyarenot.TheseAirbnb-drafteddocumentsdonotguaranteethepropercollectionoftaxesdue.TheyblocktaxagenciesfromverifyingtheaccuracyofAirbnbpayments.Airbnbmaybeseekingtosuperficiallytolikenthesedocumentstothehighquality“voluntarydisclosureagreements”thatstatesusetobringnon-complianttaxpayersintofullconformitywiththelaw.However,thesedocumentsprofoundlyunderminesoundtaxadministrationandtheruleoflaw.Fortheseandotherreasonsdetailedbelow,wewillnotuseAirbnb’smisleadinglabelforthesedocumentsbutwillrefertothemobjectivelyas“Airbnbagreements.”
BeyondnotbeingwhatAirbnbclaimsforthem,theagreementsdonotevenqualifymoregenerallyas“taxsettlements.”Ataxsettlementresolvesataxdisputebetweenonetaxpayerandataxagencyandoftenincludesproprietaryorconfidentialtaxinformation.Withafewexceptions,theseagreementsdonotappeartobepromptedbyataxdisputearisingfromanauditorlegalactionbyataxauthority.Noneoftheagreementsreleasedpubliclyrefertoanysuchdisputesorcontainreferencestobeingenteredundertheauthorityoftaxsettlementlaws.Theydonot,astaxsettlementsnormallydo,specifyagreeduponamountsofvalues,incomeortaxes.Noneofthepubliclyreleasedagreements,eveniftheycontainconfidentialityclauses,includeanyproprietaryorconfidentialtaxinformation.Further,theseagreementsarenotsimplybetweenataxagencyandonetaxpayerbecausetheyprovidesubstantialtaxbenefitstoalargeclassofunknownnumbersofAirbnblodgingoperatorsandoccupants.Finally,asexplainedbelowtheseagreementsrangefarbeyondthecontentoftaxsettlementsintermsofthescopeoflaws,practicesandpartiesaffected. WhatisthenatureoftheseAirbnbagreements?RegardlessofhowAirbnbcharacterizesthem,theagreementsare,intruth,rulesthatgrantspecialadvantagestoonetaxpayeranditscustomers.Theyarerulesbecausetheyembodymultipledecisionsthatsprawlacrossarangeoftaxpolicyandadministrativeissues,includingbutnotlimitedto:
• grantingtaxandregulatorybenefitstoaclasscomprisedoflargenumbersofunidentified
beneficiarieswhoarenotsignatoriesoftheagreements,• creatingunusual,ifnotunprecedented,limitsontaxadministrationthatunderminethe
properaccountabilityfortaxescollected,reportedandpaid,• limitingtheinformationavailabletootheragenciestoenforcelawsthataffectpublichealth
andsafetyandthequalityofcommunitylife,and• restrictingtheabilityofthepublicandotheragenciestoknowaboutandparticipatein
decision-makingaboutthepublicpolicyjudgmentsbeingmadeintheagreements.Theserulesshouldbesubjecttoconsiderationthroughopen,publicparticipationprocesses.Bringingtheseprovisionsoutoftheshadowsandintothepublicsquareforscrutinyanddebateis
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evenmorecompellingwhenoneconsiderstheirimpactontaxequity,marketcompetition,theintegrityoftaxadministration,publichealthandsafetyandthewell-beingofcommunityresidents.
Whiletheagreementsare,infact,rules,theyalsorepresentaspecialdeal.Theyallow
Airbnbunusualandlegallyquestionablelatitudetodeterminehowmuchtheywillpayintaxes.SeveralagreementsgrantspecialtaxamnestytoAirbnblodgingoperatorsandoccupantseventhoughtheyhaveneitherrequesteditnorsignedtheagreements.TheagreementsprovideseverallayersofsecrecytoshieldAirbnblodgingoperatorsandoccupantsfromcomplyingwithanarrayoflaws.TheshieldofsecrecyforAirbnbcustomersenablesAirbnbtounfairlyexpanditsmarketsharewithinthelodgingindustryanddiverthousingstockawayfromordinarycitizenswhomerelywanttofindaplacetolive.
TheAirbnbagreementsspecifytermsthatcutacrossanarrayoftaxpoliciesandpractices
tobenefitAirbnbanditsnetworkoflodgingoperators.Itprovidesgeneralrulesskewedtoserveprivateintereststothedetrimentofthepublicinterest.Disturbingly,toomanytaxagenciesagreetoworkwithAirbnbtoclothetheseeffortsinsecrecylesstheybediscoveredandrespondedtobythepublic.Fortunately,effortstokeeptheseagreementssecrethasnotbeenentirelysuccessful.2. IntroductiontoDescriptionandAnalysisofAgreements
ThissectionofthereportcomparesandcontrastsAirbnbagreementswithvoluntarydisclosureagreements.Voluntarydisclosureagreementshavebecomeahighlysuccessful,equitableandfiscallyadvantageousmethodforbringingnon-complianttaxpayersintocompliancewiththelaw.Voluntarydisclosureagreementsarethe“goldstandard”oftaxcomplianceagreements.Wewillmakethiscomparisonforthreereasons:
• Ithelpstounderstandhow,despitesomesimilarities,theAirbnbagreementsdivergeradicallyfromandextendbeyondthebesttaxcompliancepracticesembodiedinvoluntarydisclosureagreements;
• IthelpsrevealthetaxinequitiescreatedbytheAirbnbagreements,and• ItdisclosestherealfunctionoftheAirbnbagreementsisnottoensuretheproper
paymentsoftaxes,buttohelpAirbnbexpanditsshareofthelodgingmarketattheexpenseofcompetitors.
Theanalysisinthesesectionisnotthefullstory.Thissectionfocusesonprovidingageneral
knowledgeoftheAirbnbagreementsandexploringhowtheymeasureupagainstthetaxequitystandardofequaltreatmentofsimilarlysituatedtaxpayers.InSectionC,wewillconsiderthebroaderimpactsoftheAirbnbagreementsoneconomiccompetition,effectivetaxadministration,democraticgovernance,andtheruleoflaw.
Therearesomesurfacesimilaritiesbetweenthesetwotypesofagreements.BoththeAirbnbagreementsandvoluntarydisclosureagreementsfacilitatepaymentsfortaxesnotcurrentlybeingcollected.Bothtypesofagreementsappeartohaveasimilarframework:arecitationoffactsbythepersonorbusinessfollowedbyconcessions,usuallybythetaxagencytoinducethetaxcollectionpayments.EvensomeofthewordsareborrowedfromvoluntarydisclosureagreementsforuseintheAirbnbagreements.Oncebelowthesurface,however,thetermsvarysignificantlybetweenthetwo.
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ThegreatestsimilaritiesbetweenthevoluntarydisclosureagreementsandtheAirbnbagreementsarefoundnotintheirtermsbutinthecircumstancesofthepersonsandbusinessesbenefittingfromthetwotypesofagreements.Alodgingoperatorlocatedinataxingjurisdictionwhoexceedslodgingtaxreportingthresholdsandwhofailstofileandpaylodgingtaxesisinanidenticalsituationasaresidentorbusinesslocatedinthetaxingjurisdictionwhofailstofileandpayincomeorsalestaxes.Theselodgingoperatorsownpropertyandareconductinglodgingbusinessinthetaxingjurisdiction.Undertheprincipleoftreatingtaxpayersinidenticalcircumstancesequally,thenetbenefitsreceivedfromataxagreementshouldbethesameforalodgingoperatornon-compliantwithlodgingtaxesasitisforapersonorbusinessnon-compliantwithsalesorincometaxes.ThereisnoreasonAirbnboperatorsandoccupantsshouldbetreatedmorefavorablythantaxpayerswhoparticipateinvoluntarydisclosureagreements. ThereisalsoasimilaritybetweenAirbnbandmultistateormultinationaltaxpayersenteringvoluntarydisclosureagreements.UnderU.S.constitutionalstandards,out-of-statecompaniesmusthavesufficientcontactswithastateforthatstatetorequirethecompanytocollect,fileandpaytaxes.Ifthenatureofacompany’scontactswiththestatemeetconstitutionaltests,thecompanyissaidtohavenexuswiththestateandis,therefore,subjecttothestate’sjurisdiction.Multistatebusinessesthatseekvoluntarydisclosureagreementsforincomeorsalestaxesaretypicallythosewhosecontactswithastatemakeitsubjecttoeitherdefiniteorprobablejurisdictionforthatstate’staxes.
Airbnb’scontactswithmanystatesappearsufficientconstitutionallytorequireittocollect,fileandpaystatetaxes.ThecaseforAirbnbhavingnexuswithstatesissubstantial:
1. Airbnb’sbusinessandearningsintheUnitedStatesarefullydependentonitsaffiliation
withlocallodgingoperators,52. Airbnb,byitsownstatementsonitswebsite,contractswithphotographers,translatorsand
otherproviderswhoprovideservicesinsupportoflodgingwithinthestates,6and3. Airbnbisservingasanegotiatingagentforitslodgingoperatorsandoccupantsfortax
agreementsinmoststates.
IfAirbnbmadeaproperdisclosureoffactsorifitweresubjecttoanexusaudit,itislikelythatotherfactssupportingnexuswouldbefound.BecauseAirbnbandmultistatebusinessesseekingvoluntarydisclosureagreementsaresubstantiallysimilarinconstitutionalterms,itispropertocomparethetwo.
Observerswilllikelynotethat,onstatelawgrounds,Airbnbmaybelessobligatedtocollectandpaylodgingtaxesbecausethoselawshavenotkeptupwithchangingtechnologyandbusinessoperations—thusfailingtoensurethatlodgingprovidedtoconsumersthroughbusinessnetworksorganizedviaautomatedsystemsistaxedfairly,efficientlyandeffectively.However,thatstatutory
5Stateshavesuccessfullyasserted“affiliatenexus”regardingout-of-statecompanieswithin-stateaffiliateswheretheaffiliatesarelesscentraltotheout-of-statecompanythantheAirbnblodgingoperatorsaretoAirbnb.Airbnbcannotconductitsbusinesswithoutthein-statelodgingoperatorsandtheirproperty.6See:https://www.airbnb.com/help/article/414/should-i-expect-to-receive-a-tax-form-from-airbnb?topic=248.
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problemcanberemediedbystatesorlocalitiesthroughlegislativeaction—abetteralternativethanenteringseriouslyflawedtaxagreementsthatdamagethepublicinterest.Analytically,itisnecessarythatthisstatutoryissuebeheldinabeyancesothatthepublicandpolicy-makerscanseethedifferenceinthechoicebetweenlegislativelyupdatinglodgingtaxesandtheadministrativelyadoptedAirbnbagreements.3. VoluntaryDisclosureAgreements Whilevoluntarytaxdisclosureagreementshaveexistedinsomeformforalongtime,stateshaveusedthemmoreextensivelysincethelate1980s.Changesininterstatebusinessoperationscombinedwithambiguitiesinthecircumstancesunderwhichstatescouldtaxinterstateeconomicactivityproducedgreateruseoftheseagreements.TheMultistateTaxCommission(MTC)contributedsignificantlytothetrendbyestablishingtheNationalNexusProgram,whichcoordinatesdisclosureagreementsbetweeninterstatebusinessesandmultiplestates.Statestypicallyofferwithintheirstatessimilaragreementstonon-filingresidentsandlocalbusinesses. Statevoluntarydisclosureagreementshaveproducedimpressiveresults.IntenyearsfromFY2006-2015,theMTC’svoluntarydisclosuresproducedover$197millioninback-taxpaymentsnotincludinginterestorfuturetaxpayments.7Usingaconservativemethodology,thereportestimatestotalrevenuesfromthesemultistateagreementslikelyexceeded$500millionoverthisdecade.8Theseamountsdonotincludethemajorrevenuesproducedbyindividualstatevoluntarydisclosureprogramsforresidentsandlocalbusinesses.Incomparison,thetwelveAirbnbagreementsproducedexactly$0inback-taxpayments.WhileotherAirbnbagreementsremainsecret,thelikelihoodthoseagreementsproducedmaterialback-taxpaymentsislowgivenAirbnb’snegotiatingposture.TheprospectsoffuturerevenuesfromAirbnbagreementsneedstobediscountedbythefactthat,asdiscussedinSectionE,statesandlocalitiesincreasinglyhavethemeansavailableforcollectingtaxesononlinelodgingrentals.StatesshouldbemindfulthattermstheyagreetoforAirbnbagreementscouldunderminesettledpracticesforvoluntarydisclosureagreementsandplaceatriskthesubstantialrevenuesgainedfromtheirvoluntarydisclosureprograms.
Becauseoftheirexpandeduse,stateshaveadoptedformalprocedures,rulesandevenlawstogovernandguidevoluntarydisclosureprograms.Theobjectivesofthelegalframeworkfortheseagreementsistoensure(a)theintegrityoftheagreementprocessand(b)equitabletreatmentoftaxpayersinsimilarcircumstances.Thedevelopmentoftheselawsandruleshaveprovidedopportunitiesforpublicinputintothepoliciesgoverningtheseagreements.IndividualstatesandtheMTCmakesubstantialeffortstoensurethereispublicknowledgeofvoluntarydisclosureagreementsandthestandardtermsgenerallyoffered.Voluntarydisclosureagreementsarewell-groundedinlawandadministrativepracticeandareequitableandeffective.
Statevoluntarydisclosureprogramsstrikeabalanceinofferingpreviouslynon-complianttaxpayerssomelimited,carefullycircumscribedrelieffrompenaltiesandsomeback-tax
7CompiledfromMultistateTaxCommissionAnnualReportsforapplicableperiods.8Futurerevenueswerecalculatedatone-thirdofbacktaxpaymentsreceivedeachyearextendedoverremainingfutureperiodsinthedecade.ContinuingrevenuesintheFY2006-15periodfromMTCagreementssignedinyearspriortoFY2006wereexcluded,makingtheestimatemoreconservative.InterestwasestimatedusingtheIRSlargecorporateunderpaymentrateof5%.
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payments—butnotsomuchastobeunfairtotaxpayerswhohavelongbeencompliantwiththelaws.Thevoluntarydisclosureprogramsarecarefullydesignedtonotofferrelieffromthepainofback-taxpaymentstothedegreethatmakesnon-complianceamoreattractivechoicethancompliance.Thus,voluntarydisclosureprogramssupportequitablecompliancewiththelaw.
Akeyelementofavoluntarydisclosureagreementisthetaxpayer’sdisclosureoffacts
previouslyunknowntothetaxagency,whichissensitiveinformationcontrarytothetaxpayer’sinterests.Thesefacts(a)establishwhythetaxpayershouldlikelyhavebeenfilingandpayingtaxesforpriortaxperiodsand(b)certifythattaxpayerhasnotpreviouslybeencontactedbytaxingauthoritiesandis,thus,comingforwardvoluntarily.Importantly,thisrepresentationoffactsissubjecttoauditandverificationbythetaxagencyand,ifitismateriallyinaccurate,thetaxagencycanwithdrawthebenefitsoftheagreementandimposethepenaltiesandassessmentsforegoneunderitsterms.
Havinganaccurateandcompletedisclosureoffactssubjecttoverificationisessentialfora
taxagencytodeterminethepropertreatmentofthetaxpayer.Further,whilethisinitialdisclosureoffactsisheldconfidentialbythetaxagencytofacilitatetheagreement,futureinformationfiledbythetaxpayerintaxreturns,includingthetaxpayer’sidentity,willbesubjecttosharingwithotherpublicagenciespursuanttolawsandinformationexchangeagreements.Inshort,beyondtheinitialagreement,thetaxpayergainsnocontinuingsecrecyfromotheragencies.
Thetypicalvoluntarydisclosureagreementrequiresthetaxpayertoregister,fileandpay
taxesforaprior“look-back”period(typicallythreeyears)andallfutureyearssubjectfullytothetaxlaws,rulesandproceduresofthejurisdiction.Importantly,theagreementpreservestheauthorityofthetaxagencytoconductaproper,independentauditofthetaxpayer’sbooksandrecordsforthe“look-back”periodandfutureyears.Yearspriortothe“look-back”periodcanbesubjecttoauditifthetaxpayer’sdisclosureoffactswasnottrueorcomplete.
Statesapplytougherrequirementsinsometypesofcases.Whentaxpayershavecollected
butnotremittedemployerwithholdingtaxesorsales/usetaxes,stateswillgenerallyrequirethetaxpayertopayallthecollectedbutunremittedtax—pluspenalties—foraslongatimeasthefailuretopayoccurred.Thesefunds,oncecollectedfromemployeesandcustomers,areheldintrustforthestateanddonotbelongtothetaxpayer.
Finally,exceptforpass-throughentitytaxpayers,voluntarydisclosureagreementsdonot
provideanydirectbenefitstopartiesotherthantheirsignatories.Forpass-throughentities,manystateswillrequireonlytheentitytoenterandsignthevoluntarydisclosureagreement,andnotitsowners.Fortheirportionofthetaxliabilityofthepass-through,theownersshareinthecostsandbenefitsoftheentityenteringadisclosureagreement.Thisexceptionislimitedtotheuniquestructureandcomplexityofpass-throughbusinesses.
Thekeyelementsofcurrentpracticesregardingvoluntarydisclosureagreementsare
summarizedasfollows:• Theyareoftengroundedinaformallegalframeworktoensureintegrityandequity.• Thepublichasknowledgeofandaccesstovoluntarydisclosureprograms.
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• Theessentialelementforthetaxpayertosecureanagreementisadisclosureoffactsunpromptedbyanyagencycontactsandthatremainssubjecttoverificationbythetaxagency—thusensuringitscompletenessandaccuracy.
• Ifthedisclosureismateriallyinaccurate,thetaxagencycancanceltheagreementandreclaimorcancelitsbenefitstothetaxpayer.
• Thedisclosureoffactsisprotectedfromsharingwithotheragenciesiftheyareaccurate,buttherearenolimitsonsharingthetaxpayer’sfuturetaxreturnandauditinformationwithotheragencies.
• Thetaxpayercommitstotimely,futuretaxpayments.• Thetaxpayercommitstoback-taxpaymentswithinterestfora“look-back”periodof
typicallythreeyears,withapotentiallylongerperiodpluspenaltiesapplyingtocollected,butunremittedtaxesheldintrustforthestate.
• Thetaxpayerisfullyaccountabletothetaxagency,whichretainsitsnormalsupervisoryandenforcementauthority,auditandotheradministrativetools.
• Withapossibleexceptionforpass-throughentityowners,nopartiesbenefitfromvoluntarydisclosureagreementotherthanthesignatoriesthemselves.
