> As depicted in Figure 3 below, the 300,891 reservations that appear to violate the building use and zoning laws yielded approximately $304 million for hosts during the Review Period. Airbnb itself earned almost $40 million in fees from these transactions. This represents approximately two out of every three dollars Airbnb received in connection with the Reviewed Transactions.
> New York City Is Likely Owed Millions in Unpaid Hotel Taxes from Private Short-Term Rentals. A number of taxes may apply to private short-term rentals. See Appendix A. In particular, New York City assesses a hotel room occupancy tax of 5.875 percent that applies to private short-term rentals. Excluding fines and penalties, the total estimated liability for hotel room occupancy taxes associated with the Reviewed Transactions is over $33 million.
> Few Airbnb hosts appear to have filed the paperwork with New York City necessary to remit hotel room occupancy taxes, nor did Airbnb collect any of the hotel taxes owed for the Reviewed Transactions.
If it ever files to go public, the Risk Factors section of Airbnb's S-1 is not going to be pretty.
Obviously, it could get very ugly for Airbnb and its hosts in cities where officials don't offer a free pass like San Francisco. Right now, it looks like New York City is out for blood and is not going to follow San Francisco's lead. But even if you assume that Airbnb and hosts receive get out of jail free cards in many cities, as regulation catches up to the market, it's quite possible that Airbnb will see less supply and less demand.
On the supply side, hosting is only going to get more complex and costly. That will obviously convince some hosts to leave the market. Many of the illegal commercial operators who have been violating the law and not paying taxes will either move on or get shut down, and limits like the ones imposed in San Francisco will also work to reduce the legitimate inventory.
On the demand side, the need to deal with red tape and tax compliance will likely remove some of the savings that hosts have been able to pass on to their guests. Obviously there's a segment of the guest market that prefers the Airbnb experience, but there's almost certainly a large(r) segment that chooses to use Airbnb primarily because of cost.
This is the irony of many of the "sharing" economy and "on demand"[1] startups: once their primary competitive advantage is removed (reduced costs from flouting of laws), the economics of their businesses could change for the worse, literally overnight. For those already operating at a large enough scale, an implosion is a real possibility.
I'm not clear why AirBnb isn't passing through the taxes. I know their system supports it. We recently rented from AirBnB in Portland Oregon and we paid an extra $65 in "Occupancy Taxes" on a $521 stay.
That is a Portland specific thing. AirBnB is now negotiating city by city tax handling, they just worked something out with SF recently. It doesn't sound very scalable, but now that AirBnB is the incumbent, it's a barrier to entry for anyone that tries to disrupt them.
Funny how that works, exploit a loophole in a law, and when you get big enough, then make it way more expensive for everyone else to come in after you and cite it as a competitive advantage.
They can't do the same with NYC because the entire premise of AirBnB is illegal in NYC unless specific conditions are met. Since 72% of listings are technically illegal, there is no way they would shed 72% of listings just to make the remaining 28% tax compliant. This is why many view them negatively -- they blatantly facilitate illegal transactions. The fact that they are doing tax deals with other cities only underscores that they clearly know their users are violating NYC law.
> New York City Is Likely Owed Millions in Unpaid Hotel Taxes from Private Short-Term Rentals. A number of taxes may apply to private short-term rentals. See Appendix A. In particular, New York City assesses a hotel room occupancy tax of 5.875 percent that applies to private short-term rentals. Excluding fines and penalties, the total estimated liability for hotel room occupancy taxes associated with the Reviewed Transactions is over $33 million.
> Few Airbnb hosts appear to have filed the paperwork with New York City necessary to remit hotel room occupancy taxes, nor did Airbnb collect any of the hotel taxes owed for the Reviewed Transactions.
If it ever files to go public, the Risk Factors section of Airbnb's S-1 is not going to be pretty.
Obviously, it could get very ugly for Airbnb and its hosts in cities where officials don't offer a free pass like San Francisco. Right now, it looks like New York City is out for blood and is not going to follow San Francisco's lead. But even if you assume that Airbnb and hosts receive get out of jail free cards in many cities, as regulation catches up to the market, it's quite possible that Airbnb will see less supply and less demand.
On the supply side, hosting is only going to get more complex and costly. That will obviously convince some hosts to leave the market. Many of the illegal commercial operators who have been violating the law and not paying taxes will either move on or get shut down, and limits like the ones imposed in San Francisco will also work to reduce the legitimate inventory.
On the demand side, the need to deal with red tape and tax compliance will likely remove some of the savings that hosts have been able to pass on to their guests. Obviously there's a segment of the guest market that prefers the Airbnb experience, but there's almost certainly a large(r) segment that chooses to use Airbnb primarily because of cost.
This is the irony of many of the "sharing" economy and "on demand"[1] startups: once their primary competitive advantage is removed (reduced costs from flouting of laws), the economics of their businesses could change for the worse, literally overnight. For those already operating at a large enough scale, an implosion is a real possibility.
[1] https://news.ycombinator.com/item?id=8468863