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County tracks down Airbnb hosts to make them pay taxes — but Airbnb says it'll handle that now
Phil Cross thought it might help pay the electric bill when he decided two years ago to be an Airbnb host and rent out three extra bedrooms in his big, old Highland Park home to overnight guests.
He's amazed, now, to gross almost $4,000 a month through Airbnb.
The rooms, which rent for between $35 to $50 a night, are almost always booked - at a price point that tends to attract younger guests.
"I had no earthly idea. I thought I'd rent a room and it'd help my pay my light bill," Cross said.
One thing that sets Cross apart from many - if not most - Airbnb hosts in the Chattanooga area is that right from the start, he's paid sales tax to the state and "bed tax" to the city and county.
"I pay my hotel-motel occupancy tax. I pay that every month." Cross said. "I think everybody ought to do it according to the law. If you're going to do it, do it right."
Airbnb At a glance
› The San Francisco-based online company was started in 2008 and is the second most valuable startup, trailing only Uber, with an estimated value of $30 billion› Airbnb acts as a broker enabling people to lease or rent short-term lodging for vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms. The company does not own property but receives service fees or commissions from both guests and hosts with every booking.› In Chattanooga, 306 houses and rooms were listed as available for rental last week› Globally, more than 3 million rooms, apartments, and even castles or villas are listed in over 65,000 cities› More than 200 million guest nights have been booked through Airbnb› The company generated an estimated $1 billion in revenues in the third quarter of 2017› Airbnb is valued at about $30 billion› Airbnb collects local taxes in Memphis and 339 other localities, and collects state taxes in 30 other states, including Alabama, Arkansas, Florida, Kentucky and North and South Carolina in the Southeast.Sources: Airbnb.com, CBInsights, CNBC
The Hamilton County Trustee's Office wants all Airbnb hosts to start paying taxes, and county officials have tracked down Airbnb hosts who aren't paying by doing detective work online and through tips.
"Probably 75 percent of Airbnb hosts are not paying their taxes, I'm guessing," said Marlie Jones, the deputy clerk in the trustee's office who collects occupancy tax for the city and county from hotels, motels, bed and breakfasts, Airbnb rentals and Vacation Rentals by Owner, a company that's similar to Airbnb and predates it.
Over the past year, the trustee's office has identified about 40 Airbnbs that weren't paying taxes, Jones said. The trustee's office sent each owner a letter that explains their tax obligations along with an occupancy tax form to fill out and return with a check.
Hamilton County Trustee Bill Hullender wishes that Airbnb would collect local and state taxes up front. That would make things easier, he said, for tax collectors and for Airbnb hosts. That also would make it fairer, Hullender said, since all Airbnb hosts would pay their taxes - not just those who came forward or were caught or got turned in.
In Hamilton County, Airbnb hosts must:
› Apply for a business license› Open a tax account with the Hamilton County Trustee to remit occupancy tax every month› Contact the Hamilton County Assessor or Property to learn about personal property taxes on fixtures and equipment used to operate their business› Get a short-term vacation rental permit from the city of Chattanooga Land Development Office is required if the Airbnb is inside city limits› Contact the Tennessee Department of Revenue to pay state sales taxSource: Hamilton County Trustee
"It would help if Airbnb actually did all the taxes on the front end," Hullender said.
Airbnb plans to do that, company spokesman Benjamin Breit said.
"That's exactly where we want to get to," he said.
Airbnb handles the taxes for its hosts in about 340 jurisdictions, Breit said, and the company is committed to working out the same setup here in Chattanooga with the county trustee's office.
"The hosts are happy because they don't have to worry about these complicated taxes," he said. "The local governments are happy.
"In pretty much every case, it has represented new revenues," Breit added. "A lot of times you find hosts, they don't even know the taxes exist."
Also supportive is Olivia Karavatakis, one of the administrators of the Facebook page Chattanooga Airbnb that has 111 members and is private so they can discuss changes to local regulations regarding vacation rentals.
"Yes, Airbnb should collect these taxes," Karavatakis said. "It would make life much easier for all parties."
However, Karavatakis isn't convinced that Chattanooga-area Airbnbs should pay the same tax rate as hotels and motels.
"Hosts (generally speaking) don't mind that we have to pay taxes. We own a business and make money. We (mostly) understand that taxes are part of that game," Karavatakis said via Facebook messaging. "The issue we have is that we are subjected to the same tax rate that large hotels and motels who turn a much larger profit than we do. They can afford the 17.6 percent tax. Small business "mom and pops" can't."