4. AirbnbAgreements
a. IntroductiontoAgreementsandTheirProvisions.ThissubsectiondescribesprovisionsoftwelvedifferentagreementsbetweenAirbnbandstateorlocaltaxagencies.Statesandlocalitieshavereleasedtheseagreementsundervariouscircumstances.Someagreementsareinthepublicdomainbecauseofstatepublicmeetinglaws.Taxagencydecisionsoropenrecordsrequestsaccountforothersbeingreleased.TheagreementsarebetweenAirbnbandthefollowingjurisdictionsbystatelistedinTable1.
Table1.AirbnbAgreementsbyState—ListedAlphabetically
State Agreement EffectiveDateCalifornia HumboldtCounty July1,2016 CityofPalmDesert July1,2016 CityofSanJose February1,2015Florida FloridaDept.ofRevenue—State&22Counties December1,2015 HillsboroughCounty February1,2017 PinellasCounty December1,2015 PolkCounty February1,2017Maryland MontgomeryCounty July1,2016NewMexico CityofSantaFe August1,2016 CityofTaos August1,2016Oregon MultnomahCounty(exceptCityofPortland) July1,2014 WashingtonCounty July1,2016
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Collectively,thesedocumentsrepresentasampleofthelargernumberofagreementsAirbnbclaimstohaveexecutedwithstatesandlocalities—agreementsrunningto200perrecentAirbnbstatementsmadetotheFinancialTimes.9
Table2onpage16displaysproblematicprovisionsintheAirbnbagreementsincategoriesbyjurisdiction.Theseprovisionstypicallydepartfromandextendwellbeyondestablishedtaxpractices.Theyareconsideredproblematicbecausetheprovisionsweakenaccountabilityfortaxpayments,createtaxinequities,shieldlodgingactivitiesfromregulations,orgenerateconfusion.Thefourcategoriesaretaxadministrationbenefits,back-taxamnesty,confidentialityandinformationbenefits,andmiscellaneous.
Themiscellaneouscategoryisnotusedforsubstantiveevaluationpurposes.Itisincludedtonotetheironythatalthoughalltheagreementsprovidebenefitstothirdparties—Airbnb’slodgingoperatorsandoccupants—tenoftheseagreementsincludemisleadinglanguageclaimingtherearenosuchthird-partybeneficiaries.
Thepresenceofaprovisionintheagreementforajurisdictionisindicatedbyacolor-
highlightedcellwithacharacterinside.Adifferentcolorfamilyisusedforeachcategory.Withineachcategory,therearethreelevelsofshading.Thedarkestcolorwiththeuppercase“X”indicatesthattheprovisionisastrongformofthelanguage.Theseconddarkestcolorwiththelowercase“x”indicatesalesserversionoftheprovision,butstillonethathasasignificantimpact.Thelightestcolorindicatesthepresenceofaprovisionthatisambiguousorhasaminorimpact.
Intermsoffrequencyofprovisions,thoseinvolvingtaxadministrationaremostoften
presentintheagreements.Incompleteand/orinaccuraterecitalsandrequiringauditstouseanonymousdataareinalltheagreements.BlockingauditoraccesstoAirbnb’sbooksandrecords,limitingauditsoflodgingoperatorsandoccupants,andexemptinglodgingoperatorsfromregistrationarethenextmostfrequentprovisions.Back-taxamnestyprovisionsareincluded58%ofthetime.Confidentialityandinformationbenefitsareincluded40%ofthetime.
ToanalyzetherelativedegreetowhichjurisdictionsprovidebenefitstoAirbnbanditslodgingoperatorsandoccupants,weclassifythembythenumberofcategoriesforwhicheachjurisdictionprovidesbenefits.Theclassificationisindicatedbythenumberintheyellow-highlightedrowatthebottomofthetable.Level1indicatesthejurisdictionprovidesbenefitsinoneofthecategories.Level2indicatesthejurisdictionprovidesbenefitsintwocategories,andlevel3denotesbenefitsprovidedinallcategories.Thehigherthenumber,theworsetheagreement’simpactonthepublicinterest.
Thereareafewjudgmentsinvolvedintheclassification.PalmDesertisgroupedinLevel1
jurisdictionseventhoughitoffersaminorprovisioninasecondcategory.MultnomahCountyprovidesbenefitsinthreecategories.However,itsback-taxamnestyprovisionisofmediumimpact,itstaxadministrativebenefitsarelessfavorabletoAirbnbthanotheragreements,anditdoesnotcompromiseinformationexchange.ThesefactorsresultinclassifyingMultnomahinLevel2.
9LeslieHook,“Airbnblookstosecure700taxdealswithcities.”
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Fouritemsspreadacrossvariousagreementswarrantcomment.First,therowlabeled,“DefinestheTaxBase,”referstotaxbaseinterpretationsandcalculationproceduresincludedintheFloridaandMultnomahagreements.Theirpresenceisnotedbecausetheyareexamplesofprovisionsthatconstituterulesthatshouldbeproposedthroughrule-makingprocesses.
Second,the“asterisk”forauditlimitsforlodgingoperatorsandoccupantsforHillsborough
Countyisthenetresultof(a)languagerestrictingauditsforoperatorsandoccupantsasinotheragreementscounter-balancedby(b)addedlanguageintheagreementthatcountyofficialsbelievegivethemauthoritytoauditoperatorsandoccupantswhenwarranted.
Third,threeoftheagreements—Florida,SantaFeandMultnomah—requiretaxofficialstoreceivewrittenconsentfromAirbnbbeforetalkingtothemediaaboutitsagreementswithAirbnb.ThisprovisionbreaksthechainofcommandspecifiedbylawthatrunsfromtheagencythroughelectedofficialstothepublicandhandssupervisionoftheagencyovertoAirbnbformediainquiriesabouttheagreement.
Fourth,inPinellasCounty,theagreementrequiresthetaxagencytogivenoticetoAirbnb
thatanotherpublicagencyhasrequestedinformationaboutAirbnboritslodgingoperators.Ifthetaxagencyprovidesthatnotice,itmayalertAirbnbanditslodgingoperatorstoapendinginvestigationorreviewbyaregulatoryagency.Thatnoticecouldunderminetheregulatoryagency’sefforts.Itseemsquestionablefortaxofficialstoinformaprivatebusinessofinvestigationsbyaseparatepublicagencythatmayaffectthatbusinessoritscustomers
16
MarylandHumboldt PalmDesert SanJose FL+22Co's. Hillsborough Pinellas Polk Montgomery SantaFe Taos Multnomah Washington
TaxAdministrationBenefitsIncomplete/InaccurateRecitals X X X X x x x X X x x x
DefinesElementsofTaxBase X X
Books&RecordsExcludedfromAudits X X x X X X X X X X * X
AuditLimitsforOperatorsorOccupants X x * X * X x X X X X X
AnonymousData--Returns&Audits X X X X X X X X X X X X
Audit/AssessmentLimits--CertainTaxPeriods X x X X
NoOperatorRegistrationforAirbnbTrans. X X X X X * X X X X XBack-TaxAmnestyAmnestyforAirbnb X X X X X
AmnestyforOperators&Occupants X X X X X x XConfidentiality&InformationBenefitsAgreementConfidential X X X X X
NegotiationsConfidential X X X X X
NoticeofFOIARequests-Agreement X X X X X
Notice/ConsentforMediaDiscussions X X X
ReturnsConfidential--SeparatefromLaw x * X X X X
ExemptionfromInformationExchange x X X X X
NoticeofInformationExchange XMiscellaneous(NotIncludedinCategoryCount)NoThirdPartyBeneficiaries X X X X X X X X X XProblematicCategoriesIncludedinAgreement 2 1 1 2 1 3 1 3 3 2 2+ 2
California NewMexico OregonTable2.ProblematicProvisionsofAirbnbAgreementsbyJurisdiction
Florida
17
Thesubsectionsbelowevaluatetheseagreementscollectivelyasacompositeofprovisions,
whichessentiallymeanslookingatascenarioof“maximumimpact.”Thatisthenecessaryand
reasonableresultofwantingtoconsiderallthemajorfeaturesthatappearinanyoftheAirbnb
agreements.Thecompositeviewisalsojustifiedandrealisticbecausethreeofthetwelve
agreementssubstantiallyconformtothe“maximumimpactscenario”andrepresentalltheissues
raisedbytheagreements.
b. PerplexingStructureandScopeofAgreements.TheAirbnbagreementshaveaperplexingandlikelyunprecedentedstructureinwhichAirbnbbargainsforandsecuresextensive
monetary,proceduralandregulatorybenefitsforitscustomers—lodgingoperatorsand
occupants—whodonotsigntheagreements.Manyofthesebenefitshidetheidentityofoperators
fromregulatoryandlawenforcementagencies.Nonetheless,thelodgingoperatorsandoccupants
commitnolegally-bindingperformancetothetaxagencyandarenotevenknowntotheagency.
Wehavenotedalimitedinstanceofanon-signatoryimpactinvoluntarydisclosure
agreementsforpass-throughentities.Thatexceptionarisesfromownershiprelationshipsdefined
bystatutorylaw,includinglawsonpass-throughtaxation.Thesubstanceinvolvedinthisexception
isnarrowandinvolvesdistributingthetaxeffectonapass-throughentityamongtheownersofthe
business.Nonewburdenorbenefitiscreatedintotalsumfortheownersbeyondtheburdenand
benefitsecuredbythepass-throughentityitself.
Incontrast,theredoesnotappeartobeaclearbasisinlawforincludingAirbnb’s
customers—locallodgingoperatorsandoccupants—inataxagreementsignedonlybyAirbnb.
Thereisnospecificlegalauthoritycitedintheseagreementsforthetaxagenciestostructurean
agreementthatprovidesmajorbenefitstonon-signatory,localbusinesses.Thescopeofthe
benefitsforAirbnbcustomersrangebeyondthebenefitsprovidedAirbnbintheagreements.The
customerbenefitsarenotgovernedbyprovisionsoflawand,infact,oftenconstituteexceptionsto
orexemptionsfromthelaw.Theexceptionstolawbeginwithsuspendingregistrationfortax
purposesoftheselocallodgingoperators.Publicregistrationisacenturies-oldmethod
fundamentaltoadministeringtaxes,regulationsandotherlaws.ThebenefitsforAirbnb’s
customersgrowfromthereandsignificantlyshieldAirbnb’slodgingfacilitiesfromregulatoryand
lawenforcementauthorities.
ThestructureandscopeoftheAirbnbagreementsraiseamultitudeofquestionsthat
shouldbethesubjectofvigorouspolicyandlegaldebate.Twoquestionsthatarisealmost
immediatelythatshouldgivetaxagenciespauseabouttheseagreementsarethefollowing:
• Isitproperforataxagencytograntexclusive,wide-rangingbenefitstolocalbusinessesin
agreementsthatthosebusinessesdonotsignandtowhichtheyarenotlegallybound?And,
• Isitalsoproperforataxagencytoenteragreementsthatweaken,withrespecttothese
localbusinesses,theimplementationoflawsadministeredbyotheragencies?
SpecialNoteonTable3:TheremainingsubsectionsbelowcompareindetailspecificfeaturesoftheAirbnbandvoluntarydisclosureagreements.Ausefulreferenceforthatdiscussion
isTable3below,whichsummarizeskeydifferencesamongtheagreements.
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Table3.ComparisonofTaxpayerResponsibilitiesandBenefitsforVoluntaryDisclosureAgreementsandAirbnbAgreements
Description TaxpayersinVoluntaryDisclosureAgreements
Airbnbin
AirbnbAgreements
Operatorsandoccupantsin
AirbnbAgreementsTaxabilityFactsConstitutionalNexus Taxpayersareprobablyor
clearlysubjecttostate’s
jurisdiction.
Taxpayerishighlylikelyor
clearlysubjecttostate’s
jurisdiction.
Taxpayerisclearlysubject
tostate’sjurisdiction.
StatutoryApplicability Taxlawsforwhichthe
disclosureismadeapplyto
thetaxpayer.
Lodgingtaxlawsmayor
maynotapply;legislation
canremedytheissue.
Lodgingtaxlawsapplyto
taxpayer—collection
requiredabovethresholds.
TaxabilityConclusion:Taxpayersareequalornearlyequalintheirtaxabilitystatusonconstitutionalgrounds.WherestatutesdonotapplytoAirbnb,thosestatutescanbeupdatedtoapply.Thereisastrongcasefortaxagenciestotreat
thesetaxpayerssimilarly.
TaxpayerResponsibilitiesFactualRepresentations Mustmakeacompleteand
accuratedisclosureoffacts,
subjecttoverification.
Makesrecitalsoftheirown
determination;not
requiredtobecomplete
andaccurate;notsubjectto
verification.
Taxpayerdoesnotreciteor
disclosefactsofanykindin
theagreements.
Back-TaxPaymentswith
Agreements
(Seerelatedfeatureof
“Back-Tax”Forgivenessin
TaxBenefitssection
below.)
Taxpayerstypicallypay
threeyearsofpriortaxes
plusinterest.Penalties
forgiven.Harsher
treatmentmayapplyfor
taxescollectedbut
unremitted.
Noagreementrequires
Airbnbtomakeback-tax
payments.
Noagreementrequires
lodgingoperatorsor
occupantstomakeback-
taxpayments.
FutureTaxCompliance Taxpayermustregisterfor,
timelyfileandpayfuture
taxes,subjecttofullaudit
accountabilitytothestate.
Taxpayermustregister,file
andmakefuturepayments,
onfavorabletermsthatdo
notrequirefull
accountability.
Taxpayersexemptfrom
registering,filingand
payingtaxesonAirbnb
bookings,butrequiredfor
non-Airbnbrentals.
LegalCommitmentto
Agreement
Signstheagreementand
mustabidebyitsterms.
Signstheagreementand
mustabidebyitsterms.
Doesnotsignthe
agreement,butreceives
benefitsfromit.
TaxpayerResponsibilitiesConclusion:TheresponsibilitiesbornebythetaxpayerenteringavoluntarydisclosureagreementarehugeincomparisontoresponsibilitiesbornebyoperatorsandoccupantsundertheAirbnbagreements,
eventhoughtheirtaxpayercircumstancesareequal.Inaddition,thevoluntarydisclosuretaxpayerbears
responsibilitiesthataremoreextensivethanAirbnbbearseventhoughtheirconstitutionalcircumstancesaresimilar.
TaxpayerBenefitsBack-TaxForgiveness Incaseswheretaxpayer
wasanon-filerandhad
nexuspriortothelast
threeyears,taxpayer
benefitsfromtax
forgivenessforperiods
priortolastthreeyears.
Example:Ifataxpayerhad
nexusforfiveyears,the
earliesttwoyearsare
forgiven—buttaxesand
interestarepaidforthe
mostrecentthreeyears.
Infiveagreements,Airbnb
receivesamnestyforback
taxes,interest,orpenalties.
Mostoftheother
agreementsaresilenton
back-taxliabilitiesfor
Airbnb,andnonerequire
back-taxpayments.
Insevenagreements,
operatorsandoccupants
receiveamnestyforback
taxes,interest,orpenalties
onAirbnbbookingsonly.
Fivesplitbetweenthose
unclearaboutoperators’
back-taxliabilitiesfor
Airbnbbookingsandthose
preservingrightstothem.
Noback-taxpaymentsare
required.
19
TaxpayerBenefits—ContinuedFutureFilingExemption No. No. Yes,forAirbnb
transactionsinallbutone
agreement.Secrecyallows
avoidanceofregisteringfor
othertransactions.
LimitsonorExemptions
fromAudits.
No.Fullaccountability
underauditsapplies.
Yes.Auditsalwayslimited
toanonymousdata;nearly
alwayslimitedtoreturns
andsupportingdocuments
forthereturns;some
agreementslimitperiodsof
auditsandassessments.
Mostagreementsexempt
operatorsandoccupants
fromauditsfor
transactionscompleted
throughtheAirbnb
platformforperiodsthe
agreementiseffective.
Confidentialityof
Agreement.
Yes,duetoconfidentialand
proprietaryinformation,
includinginformation
contrarytothetaxpayer’s
interests.
Yes,manyagreements
includeconfidentiality
clausedespiteno
confidentialorproprietary
informationbeingpresent.
Yes,manyagreements
includeconfidentiality
clausedespiteno
confidentialorproprietary
informationbeingpresent.
Confidentialityof
negotiations.
Yes Yes. Yes,despiteoperatorsnot
beingagreementparties.
LimitsonInformation
Exchange.
Onlyinitialdisclosureof
factsandidentityisexempt
fromexchangewithother
publicagencies.Allfuture
taxandidentity
informationsubjectto
exchange.
Fiveagreementslimitor
exemptinformation
generatedunderthe
agreementfromexchange
withotherpublicagencies,
unlessrequiredbylaw.
Fiveagreementslimitor
exemptinformation
generatedunderthe
agreementfromexchange
withotherpublicagencies,
unlessrequiredbylaw.
ConfidentialityofTax
InformationfromPublic
Disclosure
Yes,totheextent
confidentialityisrequired
bylaw.
Yes.Someagreements
providebroader
confidentialitythanlaw.
Yes.Someagreements
providebroader
confidentialitythanlaw.
TaxpayerBenefitsConclusion:Thebenefitsenjoyedoperatorsandoccupantsarehugecomparedtobenefitsreceivedbyvoluntarydisclosuretaxpayerseventhoughtheircircumstancesarethesame.Thestrictlytax-related
provisionsfavoroperatorsandoccupantsoverthevoluntarydisclosuretaxpayers,andthelong-termsecrecyshieldfor
operatorsandoccupantsfromcompliancewitharangeoflawsisasubstantial,addedadvantage.Thetaxbenefits
enjoyedbyAirbnbaresignificantascomparedtothebenefitsreceivedbyvoluntarydisclosuretaxpayersintermsof
back-taxtreatment.Airbnb’staxbenefitsareevenmoreextensiveifAirbnbtakesadvantageoftheirabilityunderthe
agreementstounderreportandunderpaytaxes.Finally,Airbnb’sbenefitsarehugeintermsofarisingmarketsharein
thelodgingindustryarisingfromsecrecyprovisionsthatshieldAirbnboperatorsandoccupantsfromcompliancewith
arangeoflaws.
OverallConclusion:Forbothburdensandbenefits,Airbnbanditsoperatorsandoccupantsreceivesubstantiallymorefavorabletreatmentthandosimilarlysituatedtaxpayersenteringtraditionalvoluntarydisclosureagreements.
c. TheFactsNotEstablished—AFailureofBasicAdministrativePractice.TheAirbnbagreementsfailtoestablishcompleteandaccuratefactsaboutAirbnb,itslodgingoperators,and
occupantsnecessarytomakingproperdecisionsconcerningtheirtaxtreatment.Worseyet,tax
agenciesrelinquishthepowertodeterminerelevant,truefactswhiletheagreementsareineffect.
