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Cities and counties across Virginia say Airbnb is breaking the law

For more than a year, local governments say Airbnb has been flouting Virginia law, refusing to send them basic tax information.

Its noncompliance is frustrating those governments, who feel they have little recourse against the multibillion-dollar corporation, one of the largest platforms in the world for short- and long-term property rentals.

“Essentially, Airbnb is considering itself different than any other business that operates within the commonwealth of Virginia, that they essentially do not need to follow the same laws and rules that any other business that operate in Virginia follows,” Maggie Ragon, Staunton’s commissioner of revenue, told The Daily Progress.

In October 2022, Virginia enacted a law requiring rental intermediaries such as Airbnb and Vrbo to “submit to a locality the property addresses and gross receipts” from the locations it operates out of each month. In other words, if Airbnb has rental locations in a jurisdiction, every month it must send local tax officials the address of each rental and the receipts of each transaction.

Previously, this responsibility fell on individual rental hosts, in the same way that individual hotels are required to collect and pay lodging taxes. The 2022 law shifted that responsibility to intermediaries such as Airbnb. But according to localities across the commonwealth, so far, the company is refusing to comply.

“It’s the same data we’d expect from any host paying on their own behalf because we need to tie what is paid to what is owed,” Todd Divers, Charlottesville’s commissioner of revenue, told The Daily Progress. “With a normal taxpayer, you can see the receipts behind it. With these guys you got nothing. It’s just a brick wall.”

Former Charlottesville Mayor Michael Signer has served as Airbnb’s North America policy director since 2022. Even though Airbnb is headquartered in San Francisco, Signer continues to reside in Charlottesville. He did not respond to repeated requests for comment from The Daily Progress.

The Daily Progress did, however, hear from another Airbnb representative, who was quick to highlight that, importantly, the company is paying taxes.

“In the first six months after the law was implemented, Airbnb collected and remitted over $23 million in state and local hotel tax revenue to more than 200 localities across Virginia,” Vincent Frillici, Airbnb’s Virginia public policy manager, told The Daily Progress in a statement.

But unlike individuals and companies that file taxes, Airbnb sends its payments with no supporting documentation. That makes it impossible to know if the company is paying localities too much or too little.

“Am I getting a check every month? Yes. Do I have any idea what that check represents? No,” Ragon said.

“It’s frustrating,” William Hoover, Westmoreland County commissioner of revenue, told The Daily Progress. Without documentation, Hoover said he is unable to tell if the tax was paid correctly.

“When that’s not done of course, we can’t do that, just to make sure there were no errors,” Hoover said. “And of course, to make sure everyone is remitting because we want to keep it fair for everyone.”

Airbnb says its service brings in significant sums of money for localities, and insists its payments are accurate.

“They pay what they say they owe. That’s the problem. We have no idea what that’s based on,” Divers said.

Without the addresses, Divers and his counterparts can’t know if Airbnb is paying taxes to the proper locality.

“We have no idea if they even know the difference between Albemarle County and Charlottesville,” he said. “That’s part of the reason we need to know. We need to make sure the tax is being paid where it’s owed and the amount that’s owed. Right now, they’re just paying whatever. As commissioner of revenue, I have an obligation under the Constitution to make sure this stuff is right, that what’s paid is owed and to treat all taxpayers fairly. But right now, they’re in a class all by themselves.”

Ragon said some legislators in Richmond don’t understand the problem. Airbnb, after all, is paying taxes.

She compared it to a grocery store purchase.

“If you have a cart full of goods, and you hand over $100 and say, ‘Here’s what I owe you.’ No, they want you to scan it through the register first,” Ragon said. “They’re basically taking matters into their own hands, saying, ‘We’re giving you money, but you need to trust us that we’re giving you the right thing.’ We don’t allow that for any other business that operates in the commonwealth.”

Localities find it especially frustrating because Airbnb has the data available.

“They’re already collecting it, because they’re sharing it with hosts. So we know the data is there. It’s not a matter of creating something that doesn’t exist,” Ragon said. “It really would just be matter of them aggregating and sending it to us.”

While Airbnb could argue that aggregation is burdensome, Divers pointed out that its competitors, notably Vrbo, don’t appear to have any difficulty complying.

“Other intermediaries are managing to do it so it just kind of rings hollow,” he said.

