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Short-term rentals and lodging taxes: a Q & A on Airbnb and LA

The regulation of short-term housing rentals is the subject of considerable controversy in Southern California right now.

Critics contend that allowing homeowners to rent out rooms or even their entire homes for short stays has the effect of legalizing hotels in residential neighborhoods. Advocates of short-term rentals (STR) point to the economic stimulus STRS bring to neighborhoods, as well as how they can help individual homeowners meet otherwise-difficult mortgage payments.

But what about the tax issues? In this post, we will use a Q & A format to update you on the recent deal between Los Angeles and Airbnb, a popular sharing-economy company that connects hosts and renters for short-term stays.

How do sharing economy companies generally deal with taxes?

The issue of taxes in the sharing economy is one of the threads we’ve been following in this blog. In a post last December, for example, we discussed the role of Form 1099-K in reporting income from work obtained through sharing sites.

For short-term housing rentals, however, income reporting isn’t the only tax issue. There is also the question of lodging taxes for STR hosts.

Do lodging taxes traditionally aimed at hotels apply to STRs?

Los Angeles has long taken the position that lodging taxes apply to STR hosts. But the city has found it difficult to enforce that position against hosts who refuse to pay those taxes or are unaware of an obligation to do so.

This week, the LA Times reported that Los Angeles and Airbnb have reached an agreement about those lodging taxes. Airbnb has agreed to collect the taxes from STR hosts and pay the money over to city.

How will the deal between LA and Airbnb work and when will it take effect?

Airbnb will begin collecting lodging taxes from STR hosts in Los Angeles next month. The company will then pay the money over to the city to be used in programs to assist the homeless.

How is the deal likely to affect the STR industry?

Critics of STRs contend that LA’s deal with Airbnb could legitimize the STR industry in problematic ways. Under current city ordinances, renting out your home for more than 30 days is prohibited and the city can impose fines for violations.

Los Angeles is considering revising its ordinance on STRs to impose new restrictions on sharing-economy sites that offer rooms or entire houses for rent. But the new rules could also increase the amount of time that people are allowed to rent out their spaces.

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