Indoingso,theseagenciesfail,toanextraordinarydegree,standardsofsoundadministrative
practice.Establishingfactsintaxcasesisacriticalfirststeptoensuringthatanagencyappliesthe
lawcorrectlyandequitably.Voluntarydisclosureagreementsdothatjobwell.TheAirbnb
agreementsdonot.
20
TheAirbnbagreementspresentAirbnb’s“recitals,”astatementoffacts—butnotafull
disclosureofitsbusinessoperationsintherelevantjurisdiction.Unlikethetaxpayer’sdisclosures
involuntarydisclosureagreements,theserecitalsdonotappeartoincludeanyinformation
contrarytoAirbnb’sinterests.Nordotheyrevealproprietaryinformation,whichistypically
necessarytounderstandthenatureandextentofacompany’sbusinesscontactswithastateor
locality.TherecitalssummarizelargelypublicinformationabouttheAirbnboperations,muchof
whichcanbegleanedfromtheirwebsite.Airbnb’srecitalsoftenincludeabriefoperational
descriptionofpaymentprocessingthatappearstoconformtostandardpracticesforlodging
transactions.Inothercases,therecitalsdescribewhatAirbnbdoesnotdoinajurisdictionorthe
limitednatureoftheiractivitiesintermsofwhatAirbnb“only”does.
HereareexamplesofsomemissingpiecesinAirbnbrecitalsrelevanttotaxagency
decisionsonissuesintheproposedagreements:
• ThenumberofAirbnb’slodgingoperatorsandnumberofoccupant/nightsinthe
jurisdiction;
• Informationaboutthenumberandscaleofoperatorscategorizedbytype(home-
sharingvs.commercialstyleoperationsthatareseason-long,full-timeormulti-unitin
nature),byamountofrentalrevenues,frequencyofrentalsandsizeoffacilities;
• Airbnb’sengagementofcontractorswhoprovidephotographic,translationandother
servicesinvariousjurisdictions;10
• ThefactthatAirbnbservesasanegotiatingagentonbehalfoflodgingoperatorsand
occupantstosecuremajorbenefitsontheirbehalfintheagreements,and11
• TheidentityofthelodgingoperatorsAirbnbproposestoreceivebenefitsfromthe
agreeementssotheagencycandetermineiftherearepriortaxviolations,delinquencies
orothercircumstancesthatwoulddisqualifytheoperatorsfromthosebenefits.
Thetypesofissuestowhichtheinformationlistedaboveisrelevantinclude,butarenotlimitedto:
• WhetherAirbnbanditsoperatorsqualifyforthefavorabletaxtreatmentsought;
• Theamountofback-taxforgivenessandotherbenefitsbeinggrantedtoeach;
• Theextentofpublichealthandsafety,housingandothercommunityissuesthatwould
beaggravatedbymaintainingsecrecyofoperatorsandsuspendinginformationsharing
withotheragencies,and
• Theimpactoftheagreementsontheabilityoftheagencytoensurepropercollectionof
taxesbyAirbnborthelodgingoperators.
10Airbnb’swebsitereferencesservicesitprovidesthroughcontractors.OnereferencetoAirbnb
contractors,forexample,islocatedat:https://www.airbnb.com/help/article/414/should-i-expect-
to-receive-a-tax-form-from-airbnb?topic=248.11Thebenefitstolodgingoperatorsinclude,amongothers,back-taxamnesty;exemptionsfromregisteringfor,reportingandpayingcurrenttaxes;immunityfromaudits,andsecrecyprovisions
thatpreventthetaxagencyandotherpublicagenciesfromknowingtheidentitiesoflodging
operatorsandoccupants.Airbnb’snegotiatingroleforlodgingoperatorsisseparateanddistinct
fromtheroleitdescribesinitsTermsofServicesofbeingabletoregisterandcollectlodgingtaxes
dueontransactionsbookedthroughitswebsite.
21
Thefactthatagenciesmayhavedisregardedtheseissuesinenteringtheseagreementsdoes
notlessentheneedfortheagreementstohaveacompleteandaccuratedisclosureoffacts.Tothe
contrary,establishingthefullandtruefactsfirstisnecessarytoensurethatthetaxagency
consciouslyconsidersallrelevantissues.Taxagenciesshouldnothavesoreadilyagreedtothe
inadequateandsuperficialinformationthatAirbnbhasofferedinitsrecitalsoffact,butshould
haveinsteadinsistedonfulldisclosuresofinformation.
Theneedfortaxagenciestosecuretheidentitiesoflodgingoperatorsdeservescomment,
consideringAirbnb’sfocusonkeepingtheinformationsecret.12Itisnecessaryandreasonablefor
taxagenciestoknowoperatoridentitiesbecausetheyareconductingbusinesswithintheir
jurisdictionsandmaybesubjecttovarioustaxes,includinglodgingtaxesiftheymeetthe
applicablethresholds.Specifically,theagenciesneedtoknowoperatoridentitiesto:
• Determineifthereareanycircumstancesinalodgingoperator’staxhistoryandstatus
thatwoulddisqualifytheoperatorfromtaxbenefitsfromtheagreements;
• Collectapplicablebacktaxesnotforgivenundertheagreementordueuponbreachof
theagreement;
• Ensurethatoperatorsareincompliancewithrelevant,futuretaxobligations,13and
• Maintainanadministrativeprocessthatenablescross-checkingAirbnb’staxreturns
andpaymentsagainstthelodgingoperators’records.
Thelatteritemiscomparabletodualregistrationbywholesalersandretailersforsalestaxes,with
wholesalersmakingsaleswithouttaxappliedthroughuseofasaleforresalecertificate.
TheitemsoffactomittedfromAirbnb’sagreementsmaysimplybethetipoftheiceberg.To
securefullandtruefacts,taxagenciesshouldalsohaveinsistedthatAirbnb’srepresentationsbe
subjecttoverificationbytheagency.Theagreementsdonotauthorizeagenciestocheckthefacts
Airbnbpresents.Further,aswillbediscussedlaterinthisreport,theagreementseffectivelyblock
agencyaccesstoAirbnbbooksandrecords—accessnecessarytocheckonthevalidityofthefacts.
Further,iffoundmateriallyinaccurateorincomplete,Airbnband/oritslodgingoperatorsshould
besubjecttoconsequences,suchaspaymentofbacktaxesandpenaltiesandcancellationofother
agreementbenefitsgrantedundertheagreement.Thus,theagreementsdonotrequireAirbnbtobe
eitheraccurateorcompleteinitsstatementoffacts.Inexplicably,taxagenciessurrendertheir
authoritytosecurefullandtruefactsaboutAirbnboperations.Indoingso,theagenciescannot
ensuretheintegrityoftheagreementorequitabletreatmentofothertaxpayers.
d. AccountabilityLost:AirbnbGainsControlofProcess—OperatorResponsibilityDisappears.TheagreementsrequireAirbnbtocommittocollectingandreportinglodgingtaxesonaprospectivebasisforfuturetaxperiods.However,unlikeallothertaxpayers,includingthose
enteringtraditionalvoluntarydisclosureagreements,Airbnbisnotrequiredtomeetregular
12Contrarytoitsnegotiatingposture,Airbnb’stermsofservicespecificallyauthorizeAirbnbto
disclosetheidentitiesoflodgingoperatorsandoccupantsifAirbnbdecidestocollectlodgingtaxes
onAirbnbbookingsinajurisdiction.
13TheAirbnbagreementsprovidethatlodgingoperatorsareresponsibleforcollectingandpaying
taxes,forbackandfutureperiods,onnon-Airbnbtransactions.Withouttheidentityofthelodging
operations,theseprovisionsareanemptypromise.Supplyingoperatoridentitiesisareasonable
requirementtoensureimplementationofthisagreementlanguage.
22
standardsofaccountabilitytothetaxagencyfortheamountstheycollectfromlodgingoccupants
andthensubsequentlypay.TheagreementsdonotguaranteethatAirbnbwillreportandpaythe
correctamountsoftax,butinsteadallowitlatitudeindeterminingtheamountsitwillpay.Finally,
theagreementslargelyrelievelodgingoperatorsthatmeetthethresholdsfortaxfilingoftheirlegal
obligationtocollectandpaylodgingtaxes.
Adisclaimerisinorderhere.Thissubsection,andothersthatappearelsewhere,discussprovisionsintheAirbnbagreementsorfeaturesofAirbnbproceduresthatwouldallowAirbnb,ifitchosetodoso,tounderreportorunderpaytaxesorotherwiseabusethetaxsystem.Discussingwhatispossibleundertheagreementsorcompanyproceduresdoesnotinanymannersuggest,implyorassertinanymannerthatAirbnbis,infact,underreportingorunderpayingtaxesorengaginginimproperorillegalactivitiesofanykind.Theanalysisconductedhereisaimedonlyatidentifyingthepotentialforproblemstooccur,butprovidesnoinsightintowhethertheproblemsareoccurring.
TheunusualandunprecedentedprovisionsthatdiminishAirbnb’saccountabilityforthe
taxestheyremitinclude:
• TaxagenciesareallowedundertheagreementstoauditAirbnb’staxreturnsand
supportingdocuments(oftenqualifiedasdocuments“filed”withthetaxagency),but
notAirbnb’sbooksandrecords—effectivelyblockingauditorsfromverifyingthe
accuracyofitsreturnsandpayments.14
• TaxagenciesarestrictlylimitedtoauditingonlyAirbnb-suppliedanonymous
transactiondatathatdonotidentifythelodgingoperatorsandtheirrentallocations,
makingitpossibleforthedataandthetaxreturnstheygeneratetobefictional.
• Mosttaxagenciesarealsoeffectivelyprohibitedfromauditinglodgingoperatorsand
occupantsforAirbnbtransactionsduringtheperiodswhenAirbnbassumes
responsibilityforcollectionandpaymentofthelodgingtaxes—thusblockingtheuseof
operatororoccupantrecordstoverifytheaccuracyofAirbnb’sreturnsandpayments.
TaxagenciesareessentiallyallowedtoconductauditsofsecondaryinformationAirbnb
constructs—taxreturns,supportingdocumentsandanonymousdata—andthatinformationmayor
maynotbalancewiththeactualtransactionsandtaxesinthejurisdiction.Whethertheconstructed
informationrepresentsfactorfictioncouldbeonlybedeterminedbylookingatAirbnb’sfullbooks
andrecords,andthatisblockedintheseagreements.Withpermissiontouseanonymousdataand
toprepareschedulesandreturnsbasedonthatdata,Airbnbhasgainedtheabilitytodetermine
whatitwillpayintaxes.Ithasessentiallywrestedcontrolofthetaxprocessfromtheagenciesand
secureditforitself.
14Taxagenciesaretypicallyauthorizedbylawtoauditthebooksandrecordsoftaxpayerstodeterminetheaccuracyoftaxreturnsandpayments.TheAirbnbagreementsdonotreference
auditsofAirbnb’sbooksandrecords,butinsteadbeingconducted“onthebasisofreturnsand
supportingdocumentation.”Ifanargumentismadethatthelanguagedoesnotliterallyprohibit
accesstoAirbnb’sbooksandrecords,therebuttalistwo-fold.First,ifthatisnotintent,whythe
absenceofthestandardreferencetoauditingbooksandrecords?Second,iftaxauditorswereto
accessAirbnb’sbooksandrecords,theywouldlikelydiscovertheidentitiesoflodgingoperators
renderingmootAirbnb’sprovisionrequiringtaxagenciestoauditonlyanonymousdata.The
anonymousdataprovisionconfirmsthatconductingaudits“onthebasisofreturnsandsupporting
documentation”isdesignedtopreventaccesstoAirbnb’sbooksandrecords.
23
Airbnbdoesnotgainenoughcontroloverthetaxprocesstosendzerodollarstothetax
agencies.Thatwouldinviteinstantsuspicion.ButAirbnbdoesgainenoughcontrolthatitcould
chose,ifitdecidedtodoso,tomakeaprofitfromtaxmanipulationwithminimalriskofdetection.
RecallthatthetaxmoneyinvolvedheredoesnotcomefromAirbnb’searnings.Itcomesfromtaxes
paidbyguestswhentheyrentlodging.Undertheagreements,Airbnbcouldchargegueststhefull
amount,butsendlesstothetaxagencieswhilepocketingthedifference.
ThereisnoevidencethatAirbnbhasengagedinthismanipulation.Thepointisthatthereis
ariskthatitcouldoccur.Thebestwaytodetectanddeterthistypeofabuseisforauditorstohave
accesstoAirbnb’sbooksandrecords,andthataccessdoesnotoccurundertheseagreements.
Theagreementseliminatetheclearresponsibilityoflodgingoperators,iftheyexceedfiling
thresholds,tocollectandpaylodgingtaxesonAirbnbbookings.Operatorsareexemptedfrom
registeringfor,filingandpayingtaxes.Theiridentitiesarekeptsecretfromtaxandotherpublic
agenciesthroughlayersofmeasuresincludingtheanonymousdataprovisions.Asdiscussedbelow,
theyaresubstantiallyimmunefromauditsifataxagency,bychance,didfindthem.These
provisionsnotonlylessenaccountabilityfortaxesonAirbnbbookings,butalsomakeitmore
difficultfortaxagenciestoidentifytheseoperatorstoreportandpayothertaxestheyowe.The
firstpartiesresponsibleunderlodgingtaxlawsfortaxpaymentsareeffectivelyrelievedofthat
responsibilitybytheseagreements.
Thelanguagevariesamongtheagreementsregardingrestrictionsontaxagenciesauditing
lodgingoperatorsandoccupantsforAirbnbtransactions.Severalagreementsprovidethattax
agenciesmayaudit“hostsandguests”aftertheconclusionofanauditofAirbnbwith“thematters
unresolved.”Thatlanguageislikelyineffectiveinallowingauditsoflodgingoperatorsbecauseits
setsupaCatch22situation.WithtaxauditslimitedtoAirbnb’ssecondarydata(returns,schedules
andanonymousdata),theauditsmayneverproduceadiscrepancyoranyissuetoresolve
whatsoever.Beginningwithafileofanonymousdataforthejurisdiction,Airbnbcouldconstruct
supportingschedulesandreturnsthatbalancecompletelytotheanonymousdataregardlessof
whetherthatdataistrueoffalse.Usingitssoftwareexpertise,Airbnbcouldkeeptheseitemsin
sync,ensuringthattherearenounresolvedauditissues.Atthatpoint,thelanguageofthe
agreementblockstaxagenciesfromauditingthelodgingoperatorsandoccupantsorguests,which
wouldotherwiseserveasindependentinformationtodiscoverproblemswiththereturns,
schedulesordataconstructedbyAirbnb.Thus,languageauthorizing“hostandguest”auditsafter
an“unresolved”Airbnbauditismeaningless,makinglodgingoperatorsimmunefromaudits.
Three(Humboldt,TaosandWashingtonCo.)oftheagreementslimitAirbnbauditsand
assessmentsto12monthsoutofeithera48-monthperiod(intwoagreements)ora36-month
period(inoneagreement).Itiscommonpracticefortransactiontaxesfortaxauditorstosamplea
limitedsetoftransactionstogenerateerrorratesandapplythoseratestothefullauditperiodto
generateacompleteassessment.Thatdoesnotappeartobethecaseintheseagreements.These
agreementslimitnotonlytheauditbutalsotheassessmenttothe12-monthperiod.Thelanguage
suggeststhedatafromthe12-monthperiodwouldnotbeextrapolatedtoproduceanassessment
coveringtheentire48-monthor36-monthperiods.Thatwouldeliminateassessmentsfor75%of
thetimefortwooftheagreementsand67%ofthetimefortheother.FortwoagreementsAirbnb
couldbeconsistentlyunderreportingovera48-monthperiod,butitwillbeassessedfor
underreportinginonly12ofthosemonths.Inthatcase,Airbnbwouldgettokeep75%ofan
24
impropergainfromunderreporting.Theagreementsarealsosilentonwhogetstoselectthe12-
monthperiod:Airbnb,thetaxagency,orbothconcurring.
Thefractionalauditandassessmentlanguageinthesethreeagreementsmakesnosense.A
fourthagreement(Polk)confirmsthisconclusion.Thatagreementalsoprovidesforauditsand
assessmentslimitedto12monthsoutof36.However,itincludesadditionallanguagethat
specificallyallowstheagencytoprojectfromthe12-monthresultstoproduceanassessmentover
thefull36months,subjecttoAirbnb’sdiscretionarychoicetoallowthatextrapolationorrequire
theagencytoauditfortheadditionalmonths.Inotherwords,Airbnbcanchecktoseeifthe
extrapolationortheactualauditwouldyieldalesserpaymentanddirectthefinalauditprocess
basedonthatcomparison.Theabsenceofthisextrapolationlanguagefromtheotherthree
agreementswouldappeartoconfirmthattheirassessmentsarelimitedtofractionaltimeperiods.
Incontrast,taxpayersenteringvoluntarydisclosureagreementsremainsubjecttohaving
theirbooksandrecordsexaminedbytaxagencies.Theyaregrantednoexceptions,exemptionsor
immunityfromwhatthelawrequiresintermsofprospectivetaxreporting.Inshort,theyremain
fullyaccountabletothetaxagencyfortheamountstheycollect,reportandpay.Theydonotgain
controlofthetaxprocess,whichremainsinthecustodyofthetaxagencyasintendedbythelaw.
e. LessonsfromtheVW“Dieselgate”Scandal.TheremaybesomediscussionovertheconclusionthattaxagencieswillnotbeabletoholdAirbnbproperlyaccountableforthetaxesit
choosestopay.Thatconclusionisbasedonthetextoftheagreementsthemselves.However,we
havelearnedthatAirbnbhasofferedatleastonetaxagencyskepticaloftheanonymousdataaside
agreementtoassuagethoseconcerns.Thatsideagreementconsistsoftheoffertoallowthetax
agencyaccesstoAirbnb’ssoftwaresystemtotestandobserveitsoperation.Atitsdiscretion,the
taxagencywillbeabletologon,initiatealodgingtransactionandobservethetransactiongetting
translatedintoanonymousdatawithIDnumbersattached.15Thetaxagencycanseethatthe
transactionitentersresultsinthecorrectamountoftaxandgetsproperlyrecordedinthe
anonymousdatasystem.Whatcouldgowronghere?
