Originally published on Forbes.com.
Elderly as I am, I try not to be too put off by new things, but this “sharing economy” has not captured my imagination. The most well-known players seem to be Uber and Airbnb. Uber kind of lets anybody be a taxi driver and Airbnb lets you turn your living room couch or spare bedroom into a hotel. The companies making the arrangements take a cut.
This is really getting to be a thing as privately held Uber in its latest capital raise is being valued as being worth more than General Motors, which, you know, actually makes automobiles. Every once in a while I will think about engaging with one of those companies as either a buyer or seller. My covivant squashes the notion rather quickly.
Reflecting on this new trend I have now added to Reilly’s Laws of Tax Planning. I’m on the twelfth law now – Any new business concept will be pitched as a tax dodge. This is related in a way to the third law – Any clever idea that pops into your head probably has a corresponding rule that makes it not work. In many jurisdictions there are stiff taxes on hotel occupancy and it would seem that Airbnb is a way of beating that. That’s the clever idea. The corresponding rule that makes it not work might not be there, because the concept is new. It is a matter of time. Just last week, we have from the Tennessee Attorney General Opinion 15-78 – Tax on Short-Term Rentals of Homes, Apartments, and Rooms Arranged Through Websites.
The Questions
Is sales tax due on short-term rentals of homes, apartments, and rooms in Tennessee that are arranged through websites such as www.airbnb.com and www.vrbo.com?
Do these rentals qualify as “hotels” subject to a hotel occupancy privilege tax, levied pursuant to Tenn. Code Ann. § 67-4-1402, or any other general law or private act imposing a tax on transient lodging?
The Tennessee sales tax is 7.0% and in Nashville the hotel occupancy privilege tax is 6.0% (Other sources indicate 5.0%). Regardless that is a significant surcharge on your country music expeditions.
Are You Surprised That The Answer Is Yes?
As far as the sales tax goes, the answer is definitely yes. The local tax will depend on the exact wording of the local statute, but if the locality cribbed the wording from the Tennessee statutes, the tax will apply.
Who Collects The Tax?
The tax is collected and remitted by the apartment or house owner, which the AG thinks is not that big a deal.
The websites allow individuals who list their homes for rent on a short-term basis to set the price of the rental and to specify any taxes that are due from guests. It should thus not be overly burdensome for individuals who rent their homes via the websites to satisfy their obligation to collect and remit sales tax and hotel occupancy privilege tax.
What is going to be entertaining is whether there will be litigation between the states and localities and Airbnb as there will be a debate as to whether the tax should be figured on the gross amount paid by the renter or the amount that the apartment owner nets from Airbnb. There has been extensive litigation on that issue between states and localities with the likes of Expedia when it comes to actual hotels.
Other Coverage
This appears to be one of the rare instances where I am providing you breaking news on a matter otherwise neglected by the tax blogosphere. Has to happen every once in a while.