A chronic, national problem

Virginia is far from the only state frustrated with Airbnb. For years, localities across the country have clashed with the company over its refusal to share data.

“It’s not only an issue in Virginia, it’s an issue across the U.S. that professional vacation rental groups are constantly dealing with,” said Travis Wilburn with the 100 Collection, which represents more than 50 vacation rental destinations across the U.S. “Local zoning administrators are looking for transparency by permit holders to make sure the appropriate taxes are being collected, and instead states are getting just a large check.”

Sending a large check with little transparency appears to be a calculated decision by Airbnb.

“Airbnb likes to pay the taxes. They do not like to turn over data,” Matt Curtis, founder of Smart City Policy Group, told The Daily Progress.

Curtis consults with localities across the country, and he has seen many irritated by Airbnb’s unwillingness to provide certain information.

He said there is an ongoing conflict between the company and local governments. Localities want to know where the company is operating so it can know if the properties are renting legally. But with roughly 23,000 local governments in the U.S. alone, not to mention homeowner associations and other entities, Curtis said Airbnb does not want to get in the practice of supplying data to local authorities, even the most basic information such as addresses and receipts.

“It’s the slipperiest slope of all slippery slopes,” Curtis said. “Their fear is that it would become an untenable exercise. So they’d rather pay what they think they owe and call it a day and hope cities like Charlottesville will walk away if they just get a big check.”

But there is another worry for the company: If Airbnb reveals its hosts’ addresses, it risks local governments discovering some properties are not legally permitted to function as short-term rentals.

“There are localities, not only in Virginia, that do not allow short-term rentals in certain jurisdictions or certain parts of jurisdictions,” Ragon said.

Online travel agencies such as Airbnb likely have properties on their sites that do not comply with local law. That could mean the rental does not have a permit or is exceeding capacity for occupancy limits or is not paying the appropriate tax rate.

“There are all kinds of things out there that would fly in the face of state and local ordinances that Airbnb doesn’t want people on its platform to get in trouble for,” Ragon said.

Wilburn said Hawaii has worked out a possible solution.

“They make it a requirement to show the permit number on the listings to ensure legality and remittance,” he said, meaning a property cannot be available for rent without first registering it with the locality and state. That eliminates the possibility of an unregistered property being listed on sites such as Airbnb.

According to Curtis, the company and its competitors are simply providing an advertising platform for people who want to rent their properties. It is not checking if each rental complies with local regulations.

“They don’t control the property, don’t have anything to do with the property. They’re merely a place for properties to promote themselves. But they certainly have illegal listings that are on their site,” Curtis said. “It’s a chronic problem, and they don’t have an answer to it.”

Violating the Fourth Amendment

In Virginia, Airbnb argues the statute requiring it to provide addresses and gross receipts cannot be enforced; it believes that law violates the Fourth Amendment of the U.S. Constitution.

“The Fourth Amendment requires searches and seizures to be reasonable, and the Supreme Court has held that requiring companies to turn over documents, for example with a subpoena, is a kind of search,” William and Mary Law School professor Jeffrey Bellin told The Daily Progress. “That said, government requests for documents are very common and are typically viewed as reasonable so long as there is a decent fit between the documents requested and a legitimate government purpose, like taxation.”

If taken to court, Bellin said that in order for Airbnb to prevail, it would have to show that the law forces them to turn over “way more documents than necessary.”

Kiel Brennan-Marquez, a professor at the University of Connecticut School of Law, said there may be some legal precedent for Airbnb’s argument. In Los Angeles v. Patel, the U.S. Supreme Court ruled that hotels could not be forced to provide data on its guests to law enforcement. Prior to the ruling, Los Angeles city code required hotels to keep information about customers on file for 90 days and provide it to police if asked. Not providing that information could result in charges being filed.

“The court was worried about it as a policing problem,” Brennan-Marquez said, a significant difference from the Virginia tax law. “I don’t think municipal tax authorities are showing up at Joe Smith’s Airbnb apartment, demanding things in ways that look like the Patel problem.”

“There’s a basic plausibility to what they’re arguing. It wouldn’t get laughed out of court,” he said of Airbnb’s position.

Companies such as Airbnb rely on the Fourth Amendment to avoid releasing certain information, arguing that supplying data to the government qualifies as unreasonable search and seizure.