TheansweristhesamethingthatallowedVolkswagentocheatonitsemissionstestingfor
dieselcars.TheEPAusesa“testandobserve”systemforautoemissions.Vehiclesarehookedupto
testingequipmentandtheemissionsaremeasured.TheproblemisthatVolkswagenprogrammed
itsdieselcarstoknowwhentheywerebeingtested,sowhenthetestingbeganasignalwassentto
theengine’scomputerthatturnedonthecar’sfullemissionscontrolsystem,andthecarpassedthe
test.Whenthecarwasnotbeingtestedandobserved,theengine’scomputerdialedbackthe
emissionssystemtoalower,inadequatelevelofcontrol.
Thesamethingmighthappenhere.WeassumethatAirbnblikelydoesnotopenitssoftware
systemsimplytoallowanyonetoobservebookingsbeingtranslatedintoanonymousdatafortax
reportingpurposes.Rather,weassumethatAirbnbcreatedaspecialfeaturethatallowsan
15ThisdescriptionofthetestprocessforAirbnbtransactionscomesfromaninterviewwith
HillsboroughCountytaxofficials.AsnotedinAppendixA,theHillsboroughCountyTaxCollector,
DougBelden,hasnegotiatedthebestagreementamongthetwelvereviewedhere.Anyerrorsor
misunderstandingsconcerningthetestsystemareentirelymyown.Anyskepticismexpressedhere
aboutthe“testandobserve”systemdoesnotsubtractfromthefeaturesoftheHillsborough
agreementthatrepresentimprovementsoverotheragreements.
25
authorizedtaxagencytoopenawindowintoAirbnb’ssoftwaretoviewthedatagettingtranslated.
Tostartthetaxagencytest,thesoftwareneedsasignaltoopenthewindow.Thatsignaltoopen
thewindowintothesoftwaresystemwouldbecomparabletothesignalthatthesoftwareinVW
dieselcarsrecognizedwhentheywerehookedtoemissionstestingequipment—asignalthat
turnedonthefullemissionscontrolequipment.Thesignaltoopenthetaxagency’sobservation
windowintotheAirbnbreservation/accountingsystemcouldalsosimultaneouslysignalAirbnb’s
systemtoactivateaversionofthesoftwarethattranslatesbookingtransactionsfullyand
accuratelyintoanonymousdata(orsimulatesthatoccurring).Oncethetaxagency,comfortedby
theobservations,turnsoffthetestandclosestheobservationwindow,thesystemcouldturnback
onadifferentversionofitssoftwarethatskimsoffpartoftheguests’paymentsandrecordslower
levelsoflodgingrentandtaxintheanonymousdatausedonlyfortaxreportingpurposes(butnot
forfinancialaccountingormanagementpurposes).
ThepurposeofthisdiscussionisnottosuggestthatAirbnbdoesorwouldprogramits
softwareinthismannerorengageintaxcheating.Nosuchaccusationsarebeingmadehere.
Instead,thepurposesareonlytodescribe:
• whatistechnologicallypossible,
• thatwhatAirbnbhasofferedasa“fix”forobjectionstousinganonymousdatamaynot
beareliable“fix,”and
• thatanotherwisereputablemultinationalcompanyhasnotoriouslyviolatedlawsby
usingproceduresandsoftwarestructuresanalogoustowhatAirbnbappearstohave
proposedtoataxagency.
Iftheexplanationofhowthesoftwaremightoperatesoundsliketheequivalentoftheold-
fashioned“twosetsofbooks—oneforthetaxpeopleandoneforeveryoneelse,”thatiscorrect.
Onlyinthiscasetheseparatebookswouldbehiddeninsidesophisticatedsoftwarethatmakestheir
discoveryharder.However,thatisexactlywhattheanonymousdataprovisionintheAirbnb
agreementsinvites—twosetsofbooks.WhetherAirbnbacceptsthatinvitationisunknown.If
problemsweretoarisewithAirbnb’staxreporting,thetaxagencieswouldneedtorecognizethat
theyhavehelpedcreateanysuchproblemsthemselvesbyfailingtopreservetheabilitytoaudit
Airbnb’struebooksandrecords.
RelevanthereishowWestVirginiaUniversityscientistsdiscoveredtheproblemwithVW
dieselcars.Theydiscoveredtheproblemsbydevelopingequipmenttomeasureemissionsinreal
worldconditionsasthevehicleswerebeingdriven,bypassinganysignalstotheemissionsystem
thatatestwasoccurring.16Theydidnotdecodethesoftwareresponsibleforthedeception.They
discoveredtheactualproblembydoingtheequivalentofwhattaxauditorsdo:theylookedatthe
actual“booksandrecords”tofindthetruthofwhatwasoccurring.Thelessonhereisthataflawin
theAirbnbagreementsisnotsimplytheuseofanonymousdatabutalsotheprohibitiononauditor
accesstoinformationnecessarytocompleteafullandproperaudit.IftheWestVirginiascientists
wereoperatingundertheequivalentoftheAirbnbagreements,theywouldnothavebeenallowed
tomeasurethevehicleemissionswhilethecarswerebeingdriven.Instead,theywouldhavebeen
leftwiththeequivalentofexaminingdatageneratedthroughtheEPAtestingprotocols.Thatisa
16See:http://www.npr.org/2015/09/24/443053672/how-a-little-lab-in-west-virginia-caught-
volkswagens-big-cheatandhttps://en.wikipedia.org/wiki/Volkswagen_emissions_scandal.
26
fundamentalriskforthepublicinterestintheAirbnbagreements:thepotentialthatfalsedata
couldbecreatedthattaxauditorscannotcompareagainsttrue,realworldinformation.
f. PreferentialAmnestyforAirbnbandLodgingOperators.Ascomparedtothethree
yearsofbacktaxesplusinteresttypicallyrequiredbyvoluntarydisclosureagreements,severalof
theAirbnbagreementsprovideamnestytolodgingoperatorsandmanytoAirbnbaswell.The
amnestygrantedtoeitherisoverlygenerouscomparedtothestandardvoluntarydisclosure
agreement.Thatisespeciallytrueforlodgingoperatorswhohavefailedtocomply,butreceive
amnestywithoutvolunteeringtocollecttaxesprospectively.AmnestyforAirbnbandlodging
operatorscreatesariskthatvoluntarydisclosuretaxpayerswilldemandsimilartreatment,
upsettingthecarefulbalancethathasmadevoluntarydisclosureagreementsasuccessful
compliancetool.Amnestygrantedtoeveryonesubstantiallyremovestheincentivefornon-
complianttaxpayerstobegincomplyingwithtaxlaws.
FiveoftheagreementsprovideamnestytoAirbnbforalltaxes,interest,penaltiesorother
associatedchargesforallpriorperiods.ThreeagreementsaresilentonAirbnb’sliabilityfortaxes
inpriorperiods,statingonlythatAirbnbwillbeginningcollectingandremittingasoftheeffective
dateoftheagreement.PalmDesertandMontgomeryCo.includelanguagereservingrightsofthe
partiestodisputeclaims,whichimplieseithertheexistenceoforpotentialforclaimsforprior
periods.HillsboroughandPolkCountiesexplicitlypreservespriorclaimsanddonotreleaseAirbnb
of“existingclaims,causeofaction,orindebtedness.”However,noneoftheAirbnbagreements
specificallyrequirethreeyearsofback-taxpaymentswithinterestasisthecaseforthetypical
voluntarydisclosureagreements.
Sevenoftheagreementsgivecompleteamnestytolodgingoperatorsandoccupantsfrom
backtaxes,interestandpenaltiesonAirbnbbookings.Unlikevoluntarydisclosureagreements,
noneoftheAirbnbagreementsrequirelodgingoperatorstopayanyback-taxpaymentsforprior
non-compliance.Incontrast,voluntarydisclosureagreements—whichdealwithnon-compliant
taxpayersinsimilarcircumstances—typicallyrequirethetaxpayerstopaythreeyearsofbacktaxes
withinterestuponenteringtheagreements.Ofcourse,thefactthattherearenoback-taxpayments
requiredofAirbnblodgingoperatorsandoccupantssimplyhighlightstheincredibledefectofthese
agreementsinprovidingbenefitstopartieswhoarenotsignatoriesandthuscannotberequiredto
fulfillanyresponsibilitiesinexchangeforbenefitsreceived.
TheotherfiveAirbnbagreementsthatdonotgrantamnestyvaryregardinglodging
operatorandoccupantliabilityfortaxesinpriorperiods.Theyrangefrombeing(a)silentto(b)
unclearto(c)attemptingtopreservethoseliabilities.Sincenoneoftheseagreementsprovideany
toolsforcollectingthesetaxesfromoperatorsoroccupants,thelanguageislargelymeaningless.
Grantinglodgingoperatorsandoccupantsanamnestyassevenoftheagreementsdois
perplexinggiventheseverepenaltiestaxlawstypicallyimposeonnon-complianttaxpayerswho
havepreviouslyfailedtofilereturns.Forsuchtaxpayers,thereisoftennostatuteoflimitations.
Thatmeanstaxpayerswhohavefailedtofilereturnscanberequired,ifdiscoveredbytax
authorities,topaytaxes,interestandpenaltiesforaslongasthetaxpayerengagedintaxable
activitiesandtheamountofsuchtaxescanbereasonablyestimated.Grantingamnestytooperators
andoccupantswhohavefailedtofileandpaytaxesisahugeinjusticetoanynon-filingtaxpayer
whohasbeenrequiredtopayextensivebacktaxes,interestandpenaltiesfornon-filing.More
importantly,grantingamnestytonon-filersunderminestheincentivesfornon-compliancewith
27
taxesgenerally.Iftaxauthoritieswillnotrequireanybacktaxes,interestorpenaltiesforfailingto
fileandpay,whyshouldataxpayereverbeginpayingatax?
g. MultipleLayersofSecrecy.TheAirbnbagreementsarestartlingintermsofthedegreetowhichtheyconstructashieldofsecrecyprotectinglodgingoperatorsandoccupantsfrom
becomingknowntolocalauthorities,especiallythoseresponsibleforlocalregulationsandlaw
enforcement.Theextensivesecrecyoftheseagreementscontrastswiththeverylimitedprovision
involuntarydisclosureagreementsthattemporarilydefersthesharingoftheidentityofataxpayer
withotheragenciesuntilthetaxpayerbeginsfilingtaxreturns.
Secrecyforlodgingoperatorsbeginsevenbeforethereareagreementsbecauseoftheway
Airbnbdesignsitswebsite.Itdoesnotidentifytheaddressofapropertypriortoaguestbookinga
transaction.A2015memofromtheHumboldtCounty(CA)Treasurer-TaxCollectortotheCounty
SupervisorsnotedthattheAirbnbplatformmakesitnearlyimpossibletoknowthelocationsofthe
rentals,thuscreatingataxcollectionproblem.Hestated,“Notknowingthelocationoftherentals
facilitatedbyAirbnbmakescollectioneffortsunreasonablydifficultandtoocostlytocollect.”17
WithtaxcollectionproblemsbeingcreatedbyAirbnb’ssecrecypractices,thetaxcollectorreported
heaskedAirbnbtohelpsolvethetaxcollectionissue.Airbnbresponded,ofcourse,withaversionof
itstaxcollectionagreementthatpreservesthatsecrecyandprovidesmanyotherbenefitstoits
lodgingoperatorsandoccupants.
BecausesecrecyplaysacentralroleintheissuessurroundingAirbnb,wesummarizein
Table4thesecrecyprovisionsthatrunthroughtheAirbnbagreementsanddiscusstheminsome
detailhere.Thesesecrecyprovisionsareredundantandonlyafewarenecessaryinanyagreement
toachieveastrongbarriertopublicauthoritiesdiscoveringtheidentityoflodgingoperators.
Table4.SecrecyProvisionsinAirbnbAgreementsProvisions Numberof
AgreementsForLodgingOperators
ForAirbnb
AirbnbWebsite—OperatorSecrecy Everywhere1 Yes N/A
OperatorIdentity&FactsHidden 12 Yes N/A
AirbnbFactsIncomplete 12 N/A Yes
RegistrationExemption 9 Yes No
AuditExemption 9-112 Yes No,butlimits
AirbnbBooks&RecordsOff-limitsinAudits 11 Yes Yes
AnonymousDataforAudits 12 Yes Yes
ReturnInformationConfidential 4-63 Yes Yes
InformationExchangeBlocked 5 Yes Yes
AgreementConfidential 6 Yes Yes
NegotiationsConfidential 6 Yes Yes
1ApplieseverywhereAirbnboperates.Websitedoesnotdiscloserentaladdressespriortobooking.
2Languagevariesinagreements,producingvariableinterpretationsofaffectedagreements.
3Languagevariesinagreements,producingvariableinterpretationsofaffectedagreements.Lawsinjurisdictions
provideforreturnconfidentiality,butondifferenttermsthanstatedinagreements.
17JohnBartholomew,Humboldt
CountyTreasurer-TaxCollector,MemorandumtoBoardof
Supervisors,“TransientOccupancyTaxandAirbnbInc.CompliancewithCountyOrdinances,”July
17,2015,p1.
28
TheHumboldtCountyTreasurerwascorrect.Theproblemoflodgingoperatorsecrecy
originatesinAirbnb’ssoftwaredesignthatdoesnotdiscloseanoperatoraddressuntilabooking
transactionismade.Theconsequence,inthepastatleast,hasbeenthatstatesandlocalitiesfaced
highcoststoidentifythelodgingoperatorsintheabsenceofreadyaccesstotheaddresses.18
Astonishingly,Airbnbissuccessfulinleveragingthetaxproblemitcreatedintolegalagreements
thatprovideaheavyshieldofsecrecypreventingpublicagenciesfromknowingwhoisconducting
lodgingbusinessesintheirjurisdictions.
Afterthewebsite,thefirstlayerofsecrecyforlodgingoperatorsarisesfromthenatureof
therecitalsoffacts.Iftherecitalsoffactsweretruedisclosures,astheyareinthevoluntary
disclosureagreements,taxagencieswouldrequireAirbnbtoincludealistorelectronicrecordof
lodgingoperatorsintheapplicablejurisdictions.Thatwouldbeespeciallyappropriategivenallthe
benefitsthattheagreementsprovidetothenon-signatorylodgingoperators.However,therecitals
unfortunatelyarenottruedisclosures,andalltheagreementsfailtoidentifythelodgingoperators
whoreceivetheagreement’sbenefits.Further,astothedisclosureofAirbnb’soperationsinstates,
therecitalsoffactsareincompleteandnotfullysubjecttoverificationbecauseofthelimitsontax
agenciesauditingAirbnb’sbooksandrecords.
Thesecondlayerofsecrecyinvolvestwinprovisionsthatexemptlodgingoperatorsfrom
registeringand/orbeingauditedforAirbnbtransactions.Asnotedearlier,governments
historicallyhaveusedpublicregistrationtoadministertaxes,regulationandlawsenforcement
activities.Notrequiringlocallodgingoperatorstoregisterpubliclyisaradicaldeparturefrom
establishedpracticesofpublicadministration.Intermsoftaxation,wehavenotedtheimpactof
theseprovisionsoneliminatingoperatorrecordsasacross-checkonAirbnb’sreportingand
reducedaccountabilitybytheoperatorsthemselvesforcollectingandpayinglodgingtaxesthey
maycontinuetoowe.Beyondthat,theabsenceofoperatorregistrationalsoreducestheabilityof
non-taxregulatoryandlawenforcementagenciestoidentifyandensurethatlodgingoperatorsare
incompliancewitharangeofnon-taxlaws.Afewagreementsretaintheselodgingoperator
registrationandauditrequirements,mostdonot.
ThethirdlayerofsecrecyinvolvesthelimitsintheagreementsonAirbnbaudits.Thereare
twopartstothislayeraswell.OneprovisionpreventsauditorsfromreachingpastAirbnb’stax
returnsandsupportingschedulestoexaminingAirbnb’sbooksandrecordswheretheycould,
amongotherinformation,securetheidentityoflodgingoperators.Thesecondprovisioninthis
layeristherequirementthatauditorsuseonlyanonymousdatafortheiraudits,furthershielding
theidentityoflodgingoperatorsandoccupants.Theseprovisionsarehighlyunusualand
significantlyreduceAirbnb’saccountabilitytotaxauthorities.Theanonymousdataprovisionis
includedinallagreements,andthelimitonaccessingAirbnb’sbooksandrecordsisinallsaveone.
Thefourthlayerofsecrecywouldseemroutineandinvolveslanguageintheagreements
requiringconfidentialityofreturninformation.Thatisafrequentprovisioninlawinanyevent.
However,thelanguageintheagreementsdoesnotappeartofollowatleastsomeofthelawsonthe
subject.Theagreementlanguageisbroadlystatedandcouldcreateconflictswiththelawin
individualjurisdictions.Further,thereturnconfidentialitylanguageintheagreementsfailsto
distinguishcarefullybetweenprohibiteddisclosuretothepublic,butallowabledisclosurefor
18Thissetoffactsmaybechangingwithadventofsoftwareservicesthatclaimtobeabletoidentify
Airbnblodgingoperators.WewilldiscussthoseservicesinSectionEofthisreport.
29
officialpurposestootherpublicagencies.Thepresenceofthislanguageappearstobeasourceof
confusionandapossibleefforttocreateaseparatebasisforconfidentialityclaims.
Thefifthlayerofsecrecyisunusualbecauseitinvolvesanagreementbythetaxagencyto
notexchangeinformationaboutAirbnb,lodgingoperatorsandoccupantswithotherpublic
agenciesforofficialpurposeseventhoughtheagenciesareauthorizedtoreceivethatinformation.
Exemptionoftheagreementandanytaxpayerreturnandauditinformationfrombeingexchanged
withotherpublicagenciesthroughthenormalnetworkofinformationsharinglawsand
agreements.Thislayerofsecrecyhelpsshieldinanunprecedentedwaylodgingoperatorsand
occupantsfrombeingaskedtocomplywitharangeofstateandlocallawsandregulations,suchas
zoningandoccupancystandards,andlawenforcementoversight.
Someagreementsaddinsulttoinjuryregardinginformationexchangewithotheragencies
bypreventingthesharingoftheagreementitselfwithotherpublicagencies.Theeffectofthis
restrictionistokeepsecretfromthoseagenciesthefactthatthetaxagencyiswithholdingfrom
theminformationaboutAirbnb,itslodgingoperatorsandoccupants.
Thereareauxiliaryprovisionsinsomeoftheagreementsrelatedtothesecrecyprovisions.
TheyincludearequirementinseveralagreementsforAirbnbtobenotifiedinadvanceoffreedom
ofinformationorpublicrecordsrequestsconcerningtheagreement.Threeagreementsrequire
advancednoticeandconsentbyAirbnbbeforethetaxagencyofficialsrespondtomediarequests
concerningtheagreement.AnotheragreementrequiresnoticeinadvancetoAirbnbofany
informationrequestsfromotherpublicagenciesconcerningtheagreements.
