Article by Stacy Ross
As Airbnb and similar businesses continue to grow, their popularity with the public is causing heartburn for some in the hotel industry.
Airbnb is the 800-pound gorilla of what the industry calls STRs or short-term rentals. Other popular sites include Vacation Rentals by Owner (VRBO) and HomeAway, which are both owned by travel website Expedia. Flip Key is another STR service owned by Trip Advisors.
Currently, STRs in Missouri are not regulated and generally don’t pay taxes. Because their ordinances don’t explicitly allow them, some municipalities consider STRs illegal. As their popularity grows, the hotel industry is fighting back.
“Hotels have to follow all of the rules and regulations under the state statutes for a lodging establishment, said Trey Propes, president of the Missouri Hotel and Lodging Association. “Hotels have to follow safety ordinances. STRs have none to follow. Hotels have to have insurance that covers them and their guests.”
Representatives of hotel associations throughout the state argue they just want to be on equal footing with STRs. “If you’re in the hotel business you have to pay the tax; you have to be inspected,” said Kurt Mayo of the Hotel and Lodging
Association of Greater Kansas City. Tracy Kimberlin, president and CEO of the Springfield Convention and Visitors Bureau contends that STRs benefit from their marketing without contributing. “In effect, they live off of our efforts to drive tourists to our city,” Kimberlin said. “They reap the benefits of our efforts and do not have to pay the bills”.
Wish granted, sort of
As of Feb. 1, hoteliers got part of their wish: Airbnb voluntarily agreed to collect the state’s portion of Missouri’s sales tax 4.2 percent. The company predicts the taxes it collects will total $1.1 million a year, statewide. It is now working on agreements with individual municipalities to collect their sales and other taxes, said Airbnb spokesman Ben Breit.
“It will take time”, Breit said, “because the agreements have to be tailored to each local government. It’s really complicated in Missouri with so many different taxes.”
One of those many taxes is the hotel and lodging taxes levied by municipalities including St. Louis (7.25 percent), and Kansas City (7.5 percent). Hotel taxes pay for convention center bonds and tourism promotion. Kansas City has an additional $1.75 per night room fee that goes to pay off bonds for its Sprint Center arena.
In St. Louis, the $21 million it collected in 2017 was divided between Explore St. Louis, the city’s convention and visitors commission, and the convention center, with a small portion going to the Regional Arts Commission. The $26 million generated by Kansas City’s hotel tax in 2017 was divvied up between Bartle Convention Center and tourism promotion.
Breit said finding ways to collect and remit local taxes on behalf of the hosts is a critical part of the company’s public policy agenda.
“Ultimately, the tax responsibility is there,” Breit said. “So any taxes that apply to short-term rentals we want to make sure our hosts are able to pay their fair share.”
Do not speak of that which may not exist
It’s the lack of transparency in the voluntary agreements between Airbnb and states that bothers Troy Flanagan of the American Hotel and Lodging Association. “Taxation on the ‘honor system’ is not something other businesses are offered by the state. It’s simply bad public policy,” Flanagan said in statement.
Citing state law, the Missouri Department of Revenue won’t even confirm that an agreement exists. Airbnb put out a statement announcing the pact, but also declined to provide a copy of it. Jurisdictions around the country have entered into Voluntary Collection Agreements, Flanagan said. VCAs, as they’re known, inhibit oversight and limit the information provided to states, impeding their ability to verify tax and regulatory compliance, according to the AHLA’s analysis.
Although the city of St. Louis’ License Collectors Office says it is authorized to collect the hotel tax from STRs, others throughout the state, including city of Kansas City spokesman Chris Hernandez, said state law prohibits them from doing so. The problem, they say, is the 1980 amendment to the Missouri Constitution known as the Hancock Amendment. It forbids taxing a person or entity that has not been previously taxed without new legislation and voter approval. In this case, the legislation would have to tweak the definition of a hotel so that it includes STRs, and thus subjects them to local hotel taxes.
“The state has defined a lodging establishment as a ‘hotel, motel or tourist court…having more than eight bedrooms,’” Hernandez said. “The home-sharing industry currently does not fall within those definitions.”
According to Propes, proposals are circulating in the capital to address the issue. “I don’t believe there’s a set of legislation that everyone can agree on,” he said. His board at the state lodging association has identified four components any legislation must facilitate: equal regulation and licensing, equal health and safety requirements, equal taxation, and local control.
Propes is concerned about local control after a bill introduced in the legislature last year would have kept municipalities from banning STRs. The bill some referred to as “the Expedia Bill” did not pass.
While they wait for action to address taxes at the state level, cities are moving forward with developing regulations. Kansas City has been examining the issue for more than two years. A proposed ordinance would impose restrictions on where short-term rentals could be located and require owners to get licensed and obtain permits.
“If taxation passes at the state and the city votes for it, the money would help enforce regulations,” said Scott Taylor, Kansas City Zoning Commission chair and city councilman, at a recent hearing on the matter. The many comments the zoning commission heard that day illustrate the balancing act cities face in regulating STRs. Most were from Airbnb owners insisting that any new regulations not limit their ability to maintain their businesses. Others came from nearby residents mainly concerned with noise and bad behavior.
Jack Coatar is an alderman representing St. Louis’s 7th Ward, which includes the trendy Soulard neighborhood and parts of downtown. He said the St. Louis Board of Aldermen is also considering legislation.
He sees both sides of the issue. His ward includes short-term rentals, traditional Bed and Breakfasts, and hotels that cater to conventions and conferences. He knows several people who operate Airbnbs.
“Most of them have said they’d be willing to pay some taxes,” Coatar said.
However, he sees the issue of regulation a little differently than industry representatives. “I don’t think the regulations should be the same,” Coatar said. “In some cases we’re talking about a single room.”
Surprisingly, he hasn’t heard complaints from hotels, Coatar said, but hears them from Bed and Breakfast owners. “B and Bs have a ton of onerous regulations,” Coatar said. “They pay hotel tax and have to go through a petition process in order to open that doesn’t apply to Airbnb.”
In the end, industry representatives acknowledge short-term rentals are here to stay. “As far as we’re concerned we welcome the competition,” said Mayo.” We don’t want to be the bad guys. We just want a level playing field.”