“Airbnb picks that up and says, ‘Great, we’re not dealing with those problems at all, but we don’t want to disclose financial information to the government if we don’t have to, so we’re going to flash Fourth Amendment language around,’” Brennan-Marquez said. “There’s nothing wrong with that exactly, but it’s opportunistic clearly.”

The argument also implies that sending receipts and addresses to commissioners of revenue would somehow violate the privacy of Airbnb hosts. Ragon doesn’t buy that argument, noting that Virginia Code strictly forbids commissioners of revenue from releasing any taxpayer business to anyone else. Even law enforcement would need to receive an order signed by a judge.

“We can be fined, we can be criminally charged, so we take our responsibility for confidentiality of business information very seriously,” Ragon said.

A statement from Frillici denies that Airbnb is violating law.

“As a leader in citizen-led tourism, Airbnb complies with all applicable state and federal laws, including Virginia’s local tourism tax law,” Frillici said.

“False. That is not true,” Ragon responded.

But she identified a key term in Frillici’s statement: “applicable” state and federal laws.

“They don’t consider this law applicable to them. There’s the rub,” she said.

Airbnb’s position appears to be that Virginia law is not applicable because it is superseded by the Fourth Amendment.

In an effort to demonstrate its compliance with the applicable laws, Airbnb specifically directed The Daily Progress to Adam Schaefer, who helps run the finance department for the town of Colonial Beach.

Schaefer said that he went to the company demanding it supply addresses and receipts so that he could do his job. Airbnb resisted at first but eventually connected him to a Dropbox that contained all of the required information.

Schaefer said he likes how the data is displayed in the Dropbox and that the company always pays the taxes it owes based on that information. But even Schaefer, whose perspective Airbnb promoted, said that it took roughly four months to get access to the Dropbox, the information in that Dropbox is often months-old and Airbnb’s competitor Vrbo simply submits monthly reports as required by Virginia law.

“This is Airbnb offering an unacceptable solution to a problem of their own creation,” Ragon said of the Dropbox. “First, it puts the burden on the local official to do the work. Secondly, it puts the intermediary in a class by itself, requiring continuous audit, unlike any other business operating in the commonwealth. Lastly, it is still noncompliant with state code.”

Costly court hearings

There is no way to know if Airbnb’s Fourth Amendment argument would hold up in court unless a locality sues. That’s happened before in other parts of the country, and appears to be the only way the company will comply with Virginia law.

“Airbnb waits until lawsuits have been fully discussed and the outcome of the lawsuit favors turning over data before they actually do it,” Curtis said. “So unless Charlottesville wants to fully sue, history has proven Airbnb is not going to turn over all the data.”

It’s a daunting proposition, even if a locality believes Airbnb’s Fourth Amendment argument wouldn’t hold up in court.

Charlottesville city attorney Jacob Stroman cast doubt on the company’s legal position.

“I am not aware of any Virginia case law which suggests that statutes which include reporting requirements necessary for tax enforcement are unconstitutional because the reporting requirements constitute unreasonable searches within the meaning of the Fourth Amendment of the United States Constitution,” Stroman told The Daily Progress. “Accordingly, I am skeptical that a court would strike down this statute on constitutional grounds.”

Charlottesville City Manager Sam Sanders put it simply: “We want Airbnb to follow law and proper procedures.”

But to make Airbnb fall in line, would the city of Charlottesville – or any Virginia municipality – be willing to take on the corporation in court?

“I think most attorneys that represent localities in Virginia are aware of this situation,” Ragon said. “Anecdotally, I believe they agree with us 100%, but the barrier there is who has the resources to fight Goliath?”

Because Airbnb is not based in Virginia, Divers said the only way to make it comply with the law is to take it to court.

“But they got more money and lawyers than God, so no little locality in Virginia is going to sue them,” Divers said. “I think that’s what they’re banking on.”

Divers said that in Virginia, the rest of the U.S., and the world for that matter, Airbnb has often decided to disregard local laws, betting that localities won’t dare go through the very expensive process of a lawsuit.

“We can’t know exactly what Airbnb is doing here,” Brennan-Marquez said. “With that caveat in mind, I think the answer is of course they’re counting on that.”

Source: www.dailyprogress.com

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