Theextensiveshieldofsecrecyfromtaxandregulatorylawshasobviouseconomicvalueto
thelodgingoperatorsandtoAirbnb,ifinnootherwaythanfacilitatingtheconductoflodging
businessesinareasprohibitedbyzoninglaws,occupancystandards,andbuildingorfirecodes.The
AirbnbagreementsthatincludetheseprovisionsenableAirbnblodgingoperatorswhooperateany
illegallodgingfacilitiesintheapplicablejurisdictionstodosowithoutreceivingthenecessary
approvalsfromstateorlocalauthorities.Anysuchfacilitiesthatoperateillegally,nonetheless,
expandAirbnb’srevenueandmarketshare.
Thereisnothinginthevoluntarydisclosureagreementsthatcomparestothesesecrecy
benefitsintheAirbnbagreementotherthanpossiblythetaxagencykeepingconfidentialtheinitial
disclosureofculpablefactsbythetaxpayer.Thetaxpayerunderavoluntarydisclosureagreement
mustregisterandpaytaxesbothprospectivelyandforthreeprioryears.Thevoluntarydisclosure
taxpayerisfullysubjecttoauditsandmustprovideaccesstotheirbooksandrecords,without
exception,sothatthetaxagencycandetermineifthetaxpaymentswereproperlymade.Beyond
anygeneralconfidentialityfrompublicdisclosureenjoyedbyalltaxpayers,thereisnoextrasecrecy
oranonymityprovidedtovoluntarydisclosuretaxpayers.Importantly,therearenoexclusions
fromsharingthetaxpayer’staxreturnandauditinformationwithotherpublicagencies.The
voluntarydisclosureagreementsdonotshieldtaxpayersoverthelongtermfromcomplyingwith
anytaxorregulatorylaws.
h. UnjustifiedConfidentialityofAirbnbAgreements.Finally,someofthemostcuriousprovisionsarethosethatseektomaketheagreementanditsnegotiationsconfidentialinfiveofthe
twelveagreements,allofwhicharenowpubliclyreleased.Secrecyfortheagreementisasserted
30
eventhoughtheredoesnotappeartobeanyconfidentialorproprietaryinformationinthenow-
publicagreements.
Theevidencethatthereisnothingconfidentialorproprietaryintheseagreementscomes
fromthereleaseofthetwelveagreementsdescribedandanalyzedinthisreport.Collectively,these
twelveagreementsincludeallthevariationsofcontentcoveredhere,includingthevariousformsof
therecitalsoffactsbyAirbnb.Intermsoftheiroriginalstatus,sevenoftheagreementsdonot
includeaconfidentialityclausefortheagreementitself.ThreeofthesearefromCalifornia,which
hasstrongopenrecordsandopenmeetinglaws.TheCaliforniaagreementsappeartohavebeen
postedpubliclypriortopublichearingsandmeetingsduringtheirapprovalbyauthoritiesthere.
ThecontentoftheCaliforniaagreements,includingfactsaboutAirbnb,isnotsignificantlydifferent
fromotheragreementswithlanguageassertingtheirconfidentiality.Iftheseagreementspublished
inCaliforniacontainedproprietaryorconfidentialinformation,stepswouldhaveneededtobe
takentoprotectthatinformationfromdisclosure.Thefactthatnosuchstepsweretakenconfirms
theabsenceofconfidentialorproprietaryinformationinthoseagreements.Similarpublic
processesmayalsohavetakenplaceinsomeoftheotherstates.
Forfiveotheragreementsthatarepubliclyreleased,languageispresentwhichassertsthe
agreementisconfidential.Thetaxagenciesapparentlyreviewedtheiragreementsandrealizedthat
thereisnoconfidentialorproprietaryinformationoranythingelseintheagreementsthatjustifies
thattheybekeptsecret.Thereleaseofthesedocumentswithoutredactionsfortaxpayerfactsor
othersensitiveinformationisproofthatthereisnothingintheseagreementsthatjustifies
confidentialityforthedocuments.
Incontrast,voluntarydisclosureagreementsareconfidentialbecausetheycontain
confidentialtaxpayerinformationandproprietaryinformation,includinginformationthatis
otherwisecontrarytotheinterestsofthetaxpayer.Itisessentialtounderstandthatvoluntary
disclosuredonotinclude,unlikeAirbnbagreements,secretlanguageonpolicy.Infurthercontrast
toAirbnbagreements,thepoliciesinvolvedinvoluntarydisclosureagreementsaretypically
publiclyknownandembodiedinrules,lawsorboth.Therehavebeensubstantialopportunitiesfor
thepublictoparticipateinthedecisionstooffervoluntarydisclosureagreements.Thepresenceof
thatconfidentialinformationinvoluntarydisclosureagreements—andtheabsenceofpolicy
content—justifiesthoseagreementsbeingheldconfidentialbytaxagencies.
i. SummaryofComparisonsofAgreements.TheAirbnbagreementsprovideAirbnbanditslodgingoperatorsandoccupantshugebenefitsascomparedtothosereceivedbytaxpayers
enteringvoluntarydisclosureagreements.
Airbnbreceivesamnestyforback-taxpaymentsinexchangeforpermissiontocollect,
reportandpayfuturelodgingtaxesunderlaxstandardsofaccountability.Theagreementsenable
Airbnbtodefinethetaxauditprocessintermsthatundermineitsindependenceandeffectiveness.
Ingeneral,Airbnbgainssubstantiallatitudeindeterminingtheamountoftaxesitwillremittotax
agencies.Mostimportantly,itsecuresashieldofsecrecyforitslodgingoperatorsthatcreatesade
factotaxandregulatoryhavenforthem.Overall,theaudit,reportingandsecrecyprovisionsinthe
Airbnbagreementsextraordinarilyintrudeintoandunderminethenormaltaxadministrative
processestothepointofraisinglegalandconstitutionalquestionsexploredinSectionC.
31
Incomparison,voluntarydisclosureagreementstypicallyrequiretaxpayerstopaythree
yearsofbacktaxeswithinterestandtoadheretothesamestandardsofaccountabilityasother
taxpayers.Disclosureagreementsdonotprovideanybenefitstothetaxpayer’scustomers.They
alsodonotintrudeinto,undermineordisruptstandardtaxadministrativeprocesses.
AirbnblodgingoperatorsandoccupantsarenotevenpartiestotheAirbnbagreements,yet
theyreceivebenefitsfromthem.Lodgingoperatorsdonotidentifythemselvestotaxagencies,do
notdiscloseculpablefacts,donotcommittoanyleveloftaxcomplianceoragreetobelegally
boundbyanyoftheagreements’terms.Voluntarydisclosuretaxpayersarerequiredtofulfillall
theseresponsibilities.Shockingly,inexchangefornocommitmentsbylodgingoperatorsand
occupants,alltheagreementsprovidebenefitstothem.19Mostoftheagreementsgivesubstantially
greaterbenefitstolodgingoperatorsandoccupantsthanstatesprovidetovoluntarydisclosure
taxpayers.Beyondamnesty,agreementsprovideexemptionsfromregistrationsandtaxreporting,
immunityfromauditsandmultiplelayersofsecrecybenefitstolodgingoperatorsandoccupants—
againwithoutanyofthemrequestingthebenefitsorcommittinganyperformanceinexchange.
Theseprovisionscanbestbeviewedasanoutrightgiftbythetaxagencyespeciallytothelodging
operators.
Thegreatdisparityinthetaxtreatmentof(a)Airbnb,itslodgingoperatorsandoccupants
ascomparedto(b)voluntarydisclosuretaxpayersisinequitableandcannotbejustified.Ontax
equitygroundsalone,theAirbnbagreementsshouldberejected.Beyondthat,Airbnbagreements
underminecompliancewithregulatorylaws.Indeed,theagreementswiththeirmultiplesecrecy
provisionsassisttheconversionofresidentialpropertyintocommercial-styleshorttermrentalsin
violationoflocalzoningandhousinglaws.ThesebroaderimpactsshouldfurtherdisqualifyAirbnb
agreementsfromconsideration.
Taxagencieswoulddowelltorecallthattheydonotadministertaxlawsinavacuum.They
dependoninformationtheysecurefromotheragenciesconcerninggeneralbusinessregistrations,
professionalandoccupationallicensing,unemploymentandworker’scompensationrecords,
buildingpermitsandmore.Otherpublicagenciessupportthetaxsystem.Thus,itisdisturbingto
findprovisionsintheseagreementsthatcutoffthenormalflowofinformationfromtaxagenciesto
otherpublicagenciesforofficialpurposes—andfornoapparentreasonotherthanAirbnbseeksto
disruptthatflow.Worseyet,thelanguageofsomeagreementsappearstokeepeventhefactofthis
disruptionoftheflowofAirbnb-relatedinformationsecretfromthoseotheragencies.Suspending
exchangeofinformationprocessesattherequestofataxpayerrisksreducingcooperationbyother
agencieswiththetaxsystemtothedetrimentofeffectivetaxadministrationovertime.
5. WhyAlltheSecrecyintheAirbnbAgreements? Amajorquestionremainsastowhytheextensivelayersofthesecrecyshieldforlodging
operatorsandoccupantsareincludedintheagreementsgiventhattheoperatorsandoccupantsare
notpartiestothem.Thesecrecyshieldforlodgingoperatorsandoccupantshappensbecause
Airbnbleveragesitspledgetocollectfuturelodgingtaxes—evenifthatcollectionisflawed—into
secrecyconcessionsforitscustomersandaffiliates.Typicalvoluntarydisclosureagreementsdonot
19EventhebestagreementsfromataxequitystandpointprovideAirbnblodgingoperatorsand
occupantswiththebenefitofhidingtheiridentities,addressesandtaxdatafromthetaxing
agenciesthroughtheanonymousdataprovision.
32
haveclausesthatstate,ineffect,whatmanyoftheAirbnbagreementssay:
IfTaxpayerAcollectsandpaystaxesinthefuture,theTaxAgencywillgrantTaxpayerA’s
Customersamnestyfortheirbacktaxesandsecrecyfortheiridentitiesandlocalities.If
despiteagreeingtonotaccessanydirectrecordsthatcanidentifytheCustomers,theTax
AgencyhappenstolearnwhotheCustomersare,theTaxAgencywillnotshareinformation
abouttheCustomerswithotherPublicAgenciesthatwouldnormallyreceiveitforofficial
purposesunderexchangeagreements.Further,theTaxAgencywillkeepthisagreement
anditsnegotiationssecretsothattheotherPublicAgenciesdonotevenknowthatpotential
informationabouttheCustomerswillbewithheldfromthem.
Airbnb’sleveragingofitscommitmentstomaketaxpaymentsintobenefitsforitscustomersisa
keydifferencebetweentheAirbnbandvoluntarydisclosureagreements.Voluntarydisclosure
taxpayersdonotleveragetheiragreementtocomplywiththetaxlawsintobenefitsfortheir
customers,butAirbnbdoes.Whyisthatthecase?
Theanswermaywellbethatthereisaself-limitingflawinAirbnb’sbusinessmodel,
popularizedinitsadvertising,thatitissimplytryingtohelppeopleearnalittleextraincomeby
rentingoutsomesparespaceintheirhomestootherpeople.Thereisaninherentlimitinthe
numberofpeoplewho(a)haveextraspaceintheirhomesand(b)arewillingtorentthatspaceout
tostrangers.ForAirbnbtogrow,theyneedtorecruitasmanyfull-time,morethanhalf-timeor
multipleunit(2ormoreunits)operatorsaspossible.Thesefacilitiesareessentiallycommercial,
instead,occasionallodgingoperations.Theymaybeseenwithinneighborhoodsasconverting
residentialhousingintodefactohotels,andreplacingneighborswithatransientpopulation.Many
ofthesecommercial-styleoperationsmayviolateoccupancystandards,buildingandfirecodes,or
zoningregulations.Theseoperatorswouldnotwanttobeidentifiedtopublicagencies.Iftheycan
alsoberelievedoffilinglodgingtaxesordeclaringtheirrentalincomeonincomereturns,thatisall
tothegoodaswell.So,Airbnb“purchases”fromtaxagenciesashieldofsecrecythatthey“resell”to
lodgingoperatorstoattractmoreownersorlong-termlesseesofresidentialpropertytoconduct
Airbnblodgingbusinesses.
Theshieldofsecrecyfromtaxesandregulationslikelyhaslesssignificanceforhome-
sharing—theoccasionallodgingoperatorrentingoutaroomafewnightsamonth.Home-sharing
isoftenallowableunderzoningandhousinglaws,soalsodoesnotneedtobehidden.Secrecyhas
moresignificanceandappealforthosewhoarerentinglodgingcontinuouslythroughvacation
periodsoryear-roundandformultipleunitoperations.Thesearecommercialoperationswhere
theownerdoesnotliveintheproperty.Theseoperationsmorelikelyrunafoulofzoningor
housinglaws,andthushidingtheirlocationisquitevaluabletotheirowners.Otherwise,local
authoritiesmayshutthemdown.Thereisalsomorerentalincomeatstakeherethanwithhome-
sharing.Commercial-styleoperationscurrentlyrepresentAirbnb’sgreatestrevenuegrowth.20
Airbnbiscompetingwithtraditionallodgingcompaniesformarketshareintheshort-term
rentalmarket.Itisalsocompetingwithpeopleforlivingspace.Airbnbcannotmaximizeitsgrowth
andvalueunlessitconvertsexistingowner-occupiedandlong-termrentalhousing,including
apartments,intocommercial-styleshort-termlodgingrentals.Airbnb’sdriveforgrowthand
marketsharetranslatesintoachievingtheseconversionsfromlong-termresidencestoshort-term
20O’NeillandOuyang,“FromAirMattressestoUnregulatedBusiness.”
33
rentalsasquicklyaspossible.Theseconversionswouldcertainlybeslowedandmanywouldnot
occuriftheywererequiredtoundergoreviewtoensuretheirconsistencywithzoning,occupancy,
andbuildingandfirecodesbeforetheyoccur.Insteadofsupportinganysuchlocalreviews,Airbnb
hasopposedrequirementsfortheirlodgingoperatorstoregisteraslodgingbusinesses.Further,it
hasdesignedthesetaxagreementsasvehiclesforgainingcreditforcollectingtaxesfromguests,
whileconstructingashieldofsecrecyovertheidentityandlocationoflocallodgingfacilitiesto
avoidapplicableregulations.Airbnbhasevenacknowledgedthattheseagreementsareimportant
toreducingits“regulatoryrisk.”21Theshieldofsecrecyfacilitatesunimpededandoftenillegal
conversionsofresidentialpropertyintocommercial-stylelodgingfacilities.Unfortunately,by
enteringtheseagreements,taxagenciesbecomeunwittingpartnerswithAirbnbinenablingthis
process.
21LeslieHook,“Airbnblookstosecure700taxdealswithcities.”
34
SectionCThePublicImpactoftheAirbnbAgreements
ThepriorsectiondescribesandanalyzesindetailthefeaturesofAirbnbtaxagreementsin
contrasttothevoluntarydisclosureagreementsthatarethe“goldstandard”ofagreementsto
encouragepropercompliancewithstatetaxlaws.Thissectionpullstogethertheprioranalysisand
addstoitinrelevantandsignificantways.Theobjectivehereistoproduceconclusionsinthree
broadareasofpublicpolicy:taxpolicy,democraticgovernanceandunderminingtheruleoflaw.
Thetaxpolicysummaryhereisrelativelybriefbecausemuchofthematerialhasbeendiscussedin
detailinSectionB.Thereviewofdemocraticgovernanceissuesismoredetailedbecauseitwasless
welldevelopedpreviously.TheimpactoftheAirbnbagreementsontheruleoflawistheoutcome
oftheissuesdevelopedinthetaxpolicyanddemocraticgovernancediscussions.
1. TaxPolicy:FairnessandaLevelPlayingField Intermsoffairness,wewillsummarizefindingsconcerningtheAirbnbagreementsinthree
areas:
1. DotheagreementstreatcomplianttaxpayersfairlyincomparisontoAirbnbandAirbnb’s
lodgingoperatorsandoccupants?
2. Dotheagreementsestablishalevelplayingfieldbetweentraditionallodgingbusinessesand
AirbnbandAirbnb’slodgingoperatorsandoccupantswithrespecttobothtaxesand
regulations?
3. Isitfairandreasonabletosubjectordinaryresidentsseekingaplacetolivetoface
competitionforhousesandapartmentsfromillegalcommerciallodgingoperations?
a. UnequalTreatmentofCompliantTaxpayersComparedtoAirbnbandItsOperators.Theagreementsareunfairtotaxpayerswhofileandpaytheirtaxesdiligently.Theyareunfairas
welltonewlycomplianttaxpayerswhohaveenteredtraditionalvoluntarydisclosureagreements,
payingthreeyearsofbacktaxeswithinterestandremainingfullyaccountableforfuturetaxes.The
agreementsprovideoverlygenerousbenefitstolodgingoperatorsandoccupantsintermsof
completeforgivenessforunpaidbacktaxesonAirbnbtransactions,anexemptionfromanyfuture
taxresponsibilitiesonthosetransactions(evenfromfilingreturnsasacheckonAirbnb’sfilings)
andsecrecyprovisionsthatshieldlodgingoperatorsfrompropercompliancewithanyregulatory
lawsapplyingtotheirshort-termrentalbusiness.Thereisnodoubtthatlodgingoperators,ifthey
meetfilingthresholds,shouldbecollectingandpayinglodgingtaxes.Iftheyfailtodosotheyshould
berequiredtopaybacktaxesalongwithappropriatesanctions.Forgivingbacktaxescompletely
removestheincentivethatanynon-complainttaxpayerwouldhavetocomeintocompliance.Being
allowedtoavoidapplicablenon-taxregulationsandlawsisunacceptableandinappropriateinatax
agreement.
Airbnbitselfmayormaynothavebeenrequiredtohavecollectedandpaidtaxesforprior
periodsduetooutdatedstatutes,whichshouldbecorrectedasapriorityoveranyagreements.
However,theagreementsstillgrantoverlygeneroustreatmenttoAirbnbbecause,duetoalackof
adequatecontrolsandaccountability,itcaneffectivelydeterminetheamountoffuturetaxesthey
willcollectandpay.TheagreementscouldevenallowAirbnb,ifitchosetodoso,tomakeaprofit
ontaxcollections,chargingoneamounttoguestsandsendingalesseramounttotaxauthorities
withnorealriskofdiscovery.Othertaxpayersdonotgettosettheirowntaxesandavoid
accountabilityforwhattheyreportandpay.Further,Airbnbbenefitsevenmorefromthesecrecy
35
provisionsfortheirlodgingoperatorsbecauseitexpandstheirnumberoflodgingoperators,
revenuesandmarketshare.Thisauthorisunawareofanyotherbusinesstaxpayerreceiving
comparablepreferentialregulatorysecrecyfortheircustomers.Again,providingadefactoshield
fromregulatoryenforcementisinappropriateinataxagreement.
b. UnfairCompetitionforTraditionalLodgingFacilities.TheagreementsallowAirbnb
lodgingtocompeteunfairlywithtraditionalhotels,thusfailingtoestablishalevelplayingfieldfor
competitionbetweenthetwo.TheunjustifiedadvantagesgainedbyAirbnblodginginclude
forgivenessofbacktaxesonAirbnblodgingwithtraditionalhotelsthathavebeencollectingand
payingtaxes.Further,theadvantagesincludegrantingAirbnbtheabilitytodeterminehowmuchit
willcollectandpayinfuturelodgingtaxes,extendingeventotheabilitytomakeaprofitoffthe
collectionifitchoosestodo.Finally,theagreementsthroughthesecrecyprovisionsforlodging
operatorscreatearegulatoryhavenforAirbnblodgingwhentraditionalhotelsarerequiredto
complywithalllawsandrulesapplicabletolodgingfacilities.Theagreements,ineconomicterms,
discriminateagainsttraditionalhotelsandinfavorofAirbnblodging.
c. UnfairCompetitionforCommunityResidents.Societyprovidesthroughzoningandotherpoliciesresidentialneighborhoodsasplacesofprivatereposeandrelaxation.Theyareplaces
wherepeoplecanraisetheirfamilies,sendtheirchildrentoschool,andcareforeachotherintimes
ofneed.Theyarewherepeopleengageincommunityandcivicactivitiesandexercisetheirpolitical
andreligiousrightsascitizens.Fortheseandotherworthwhilepurposes,societytypicallyseeksto
ensurethestabilityofresidentialareas.Competitionforhousesandapartmentsisstructuredto
proceedamongcitizenswhobringpersonalresourcestosecuringaplacetolive.Whenlong-term
residencesareconverted,quiteillegally,intodefactocommerciallodgingproperties(beyondoccasionalhome-sharing),thecompetitionforhousingandapartmentsismanifestlyunfairto
committedcitizens.Thatisbecausecommerciallodgingfacilitiescanfinancethepurchaseorlong-
termleaseofresidencesthroughtheanticipatedfuturestreamofrevenuefromshort-termrentals.
Citizensarelimitedtotheirownpersonalincomeandassets.Theanticipatedfuturestreamof
lodgingrevenueswilloftenswampthepersonalresourcesofordinarycitizens.Increasingly,
residentialneighborhoodsintendedforcitizenswillbeplacedoutoftheirreach.Overtime,
neighborhoodswillceasetoberesidentialdespitebeingdesignatedforthatpurposebylocal
zoningandhousinglaws.Itisfundamentallyunfairtoallowtechnologyandprivatecapitalto
illegallyunderminelocallawsonlanduseplanningandregulationdesignedtoprotectthe
characterandintegrityofresidentialneighborhoods.Notaxagencyshouldentertaxagreements
thataidandabetthatprocess.
2. DemocraticGovernance:Integrity,PublicTransparencyandImproperFavoritism Intermsofachievinghighstandardsofqualityinpublicadministrationandgovernance,
willsummarizetheagreementsintermsofthesequestions:
1. Dotheagreementsmeetstandardsofintegrity?
2. Dotheagreementssupporttransparencyandpublicparticipationindecision-making?
3. Dotheagreementsviolateagencyauthoritythroughfavoritism?
a. Integrity.Theagreementshaveanoverlyflexiblerelationshiptothetruth,discardproceduresdesignedtodiscoverthetruth,andcondonepotentialbehaviorthatlacksintegrity.
36
Considerfirstsomesimplemattersoffact.TherecitaloffactsbyAirbnbarecertainly
incompleteandmaybeinaccurate,butthereisnomechanismintheagreementsforverifyingthe
truefacts.Tenoftheagreementsstatethattherearenothird-partybeneficiaries,buttheyeach
grantbenefitstothenon-signatoryAirbnblodgingoperatorsandoccupantswhoare,infact,third-
partybeneficiaries.
Second,theagreementsinseveraldifferentwaysclaimtobeonething,butintruthare
somethingelse.Theagreementsclaimtobeabouttaxes,buttheirrealpurposeappearstobethe
constructionofashieldofsecrecyforAirbnblodgingoperatorsthatprotectsthemfromcomplying
withvariouslanduseandhousinglawstotheeconomicbenefitofthelodgingoperatorsandAirbnb
itself.Theagreementssuperficiallyappeartobetaxsettlements,butthey(a)donotciteanylegal
authorityconfirmingthenatureandbasisoftheagreements,(b)donotgenerallyariseoutofatax
disputethatjustifysettlements,and(c)arenottaxsettlementsatall,butdisguisedrulestailoredto
benefitAirbnbanditscustomers.Finally,severalofthedocumentsclaimtobeconfidential,butdo
notcontainevenoneiotaofconfidentialandproprietaryinformation.Uponreviewthese
documentslabeled“confidential”havebeenreleasedpubliclybecause,intruth,theywerenever.
Third,theagreementscontainprovisionsthatcondonepotentialbehaviorthatlacks
integrity.TheuseofanonymousdataandthebaronexaminingbooksandrecordsinviteAirbnb,if
itweretochoosetodoso,tounderreportandunderpaytaxes.Theseare“collectionagreements”
thatdon’tguaranteepropercollection.Theshieldofsecrecyforlodgingoperatorsputinplaceby
manyoftheseagreementsisdesignedtofacilitatenon-compliancewitharangeoflaws.Theworst
oftheseagreementsareavirtualhandbookforbadbehavior.
Finally,thereisamajorfeatureofmostoftheagreementsthatstrainscredibility.Itis
difficulttounderstandhowitispossibleformostoftheagreementstooffersubstantialtaxand
regulatorybenefitstoAirbnblodgingoperatorsandoccupantswhoarenotpartiestothem.Cantax
agenciesgivespecialgiftstoanentireclassofunknownbusinessesorindividualswhocommitto
noperformanceinreturnandwhoseonlydistinctive,butcommonfeatureisthattheyare
customersofonebusiness?Canthisreallybetrue?
Taxagreementsshouldhaveintegrity.Theynotshouldgetthefactswrongfromthe
beginning,atleastwithoutthemeansfortheircorrection.Theyshouldnotclaimtobeonething,
butactuallydosomethingelse—inthiscasesomethingelseinmanydifferentways.Theyshould
notopenapathwaytobadbehavior.Theyshouldnotcontainprovisionsthatarenotcredible.Yet
thatiswhatmanyoftheseagreementsdo.
b. TransparencyandPublicParticipation.Wehavealreadyestablishedthatnoneofthetwelveagreementscontainanyconfidentialinformation,eventhoughfiveofthemcontaina
provisionstatingthattheagreementisconfidential.Fortunately,thetaxagenciesforthesefive
agreements,uponreview,concludedthattheagreementswerepublicdocumentsandshouldbe
releaseddespitetheconfidentialityprovision.Thatisalsolikelytobethecasewithalarger
numberoftheagreementsaroundthenationthatstillarebeingwithheldfrompublicview.Airbnb
hasbeencampaigningfromstatetostateandcitytocitywithsimilarlanguage.Thatlanguage
containsnoconfidentialinformationaboutAirbnb,buttothecontrarycontainspolicylanguage
grantingamnesty;establishingrulesforadministrationandauditing;suspendinginformation
exchangeprocesseswithotherpublicagencies,andendowingbenefitstoageneralclassof
unidentifiedtaxpayerswhoarenotsignatoriestotheagreement.Thatinformation,mostassuredly,
37
underanyreasonablereadingofopenrecordslawsshouldandmustbereleasedtothepublic.In
thefewcaseswhereanagencymayhaveincludedspecificconfidentialtaxreturninformation,
investigationresultsorproprietaryfacts,thatinformationcanberedacted,andtheremainderof
thelanguagethatconstitutespolicy,rulesofadministrativepractice,affectsotheragenciesand
grantsbenefitstoataxpayerclassshouldbepubliclyavailable.Giventhecontentofthetwelve
agreementsreleasedtodate,thereisnoexcuseforagenciestofailtoreleasetheremainderofthe
agreements,providedanytrulyconfidentialinformation,ifitoccurs,isredacted.
Thepolicysubstanceoftheagreementsalsorequiresthemtobeadoptedasrules.Howcan
adocumentthatprovidesnewtermsfortaxamnesty,establishesadministrativeandaudit
procedures,deniesaccessbyotheragenciestootherwisestandardtaxinformation,andcreatesa
classoftaxpayerstoreceiveafloodoftaxandregulatorybenefitsbeanythingotherthanarule?If
thesubstantivecontentisnotenough,thesocietalimpactofthiscontentontaxequity,market
competition,theruleoflaw,theintegrityoftaxadministration,andthequalityoflifeand
affordabilityofhousinginresidentialneighborhoodsdemandsthattheseprovisionsbeproposedas
rules.Agenciesorlocalauthoritiesshouldconductpublichearings,provideforwrittencomments
andconsiderallinputbeforeanyoftheseprovisionsareadoptedasrulesandtranslatedinto
agreements.Foranyexistingagreementsthathavenotbeensubjecttopublicparticipation,
agenciesorlocalauthoritiesshouldundertakeappropriateremedialactionanddecision-making.
c. DotheAgreementsViolateAgencyAuthoritythroughFavoritism?Thereareatleastthreespecificareasintheagreementswheretaxagencies,legislativeoversightauthoritiesandthe
publicshouldcarefullyconsiderquestionsofwhethertheactionstakenundertheagreements
contravenelegalauthority.Thequestionsinvolvewhetherthelawauthorizesthegrantingof
favorabletreatmenttoAirbnboritslodgingoperatorsandoccupantsthatisnotavailabletoother
taxpayers.Ofcourse,theanswerstothesequestionswillvaryamongstatesandlocalities
dependingonstateconstitutionsandapplicablestateandlocallaws.
Thethreeareasinvolve(a)taxbenefits,especiallyback-taxforgivenessandexemptions
fromtaxregistration,reportingandaudits,providedtoAirbnb’slodgingoperators,(b)exempting
Airbnbinformationfrominformationsharingarrangementsand(c)improperlycedingcontrolof
taxingauthoritytoAirbnb.
ThefirstquestioninvolveswhetheragencieshaveauthoritytoprovideAirbnblodging
operatorsandoccupantswithbenefits,especiallyback-taxamnesty,throughagreementstowhich
theoperatorsandoccupantsarenotaparty.Typically,back-taxreliefisonlygiventoparties
directlythroughagreementsinwhichthepartiesparticipateandcommittoalevelofperformance
justifyingwhateverreliefisgiven.Isitpossibletogivereliefoutsideadirectagreement?Ifthe
answeristhatthereliefisjustifiedbecauseAirbnbcommitstofuturecollection,whythenaren’t
customersofothertaxpayerswhoentervoluntarydisclosureagreementsandagreetocollectalso
givenback-taxrelief?WhydoAirbnb’scustomersgetreliefwhenTaxpayerX’scustomersdonot?
Isthereanotherequaltreatmentissuehereinthatthestandardback-taxreliefistorequirethree
prioryearsoftaxeswithinterest?IntheAirbnbagreements,acompleteamnestyforprioryearsis
provided.Whatistherationaleandauthorityforgrantingcustomerreliefatall?Ifreliefisgranted
toAirbnb’soperators,isthereawaytostructureittorequirethreeyearsofbacktaxeswithinterest
insteadofnobacktaxesatall?
38
Parallelquestionscanberaisedabouttheexemptionoflodgingoperatorsfromtax
registration,reportingandaudits.
Thesecondareaofquestionsiswhethertaxagencieshavetheauthoritytoselectively
withholdinformationsecuredfromonetaxpayerfromotherpublicagencieswithwhichit
exchangesinformationforofficialpurposes.Fiveoftheagreementshavesometypeoflanguage
limitingtheexchangeofinformationwithotheragencies,withoneoftheagreementsbeingless
restrictivethantheothers.22Thelanguagevariesamongtheagreements,andtheunderlying
exchangeofinformationlawsandagreementsalso,ofcourse,vary.Thus,itisdifficulttoanalyze
theseprovisions.However,theoverallthrustistoprohibitexchangesofinformationunlessthey
arerequiredbylaworareforpurposesoftaxcollection(includinglegalproceedingsrelatedtotax
collection),withthetaxcollectioninsomeagreementslimitedtoonlythelodgingtaxesthatarethe
subjectoftheagreement.Thereisthestrongpotentialforconfusionoverwhat“requiredbylaw”
means,especiallyinthecaseswherethelawpermitstaxagenciestoexchangeinformationwith
otheragenciesandhaveenteredexchangeofinformationagreementswhichrequirethose
exchangestooccur.Whilethatisanimportantcomplication,itisnotthefocusofthediscussion
here.
Thefocushereisonthequestionofwhetheragencies,underexchangeofinformationlaws
andagreements,canselectivelywithholdinformationfromonetaxpayersourcewhilesupplying
informationfromallothertaxpayersources.Dotheagreementstoexchangeinformationwithother
publicagenciesallowinformationtobewithheldpurelybasedontaxpayeridentity?Whatisthe
rationalbasisfortaxagenciestonotprovideinformationthatoriginateswithAirbnbasopposedto
informationfromallothertaxpayers?IsthewithholdingofAirbnbinformationanarbitrary,
preferentialact?Iftheseorsimilarquestionscannotbeansweredsatisfactorily,thenthetax
agenciesneedtoconsiderwhethertheyhaveexceededtheirauthorityinagreeingtothelimitson
exchangeofinformationwithotheragencies.
ThethirdquestioniswhethertaxagencieshavecededcontroltoAirbnbtopotentially
determinetheamountoftaxesitwillpay.Thatcedingofcontroloccursbecauseoftheegregious
auditlimitsthatbaraccessbytaxagenciestoAirbnbbooksandrecordsandthatrequiretheuseof
anonymousdata.ThoseauditlimitseffectivelyallowAirbnbtodecidewhatitwillpayintaxes
becauseunderpaymentswouldnotbediscovered.Twotypesofprovisionscomeintoplay.Many
stateshave“nosurrenderoftaxauthority”clausesintheirstateconstitutions.Montana’sclause
readsasfollows:“ArticleVIII—RevenueandFinance,Section2.Taxpowerinalienable.Thepowertotaxshallneverbesurrendered,suspended,orcontractedaway.”Inaddition,stateand/orlocal
governmentsmaydefinethedutiesandauthorityoftheirtaxagenciestoincludebeingresponsible
fortakingactionstoensurethattaxpayerscomplywiththelawsofthestateorlocalgovernments.
Suchstatutesimplythattheagenciesshouldnottakeanyactionsthatallowtaxpayerstofailto
complywiththelaws.Thespecificquestionthatneedstobeexplored,ifsuchconstitutionaland
statutoryprovisionsarepresent,wouldbe,“Doescedingeffectivecontroloftaxestobepaidto
Airbnbintheseagreementsconstitute(a)a‘surrender’or‘contractingaway’ofthestate’staxing
authoritytoaprivatepartyor(b)anactionknowinglytakenbyataxagencytoallowataxpayerto
22TheStateofFlorida,PinellasCounty,MontgomeryCounty,andSantaFeagreementsprohibit
exchangesofinformationwithpublicagenciesbeyondcertainallowableexchanges.Humboldt
Countyislessrestrictivebylistingcertainallowableexchangesandremainingsilentonother
exchanges,whichareprohibitedonlybyimplication.
39
failtocomplywiththelaw?”Iftheansweris“yes”toeitherpartofthequestion,thatwouldappear
torequireamodificationoftheAirbnbagreementtoensurethatthetaxagencyhassufficient
accesstobooksandrecordstoensureAirbnbisproperlycomplyingwiththetaxlaw.
If“surrendering,suspendingorcontractingawayoftaxingauthority”soundslikean
abstractlegalconcept,beassureditsrootsarefoundinpublicrevulsionovertaxfavoritism.The
ideaofincludingthistypeofprovisioninstateconstitutionsemergedinthelate19thcenturyduring
the“RobberBaron”eraofU.S.history.Muchofthepublicwasupsetoverpublicofficialsmakingtax
dealswithpowerfulcorporationsandwealthyindividualsthatgavethemspecialbenefitsatthe
expenseofeveryoneelse.Thelanguagewasintendedpreciselytostopspecialtaxarrangements
thatconstitutefavoritism.
Unfortunately,incontemporarystateandlocaltaxadministrationthereiscontinuous
pressuretoreachcompromiseswithtaxpayersthat“anti-surrender”clausesinstateconstitutions
and“dutytotakeactiontoensurecompliancewiththelaw”statutesgetbypassedoroverlooked.
However,theAirbnbagreementsrepresentanextensivesurrenderofcontroloverauditprocesses
toataxpayersuchthattheseover-archingconstitutionalorstatutoryprovisionsdesignedtoensure
equityandintegrityintaxcompliancecannotbeignored.
3. UnderminingtheRuleofLawTheAirbnbagreementsdonotsupport,butinfactunderminetheruleoflaw.Wewilllook
atareasofimpactoncompliancewiththelaw:lodgingtaxes,stateandlocaltaxesingeneral,and
locallanduselawsandregulations.
Regardinglodgingtaxes,thecorrosiveimpactoftheagreementsoncompliancewiththelaw
arisesfromtherestrictionsintheagreementsontheabilityoftaxagenciestoconductstandardtax
auditsofAirbnb’sbooksandrecords.WehavenotedatlengthhowAirbnbcouldeffectively
determinewhattaxesitwillcollectandpaytostateandlocalauthoritiesbecausethelimitsontax
auditsmakeitimpossibleforagenciestoholdAirbnbaccountable.Otherprovisionsinsome
agreementsrequireAirbnbtoreporttoeachoperatorandoccupanttheamountchargedintaxes
mightfurtherencouragethisprofiteering.So,therightamountcouldgetcollectedbutnotpaidto
authorities.Thediscussiononpages24-26explainshowAirbnb’stechnologicalassurancethatthe
righttaxamountsarecollectedandpaidmaynotbereassuringatall.Wedon’tknowwhatchoices
Airbnbwillmakeundertheagreementsconcerningcompliancewithlaw.Ifitmakesthewrong
choices,theruleoflawsuffers.
Thecontentoftheagreementsthemselves,asmoreofthemarepubliclyreleased,will
createnewpressurestounderminegeneralcompliancewithalltypesofstateandlocaltaxes.The
pressurewillmostlycomeintermsoferodingtheeffectivenessofvoluntarydisclosureagreements
thatcarefully,buteffectivelyencouragenon-complianttaxpayerstocomeintotaxcompliance
withoutreducingtheincentivesformosttaxpayerstocomplyinthefirstplace.Theformulaof
havingtaxpayershonestlydiscloseallrelevantfactssubjecttoverification,paythreeyearsofback
taxeswithinterestbutnotpenalties,andcommittofuturecompliancewithfullaccountabilityhas
workedtosteadilyimprovecomplianceandgenerateimpressivesumsofrevenueforstateand
localgovernments.Bycomparison,agencies“giveaway”moreundertheAirbnbagreementswhile
theyarenotlikelytoyieldtherevenuethatthevoluntarydisclosureagreementshaveinthepastor
shouldinthefuture.Theword“should”isusedherewithrespecttothevoluntarydisclosure
40
agreements,becauseoneofpotentialadverseeffectsoftheAirbnbagreementsistoendangerthe
futureoftheseextraordinarilyvaluableagreements.
ThereisathreatoftheAirbnbagreementsunderminingtraditionalvoluntarydisclosure
agreementsbecausewhenlaidsidebyside,theAirbnbagreementsarehugelygenerousintherelief
grantedtonon-complianttaxpayers,primarilytheAirbnblodgingoperators,ascomparedtothe
taxpayersenteringvoluntarydisclosureagreements.Asanunfortunateprecedentthatcouldbe
appliedinothertaxcontexts,theAirbnblodgingoperatortreatmentissogenerousthatitremoves
mostincentivesfornon-complianttaxpayerstoevercomplyuntiltheyareabouttobediscovered
bytaxagenciesandtheylobbyorlitigateforAirbnb-styleterms.TaxpayerswilllookattheAirbnb
termsvs.thevoluntarydisclosuretermsandsay,“GiveustheAirbnbdessertplease.”Andifthetax
agenciesresist,attorneysmaystartlookingforwaystofilelawsuitstosecureAirbnbterms.
ThethreeprovisionsintheAirbnbthatareirresistibletotaxpayersare(a)zeroback-tax
paymentsforpasttaxyearsforlodgingoperators23andoccupants,(b)controloftheaudit
process—nobooksandrecordsauditedandanonymousdataused,and(c)anexemptionfrom
informationsharingwithotherpublicagencies.OncetheAirbnbagreementtermsgetknown,why
wouldn’ttaxpayersapplypressuretosecurethem?Indeed,whywouldn’tavoluntarydisclosure
taxpayerhavingpaidaheftythreeyearsoftaxeswithinterestfileforrefundanddemandonequal
protectiongroundstoreceivethesametreatmentasAirbnb’slodgingoperatorssecured?Ina
Gresham’slawfortaxadministration,badpractices(Airbnbagreements)willdriveoutgood
practices(voluntarydisclosureagreements).24Intheprocess,theAirbnbagreementswill
underminecompliancewithstateandlocallawsgenerally.Theruleoflawwillloseagain.
ThefinalareawheretheAirbnbagreementswillunderminetheruleoflawisregarding
locallanduse,zoning,housing,occupancyandbuildingsafetylaws.Asdescribedearlier,theAirbnb
agreementsthatcreateshieldofsecrecyforlodgingoperatorswilleffectivelyallowandenablethe
growthillegalhotelstooperateintraditionalresidentialareas.Isitpossiblethatthegoalisto
underminecompliancewithlocallanduseandhousinglawsenoughtochangetherealityonthe
groundtosufficientlythatiflawsareenactedtostoptheconversionstocommerciallodging,those
lawswill“grandfather”inplacetheillegalhotels?Ifthatoccurs,changewouldhaveoccurred
improperlyattheexpenseoftheruleoflawwiththosewhoviolatedthelawgettingrewarded.
23Itistheback-taxtreatmentoftheAirbnblodgingoperatorsthatwillbereferencedbyvoluntary
disclosuretaxpayers.Theseoperators,withtheirindisputableconstitutionalandstatutory
obligationtohavepaidpriortaxes,offersthedisclosuretaxpayersthebestpointofcomparison.
Thedisclosuretaxpayerseitherhadtheidenticalobligationtopaytaxesasthelodgingoperatorsor
alesserobligation,yettheirvoluntarydisclosureagreementsrequirethreeyearsofbackpayments
andtheoperatorspaynone.
24StatetaxagenciesthathavesignedAirbnbagreements,butarealsoactiveinofferingvoluntary
disclosureagreements,suchasthosecoordinatedbytheMultistateTaxCommission’sNational
NexusProgram,mayfindthemselvesatthe“pointofthespear”facingclaimsofinequitable
treatmentofAirbnblodgingoperatorsascomparedtovoluntarydisclosuretaxpayers.
41
SectionD
CommentaryonShort-TermRentalLegislation
Statelegislaturesandlocalmetropolitanareashavebegunconsideringandenacting
legislationapplicabletoshort-termrentals.Theactionsthusfarappeartobelimitedandclusterat
twodifferentdirections.Onecategoryoflegislationisaimedatprohibitingorreducingtheshort-
termrentalofapartmentsthatarenotoccupiedbyapermanentresident.Legislationinthis
categoryhasbeenenactedinSanFranciscoandNewYorkthatseekstolimitwhatofficialsinthese
areasviewastheconversionoflong-termapartmentsintoshort-termhotels.Maintainingan
affordablesupplyoflong-termrentalsisamotivatingfactorforthisclusteroflegislativeactivity.
Rulesprohibitingadvertisingofsuchrentals,feesandfinesarepartofthediscussionand
controversyaroundthistypeoflegislation.
Asecondclusteroflegislation,enactedorproposed,isaimedinanoppositedirectionandis
representedbylegislationenactedinArizonain2016(SB1350)that(1)severelynarrowsthe
groundsonwhichlocalgovernmentscanregulateshort-termrentals,(2)allowsonline
marketplacestocollectandpaytaxesforthelodgingoperators,butonlyinreturnsthatdonot
identifythelodgingoperators,and(3)exemptsthereturnssubmittedfromamajorportionof
informationexchangelaws.Thelatterincludesprohibitinginformationsharingwithlocal
governments,otherArizonastateagencies,otherstategovernmentsandtheInternalRevenue
Service.Forthelimiteddisclosurethatisallowed,theonlinemarketplacemustgivewritten
consenttothedisclosure.TheAmericanLegislativeExchangeCouncil(ALEC)hasapprovedan
evenlessspecificmodelbillbasedontheArizonalegislation.
TheArizonalawandproposalspatternedafteritpromotetheexpansionofshort-term
rentals,includingtheconversionoflong-termresidentialhousingintolodgingrentals.The
strongestprovisionsoftheArizonalawarethosethatpreemptlocalgovernmentauthorityto
regulateshort-termrentalsandthatexpandthesecrecyofshort-termrentalinformationthrough
limitsonpublicagenciesexchanginginformation.Ironically,theArizonabillstillallowslocal
governmentstoregulateshort-termrentalsbasedonpublichealthandsafety,butprohibitsthe
statefromacquiringinformation(lodgingoperatoridentities)andsharingitwithlocal
governmentsthatwouldassistcities,townsandcountiesinprotectingpublichealthandsafety.The
ArizonalawispatternedaftertheprivacyandinformationexchangelimitsintheAirbnb
agreementsandservestheAirbnbformulaofexpandingitsmarketsharebyattractingmore
lodgingoperatorstosignupbecausetheygainashieldfromfederal,state,andlocalenforcementof
laws—bothtaxandregulatoryinnature.
WhatshouldalarmstateandlocaltaxagenciesisthegrowthintheextentofAirbnb-type
restrictionsoninformationexchangeinArizona’staxlaw.Thereisnowaprecedentinstatelaw
wherebyonenarrowbusinessinteresthaslimitedtheinformationprovidedtothestate’stax
agencyandhasprohibitedeventhatsmallamountofinformationfrombeingsharedwithcities,
towns,andcounties,otherstateagenciesinthatstate,taxagenciesofotherstates,andtheIRS.
Informationsharingamongtaxagenciesisacriticalfoundationofeffectivetaxadministrationand
complianceintheUnitedStates.TheArizonalawmaywellhaveopenedthefirstcrackinthat
foundation.Taxagencieseverywhereshouldtakenoteofthisdevelopmentandrallyeventsto
42
preventitfromoccurringagain.Mostcertainlyagenciesshouldnotencouragethespreadof
exchangeofinformationrestrictionsfurtherbysigningmoreAirbnbagreements.
AlsoofconcernintheArizonalawisthat,forwhatexchangesofinformationremain,Airbnb
andotheronlinebookingcompaniesmustconsenttotheinformationsharinginadvance.Thatlaw
expandsaprocess,firstappearinginthePinellasCountyagreement,whichrequiresnoticeto
Airbnbofinformationexchangesforofficialinvestigativeorenforcementactivityunderway.Under
thePinellasterms,thecountyissupposedtoallowAirbnbsufficienttimetotakelegalactionto
preventthatsharingfromoccurring.Further,nothinginthatagreementstopsAirbnbfrom
spreadingtheknowledgeitlearnsaboutinvestigativeorenforcementactivitieswithitsoperators.
TheArizonalawsparesonlinecompaniesthetroubleofgoingtocourttoblockinformationsharing
bygivingthemapprovalauthorityoverwhetherthetaxagencycanshareinformationifother
publicofficials.TheimplicationsofthePinellasprovisionforprivateinterferencewithpublicaction
wasbadenough,buttheArizonalawisevenworse.
Thequestionstaxagenciesshouldaskthemselvesinclude,“Whatwillbethenextgroupof
taxpayersthatlobbiesthelegislaturetogainthesameexemptionsfrominformationexchanges?”
Wedonotknowtheanswertothatquestionyet.However,iftheprecedentcontinuestoexpand
andspread,stateagenciesknowthatitcanhaveaseriousnegativeeffectontaxcompliance.
ProhibitingexchangesofinformationwithotherstategovernmentsandtheIRSstartstocutoffa
statefromvitalinformationitusesinitstaxauditandcomplianceactivities.Further,ifmorestates
expandlimitsoninterstateexchangeofinformation,itcouldhaveseriousimplicationsforthe
viabilityofcooperativecomplianceprogramssuchasthosemaintainedbytheSoutheastern
AssociationofTaxAdministrators,theMultistateTaxCommissionandotherorganizations.
Anotherquestiontoaskis,“WheredidtheArizonalegislaturegettheideathattheselimits
oninformationexchangewereOKtodo?”Welikelyknowtheanswertothatquestion.Legislators
wereprobablyadvisedthattheselimitsoninformationexchangearefinefromataxadministrative
standpointbecausealargeandgrowingnumberofstateandlocaltaxagencieshavealreadysigned
Airbnbagreementsinwhichtheyagreetolimittheexchangeofinformationwithotherlocal,state
andfederalagencies.Taxagenciescantrytoobjectthattheagreementstheysigneddidnotlimit
exchangeswithotherlocal,stateandfederaltaxagenciesorthoserequiredbylaw.However,
criticaldetails,asevidencedbytheArizonalaw,likethatgetlostinthelegislativeshuffle.Whenthe
ballstartsrollinginmorestateswithotherselecttaxpayerslobbyingforandsecuringlimitson
theirinformationbeingexchangedfortaxandregulatorypurposesandthewholenetworkof
exchangeprocessesamongtheseveralstatesandtheIRSbeginstounravel,taxagencieswillonly
beabletoblamethemselvesforsigningAirbnbagreements.Thesheernumberofagreements
beginstocoveruptheirunderlyingflawsthroughasenseofinevitability,whichmaybeanelement
ofAirbnb’sstrategy.
Thesameistrueforlocaltaxagenciesthatsignedtheseagreementsthatfocusoncollecting
relativelymodestsumsoflodgingtaxrevenues,whiledisregardingtheneedsofregulatoryand
publicsafetyagenciesforinformationtodotheirjobs.Whatthatdisregardhasturnedintointhe
Arizonalawispreemptionoftraditionalzoningtoolsusedtoprotectthenatureofresidential
neighborhoods.Althoughminimallocalregulatoryauthorityforpublichealthandsafetyis
preservedintheArizonalaw,thestatetaxagencyisprohibitedfromsharingonlinemarketplace
43
informationwithalllocalagencies—notsimplyzoningoffices,butalsopolice,fireandotherpublic
safetyofficials.Soevenwherelimitedlocalauthorityforpublichealthandsafetyissavedfrom
preemption,informationthatsupportstheexerciseofthatauthoritywillnotbeprovided.
Taxofficials,stateandlocal,shouldstepbackandlookattheprocessthatisoccurring.It
beganwithAirbnbcreatingsoftwarethatkeepssecrettheaddressesoflocallodgingfacilities.The
secrecygrewandspreadthroughtheagreementsthatstateandlocalagenciessigned.Itisnow
beginningtospreadintothelegislativearenawherelawsaremadetoextendthesecrecyandcutoff
theflowofinformationthroughthecirculatorysystemofinformationthatgiveslifetopublic
administrationatvariouslevelsandlocalesofgovernment.Andsomeoflegislationisnotjust
cuttingofftheflowofinformation,butalsoeatingawayanddestroyingtheauthoritytouse
informationtoachievewhathadbeenpreviouslypublicpolicygoalsimportanttocitizens.
Taxagenciesshouldstop—absolutelystop—signingtheAirbnbagreementsthatarefullof
provisionsthatareunacceptableandunfair.Theyarebadenoughontheirterms.However,asthe
agreementsareextendedintolegislation,therearenowclearwarningsignsthatunacceptable
agreementscanturnintolegislationthatthreatenstheequityandintegrityofstateandlocaltax
systems,theprotectionofpublichealthandsafety,andqualityofcommunitylife.
Onceagenciesstopsigningtheseagreements,thecommunityofstateandtax
administrators—workingwithlegislatorsandmembersofcivilsociety—shouldturntothetaskof
ofguaranteeingfairandequitabletaxcollectionwithoutdamagingsideeffects.Thatisthesubject
ofthenextandfinalsectionofthisreport.
44
SectionE
AchievingEquityandIntegrityinShort-TermRentalTaxation
Thechallengesofequitableandeffectivetaxandregulatoryadministrationforonline
lodgingrentalsarerelativelysimple.TheyhavebeencomplicatedbyAirbnb’sonlinesecrecy
practicesandtheiragreementswhichdomoreharmthangoodanddivertpolicyawayfromthe
publicinterest.Allthetoolsofqualitytaxadministrationareinplace.Onlyoneadditiontothe
toolkit—emergingfromthetechnologythatproducedtheonlinebookingindustryitself—maybe
advisable:engagingsoftware-basedservicesthatidentifyandlocatelodgingoperators.
Thebasicstrategyforstateandlocalgovernmentsisthree-fold:(1)donoharmtosoundtax
practices,(2)updatelodgingtaxlaws,ifneeded,toclearlyincludeonlinebookingcompaniesand
theircustomers,thelodgingoperators,onequaltermswithallothertaxpayers,and(3)enforce
currenttaxlawsasfairlyandeffectivelyaspossible.
Wewilldiscusswhatshouldbedonebydifferentparties:taxagencies,legislativebodies
andprivateparties—communitygroupsandlodgingbusinessesworkingtogether.Forthese
groups,thefirststepofdoingnoharmmeansthesamethingforeveryone.Doingnoharmmeans
rejectingtheframeworkoftheAirbnbagreementsandanylegislationthatattemptstoratifythat
frameworkanditsspecialinterestprovisionsintothelaw.
1. ActionbyTaxAgencies
a. SupportforPositiveLegislation.Fortaxagencies,beyondnotsigningAirbnbagreementsoragreeingtoitsframeworkinlegislationorrules,atoppriorityshouldbetowork
withlegislativebodiestoupdatetheexistinglodgingtaxstructuretoreflectcurrentmarket
circumstancesonanequitablebasis.Thatwouldinvolveupdatingdefinitionstoplacereportingand
collectiondutiesonboththeonlinebookingcompaniesandthelocallodgingoperators,with
mechanismsforcoordinatingtaxcollectionbetweenthetwo.However,bothonlinecompaniesand
theoperatorsshouldbearreportingresponsibilitiessotherearenogapsincollectionbecause
operatorscantakebookingsthroughdifferentmeans.Further,thereportsfrombothlevelscan
serveasacheckoneachother.25Thelegislationshouldprovideforapubliclyavailableregistryof
lodgingoperatorsandreportingbytheonlinecompaniestothetaxagenciesoftheidentityand
locationoftheiraffiliatedoperators.Thelegislativebodywillwanttoaddressthepolicyquestion
ofthetaxationorexemptionofbookingfees,andthetaxagencyshouldbepreparedwith
informationandadviceonthattopic.
Giventhesubstantialcommunity-levelimpactsofonlinelodgingrentalsandtheirdispersed
nature,careshouldbetakentoenhanceandnotreducetheflowofinformationfromstateorlocal
25Thismeasureisquitelikehowsalestaxesarehandledwheretheretailer/marketer(Airbnb)handlesthesaleandtheproductisdeliveredorfulfilledbyawholesalerwhoisservingasa“drop
shipper”(lodgingoperators).Dualregistrationandrecord-keepingisrequiredinthiscontext,and
soshoulditbeinthecaseofAirbnbanditslodgingoperatorstoensureintegrityandaccuracyin
lodgingtaxreporting.
45
taxdepartmentstolocalregulatoryandlawenforcementagencies.Ifstatesalreadyhavea
structureoflocally-administeredlodgingtaxes,thenatureandmodestsizeofonlinebooking
operationsshouldnotentailaradicalcentralizationofresponsibilitiesatthestatelevel.Thatstep
coulddisrupttheinformationneededforeffectiveenforcementoflocalzoningandhousing
regulationsandconvenientavailabilityofinformationforlawenforcementandotherpublicsafety
authorities.Further,otherthanthenatureofthesoftwareplatform,theactuallodgingrentalsthat
areoccurringareusuallyofsmallscaleandaredispersedincommunities.Ifanything,local
knowledgeandrelationshipsbecomemoreimportantinthiscontext,favoringcontinuationofany
existinglocaladministration.Finally,regardlessofthelevelatwhichtaxesarecollected,care
shouldbetakentoevaluateifexchangeofinformationlawsneedtobeupdatedtoensurean
adequateandtimelyflowofinformationfromtaxagenciestootherpublicagenciesforofficial
purposes.Makenomistake,thisconsiderationistheexactoppositeofwhatAirbnbhasattempted
withitsagreementsandnowlegislativeefforts(ArizonaanditsALECmodel)thatattemptto
suspendordisruptinformationexchangeprocesses,includingbyallowingprivatepartiestoonline
companiesinterferedirectlyinthem.Therightthingtodoistostrengthen,notweaken,those
exchangeofinformationprocesses.
Additionallegislationthatcouldbepursuedeitherseparatelyfromoraspartoftheupdate
ofthelodgingtaxlawsshouldrequireonlinelodgingmarketplacestoprovidethenameandrental
locationsoftheirlodgingoperations.Thislegislationwouldsubstituteforcontractingforalodging
operatoridentificationservicediscussedbelow.ThelegislationwouldbepatternedafteraColorado
lawthatrequiresdirectmarketstoprovidecustomerinformationtoassistinusetaxcollection.
Thatlegislationwasapprovedbythe10thCircuitCourtofAppeals,andtheU.S.SupremeCourt
declinedtoreviewthecase,sothecircuitdecisionstands.Othercircuitsmighttakeanotherview,
butmanyexpertsconsiderthatunlikely.
b. AComprehensiveTaxComplianceProgram.Stateandlocalagenciesshouldundertakeeffectiveprogramsaimedatsecuringequitablecompliancefromonlinebookingcompaniesand
locallodgingoperators.Whereverpossible,opportunitiesforcoordinatedorjointactionshould
occur.Twomultistateeffortsmaybeparticularlyhelpful.Thefirstwouldbemultistateauditsof
onlinebookingcompaniestodeterminewhether,undertheConsitutionandstatutes,theaudited
companieshavealegaldutytofile,collectandpayvarioustaxes,includinglodging,salesand
corporatetaxes.Localgovernmentsshouldbeencouragedtoparticipateaspartnerswiththeir
statetaxagenciestosecurethebenefitsofthateffort.Thevehicleforsuchauditswouldbethe
MultistateTaxCommission(MTC).
Thesecondmultistateeffortwouldtheexplorationofajointcontractamongmultiplestates
andlocalgovernmentsofsoftware-basedservicestoidentifylocallodgingoperatorsandtheir
locations.Aspreviouslynoted,thereisonesuchprovider,HostCompliance,andotherscould
alwaysemerge.26Ifexplorationofjointcontractingdoesnotyieldefficiencies,costsavingsorother
26Seehttps://hostcompliance.comfortherangeofservicesofferedbythiscompanyfromwhich
governmentscanselectthetypestheyprefer.Theservicesincludeidentifyingandlocatinglodging
operators,providingassistanceinsecuringtaxandregulatorycompliance,analyzingdatafor
decision-makingregardingshorttermrentals,andotheractivities.Becauseitsservicesareusefulto
taxandregulatoryagencies,suchagencieswithinajurisdictioncouldpotentiallysharecosts.
46
advantages,itcouldyieldusefulinformationforindividualstatesandlocalgovernmentstoproceed
withcontracts.Becausethisserviceisdesignedtoassistbothtaxandregulatorycompliance,the
baseoffundingatthelocallevelmaybeabletobringtogethertheresourcesofseveralagencies.
Thisactivityshouldbeexploredrapidlyatthenational,stateandlocallevels,becauseeffective
identificationoflodgingoperatorscanyieldasubstantialchangeinthecircumstancesstateand
localgovernmentsfacewithregardtodispersedlodgingbookedthroughonlinecompanies.
Agencieshavebeenstymiedbynotbeingabletoidentifythelodgingproviders,andthisalternative
canquicklychangethatpicture.Again,theMTCcouldbeaskedtocoordinateresearchand
informationgatheringonthistopic,buttheyshouldbeaskedtodosoonanexpeditedbasis.
Withmoreinformationaboutboththeonlinebookingcompaniesandtheidentityoflocal
lodgingoperators,stateandlocalagenciescanproceedwithappropriatecompliancestrategies.The
promptacquisitionoftheidentitiesandlocationsoflocaloperatorscouldenablethelaunchof
voluntarydisclosureprogramsusingthetraditionalvoluntarydisclosureagreements(notthe
Airbnbagreements).Asix-monthprogramwithadvertisingmightoccurwithlodgingoperators
giventheopportunitytosignuptocollectfuturetaxesandpaythreeyearsofbacktaxeswith
interest,butnopenalties.Attheendofwhateveropensign-upperiodmightbeset,agenciesshould
bepreparedwithnewidentificationinformationinhandtobegincontactstorequirecompliance.
Thevoluntarydisclosureagreementsareagoodexampleoftheexcellenttoolsthattax
administratorsalreadyhaveavailabletoconvertnon-complianttaxpayersintotaxpayers.An
unfortunatedangerofthisentireAirbnbepisodeisthattheAirbnbagreementswiththeirfeatures
damagingtotaxadministrationthreatentounderminevoluntarydisclosureagreementsas
taxpayerssubjecttoincome,salesandcorporatebusinesstaxesdemandthesametreatment.Itis
timefortaxagenciestotakeafirmstanceandrejecttheAirbnbformulawithitseliminationofback
taxpayments,amnestyforthetaxpayer’scustomers,taxpayercontroloftaxreporting,audit
processusinganonymousdataandnoaccesstobooksandrecords,anditssecrecyforthetaxpayer
andthetaxpayer’scustomers.Iftaxagenciesfailtorejectthoseagreements,theymaypotentially
facelawsuitsandaggressivenegotiationsthatwillerodetheintegrityandequityofstatetax
systemsandpossiblycostpublictreasuriesmultipletimestheamountoftaxescollectedthrough
lodgingtaxes.
IfAirbnborotheronlinebookingcompaniesseekagreements,theappropriateresponseis
toofferthematraditionalvoluntarydisclosureagreement,makingcleartheAirbnbagreementsare
unacceptable.Iftheyobjectthatthecurrentlodgingtaxesdonotapplytothemand,therefore,a
back-taxpaymentfromthemisnotorder,thenthecounteristoasktheirassistancewiththe
voluntarydisclosureprocessfortheirlodgingoperators.Theycouldcirculatethoseagreementsto
theirlodgingoperatorsandrequestthattheycommunicatewiththestateorlocaltaxagencybefore
thedeadlineforvoluntarydisclosureofferscloseanddirectcontactsbeginbythetaxagency.
c. PublicParticipationandReevaluationbyTaxAgencieswithAirbnbAgreements.TaxagenciesthathavesignedtheAirbnbagreementsshouldreconsiderthem.Asafirststep,these
agenciesshouldreleasetheiragreements,exceptforredactionofanyconfidentialorproprietary
information.Ifthetwelveagreementsarerepresentative,itisdoubtfulthatanyinformationwill
needtoberedacted.Iftheagenciesdonotreleasetheagreementsontheirowndecisions,they
shouldrespondaspositivelyastheycantoopenrecordsrequest.
47
Asasecondstep,agenciesthathavesignedagreementsshouldbesubjectedtoapublic
participationprocess.Policyprovisions,likethoseidentifiedinthisreport,shouldbenoticedas
rulesforpublichearingsandcommentsorotherrelevantpublicprocess.Anyprovisionslimiting
exchangeofinformationwithotheragenciesshouldbeapartofthesamepublicprocess.The
learningfromthispublicprocesswouldbeameansofre-evaluatingtheagreements,leadingto
cancellation,suspensionorre-negotiation.
Finally,eveniftheagreementsremaininplace,agenciesshouldjointheaudit,host
identificationandvoluntarydisclosureeffortswithotheragenciesasdescribedabove.These
agenciesshouldusetheresultsasbesttheycantoimprovecompliancefromtheirlodging
operatorsfortransactionsmadebyanymeansorplatforms.
2. ActionbyStateLegislatures Thetopicoflegislativeactionwasaddressedabove,andtheidenticalideasapplyhere.They
willbementionedhereinabbreviatedform.Legislativebodiesshouldconsiderlegislationthat
bringsonlinebookingcompaniesandlocallodgingoperatorsintothestructureofthelodgingtax
lawsasoperatorsrequiredtocollect,reportandpaytaxes.Asexplainedabovebothlevelsinthese
transactionsshouldreportsothatthereturnscanbeacheckoneachother.Theresponsibilityfor
paymentcanbecoordinatedsothatonlyonelevelinthetransactionpaysthetaxwiththeother
takingacreditagainsttaxesdue.Localoperatorsmayalsohavetaxestocollectandpaybecausenot
alltheirrentalsmaybecoveredbyonlinecompaniescollectingthetax.
Legislaturesshouldgivecarefulattentiontoimprovingtheexchangeofinformation
betweentaxagenciesandregulatoryandlawenforcementagenciesthatdealwithshort-term
rentals.Restructuringofthelodgingtaxesinwaysthatwoulddisrupttheflowofinformationto
localnon-taxagenciesshouldbeavoided.Apublicregistryoflodgingoperatorsiscriticalsothe
publicaswellaslocalagenciesknowwherelodgingfacilitiesarelocatedthatareoperatingin
residentialareas.Mostimportantly,nolegislationshouldbeenactedthatratifiestheunfortunate
Airbnbagreementsorthatincorporatestheirprovisions.Legislaturesshouldconsidercarefullyany
requestsforadditionalresourcesfromtaxagenciestorespondtolodgingtaxcomplianceneeds.
Legislaturesshouldalsoenactlegislationorincorporateitinlodgingtaxupdatestorequire
onlinebookingcompaniestoprovidenamesandpropertylocationsfortheirlodgingoperator
customers,asdiscussedinthesubsectiononactionsbytaxagencies.
Mostimportantly,legislaturesshouldrejectanylegislation,suchastheArizonalaw,that
ratifiestheAirbnbagreements.
3. ActionbyCommunityandBusinessOrganizationsCommunitygroupsandbusinessassociationsconcernedwiththeimpactsofshort-term
rentalsinneighborhoodsandfairnessinthetaxsystemhaveseveralactionstheyshouldconsider.
Thefirstisaconcertedefforttofileopenrecordsrequestsofadetailednaturetosecureabroader
sampleofagreementsforpublicscrutinyanddiscussion.Requestscanbetailoredforreleaseof
documentscomparabletotheseagreementsthataredevoidofanyconfidentialorproprietary
information.Therequestshouldexpressawillingnesstoacceptredactionofanypartof
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agreementsthatmayincludesomeconfidentialinformationtofacilitatethereleaseofinformation
thatisnotconfidential.Ifrequestsaredenied,considerationshouldbegiventofollow-uplegal
actiontosecurepublicdisclosureofAirbnbagreements.
Whenorganizationsmakeopenrecordsrequests,theyshouldalsoconsiderrequestingthe
recordsofanycommunicationswithAirbnbintheprocessof(a)negotiatingtheagreements,(b)
notifyingAirbnbaboutopenrecordsrequestincludingtheonebeingmade,(c)notifyingand,if
applicable,seekingconsentfromAirbnbformediacommunicationsabouttheagreement,(d)
notifyingand,ifapplicable,seekingconsentfromAirbnbforinformationsharingwithotherpublic
agencies,and(d)anyothercommunicationswithAirbnbconcerningtheadministrationofthe
agreement.
Whenagreementsarereleasedandiftheyarefoundtocontainprovisionsthatconstitute
rules,petitionsforrule-makingonthoseprovisionsshouldbefiledwiththesignatoryagencies.If
rulesareproposed,thegroupsshouldactivelyparticipatetoindicateindetailtheproblemswith
thepoliciesembodiedintheagreements.Ifrule-makingisnotundertakeninspecificcaseswhere
agreementsclearlyincluderulesmaterial,thenlegalactionshouldbefiledtoseekrulemakingby
theagency.
Theseorganizationsshouldalsoactivelycontacttaxagenciesurgingthemtotakethe
administrativeactionsdescribedabove,toactivelysupportpositivelegislationupdatinglodgingtax
laws,toresistsigningAirbnbagreements,andtoconductafiscalanalysisoftheimpactofAirbnb
agreementsiftheydisplacevoluntarydisclosureagreementsandotherwisespreadthroughthe
administrationofother,moresignificantrevenuesourcesthanlodgingtaxes.
Communityandbusinessorganizationsshould,ofcourse,alsofocusonstatelegislatures
andrequestthatproperlegislationbeenactedupdatinglodgingtaxestoprovidefortheirequitable
andeffectivecollection,apublicregistryoflodgingoperators,andeffectiveexchangeofinformation
withlocalregulatoryandlawenforcementagencies.
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AppendixRatingtheTaxAgreements
ThisappendixpresentsaratingofthetwelveAirbnbagreementsalongwithtwoversionsof
voluntarydisclosureagreements.ThisratingprocesscanbeusedtoevaluateAirbnbagreementsin
otherjurisdictionsiftheirprovisionsarerelativelycomparable.
Theratingscaleusesthesecategories:excellent,good,conditionallyacceptable,
unacceptable,andterrible.NoneofthetwelveAirbnbagreementsbythemselvesareratedas
acceptable.Fourofthetwelveagreementsareratedasconditionallyacceptable,meaningtheycan
becomeacceptableifcombinedwithadditionalmeasurestoimprovetheirequity,integrityand
effectiveness.Fiveagreementsareratedasunacceptable,andthreeasterrible.
Althoughtheratingsmayappearcriticaloverall,somejurisdictionshavedoneanexcellent
jobofnegotiatinginadifficultenvironmentinwhichAirbnbhasactivelypromotedagreements
contrarytothepublicinterest.OfficialsfromHillsboroughandPolkCounties,FL,andthePalm
DesertandSanJose,CA,havedoneanexcellentjob.Ofthesefour,theHillsboroughCounty
agreementrepresentsthegreatestprogressoverall.
Unfortunately,noneofthesefouragreementsachievetransparencyinlodgingoperator
registration,collectbacktaxesdue,orwrestcontrolofthetaxandauditprocessfromAirbnb.
Undertheothereightagreements,circumstancesareworse.Backtaxesremain
unnecessarilyforgivenforlodgingoperatorsinsevenagreementsandforAirbnbinfive.Lodging
operatorsarerewardedfornon-compliance,andthepublicispermanentlyshort-changed.Mostof
theseagreementshardenthesecrecyforlodgingoperators—makingmoredifficultthejobof
regulatoryagenciesinholdingthesefacilitiesaccountableforimpactsoncommunities.Mosthelp
expandAirbnb’smarketsharebyofferinglodgingoperatorsastrongershieldofsecrecyallowing
themtoescapelocaldetectionandregulation,andAirbnb’sabilitytoavoidtaxaccountabilitywill
onlyincreaseasitsmarketpresencegrows.TheseagreementshelpAirbnbgrowinthewrongway
andthusexacerbatetheproblemstheagreementsclaimtosolve.Thus,theirratingsrangefrom
unacceptabletoterrible.
Table5summarizestheratingofAirbnbagreements.Thetableshouldnotbeinterpretedas
implyingthatAirbnbagreements,bythemselves,areadequatemeasuresforachievingequitable
andeffectivetaxandregulatorycompliance.Ataminimum,theyrequirethesupplemental
measuresreferencedinandlistedbelowTable5.
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Table5.RatingsofAirbnbAgreementsCombinedwithSupplementalMeasuresRating Jurisdictions Characteristics
Excellent None Atraditionalvoluntarydisclosureagreement
agreedtobyAirbnbcombinedwithsteps1
through3below.
Good None Atraditionalvoluntarydisclosureagreement
agreedtobyAirbnbforfuturetaxes,combined
withsteps1through4below,whichinclude
disclosureagreementswithoperators(step4).
ConditionallyAcceptable
Hillsborough,Polk,SanJose,
andPalmDesert
“Level1”Airbnbagreements.Addallsteps1
through5belowtomovefromconditionally
acceptabletogood.
Unacceptable Humboldt,Florida,Taos,
Multnomah,andWashington
“Level2”Airbnbagreements.
Terrible Pinellas,Montgomery,and
SantaFe
“Level3”Airbnbagreements.
Thefouragreementsratedas“conditionallyacceptable”canmovetoaratingof“good”by
addingtoandmodifyingtheexistingagreementswiththesefivesteps:
1. Ifnotaccomplishedalready,jurisdictionsshouldsubmit,asmodifiedandsupplementedby
themeasureshere,thepoliciesintheagreementstopublicscrutinyandparticipationby
proposingthosepoliciesasrulesorordinancesasappropriate.
2. Jurisdictionsshouldestablish,forallrentalplatforms(notsimplyAirbnb),alodging
operatorregistrationsystembackedupbyalodgingoperatoridentificationprocessto
securecompliancebythosewhodonotregistervoluntarily.Thebasicregistration
informationaboutthelodgingfacilities,ownershipandlocationshouldbepublicly
available.Theregistrationandidentificationprocesseswillsupporttaxcollectionandlocal
regulatoryactivitiesandinformthepublicinaffectedneighborhoodsoflodgingactivitiesin
theirareas.Theidentificationprocesscoulduseacommerciallyavailableservicetoidentify
operatorsusingonlineservices,anditscostscanbesharedbytaxandregulatoryagencies.27
3. Jurisdictionsshouldestablishanoperatortaxreportingsystemrequiringreturnsoflodging
rentalrevenuesfromallsources,paymentoftaxesonthoserevenues,withacreditfortaxes
collectedandpaidbyonlinebookingplatformssuchasAirbnb.Evenifalltaxesarepaidby
Airbnbforagivenfacility,therevenueprovidesacross-checkonAirbnb’staxreporting.
Thetaxreturninformationwouldbeconfidentialandprotectedfrompublicdisclosure,but
availableforofficialpurposestootherpublicagencieseligibletoreceiveitbylaw.
4. Taxagenciesshouldundertakeback-taxcollectioneffortsbyofferingvoluntarydisclosure
agreementstooperatorsrequiringthreeyearsofbacktaxeswithinterest(orlessifthe
facilityhasoperatedforlesstime)butnopenalties.Ifoperatorsfailtoregistervoluntarily
beforebeingcontactedbythetaxagency,theywouldnotqualifyforpenaltyrelief.
5. AgenciesshouldrenegotiatetheAirbnbagreementstogainaccesstoAirbnb’sbooksand
recordsintheauditprocess,eliminatingtheartificialrestrictionsonauditingincurrent
27Seefootnote25.
51
agreements.ThisisnecessarytoensureAirbnb’saccountabilityfortaxescollectedandpaid,
includingcross-checkingAirbnb’sreturnswithlodgingoperatorreturns.
ThesemeasuresassumethefourjurisdictionscontinuetheirAirbnbagreements,with
modifications.IfAirbnbdoesnotmodifytheagreementstomakethemacceptable,thejurisdictions
canterminatetheagreementsandimplementthemeasuresrecommendedinSectionE,whichare
preferabletorelyingonAirbnbagreementsinanyform.