Are you looking for Airbnb tax information? If so, you are in for a ride. In February 2015, after many successful years as an Airbnb Host I created AirbnbSecrets.com, which is a blog and online course where I share my Airbnb knowledge and experiences as a Host. I’ve always declared my Airbnb income so I never feared coming out publicly with AirbnbSecrets. Having already paid taxes on my Airbnb revenue I never expected the Quebec government to hand me a $62,000 “hotel & sales taxes” bill mainly for being an outspoken Airbnb Host.
Both Uber and Airbnb collect all payments from their clients which they keep secure in tax-free havens. At the moment of writing these lines, they still have not made an agreement with our government to pay any income or sales taxes in Canada. The government is therefore holding the user (Uber Driver or Airbnb Host) responsible for paying Uber and Airbnb’s applicable sales tax.
In Quebec, these taxes represent approximately 19% of all transactions on Airbnb, while on a web platform like Uber, 15%. Even if I’ve submitted proof that tax collection responsibility belongs to Airbnb, not to Hosts like me, I am still forced to make arrangements with my government to pay a back-tax bill of more than $62,000 for my transactions between 2013 and 2015.
There are more than 10,000 Airbnb Hosts and 8000 Uber drivers in Quebec alone affected by this case. These numbers show that there are thousands of Canadians facing, or are soon to face, the exact same tax issue I am burdened with today.
For these reasons, I am contesting this tax bill and I invite you read and share this blog post to have a better grasp on what this taxation problem is all about.
Airbnb Tax Secret #1: Airbnb has already paid millions in back-taxes in the US
In October 2014, Airbnb has paid back hotel taxes in California for all transactions that took place on its platform before the legalization of their service in the city of San Francisco. The amount was never publicly revealed but it is said that Airbnb could have paid an amount of up to US$ 25 million in back-taxes to the city. This means that it is not the Airbnb Hosts that have been responsible for paying hotel taxes, but Airbnb.
“The short-term housing rental service Airbnb gave in Wednesday to mounting pressure from San Francisco City Hall, disclosing it had paid “in full” a back-tax bill that officials said ran into the millions of dollars.”
At the same time, on the East Coast in 2014, the Palm Beach County of Florida sued Airbnb (the company, not the Hosts) for not collecting taxes on their platform. Because of this incident, as of December 1st 2015, Airbnb is now collecting both Tourism and Sales taxes on all Airbnb bookings in the entire state of Florida. This means booking an Airbnb in the sunshine state now costs an extra 12 percent.
“The issue has been raised in Florida before, both by governments seeking money and rival hotels who already pay bed taxes. Last year, Palm Beach County sued Airbnb, hoping to force the company to collect taxes, according to the legal website Law360.”
In Chicago, Airbnb succeeded in convincing the city to collect less taxes than the hotels because they were operating in the home sharing business and not in the hotel industry. Because of this, the platform started charging a 4.5 percent home sharing tax instead of a 16.4 percent hotel tax, making any Airbnb booking nearly 12 percent more affordable than any hotel in Illinois. Of course, hoteliers were not happy. But all of these changed and Airbnb announced that it will start collecting the full hotel tax from January 15, 2016 onwards.
“On Thursday, Airbnb announced that, starting January 15th (2016), the company will begin collecting the FULL Illinois hotel tax from its hosts, a major win for the city’s hoteliers and hotel business. In February, the platform added a 4.5 percent tax to its bills, nearly 12 percent less than what hotels in the city and state collect. Now, a full 16.4 percent tax will be automatically included in all renters’ bills.”
Meanwhile, the two international competitors of Airbnb (Homeaway and VRBO) are no longer responsible for collecting hotel taxes in the United States. By winning their case in federal court, they proved that their business model is very different from Airbnb, because Homeaway and VRBO do not handle Guests’ payments. Rather, it is the Hosts who deal directly with Guests, money-wise, outside of these platforms, making the Hosts responsible for collecting these taxes themselves when using this type of website.
“Last fall, HomeAway sued to overturn a San Francisco law it argued had targeted the company with an unfair mandate to collect taxes. A federal judge agreed in December that the company (Homeaway) shouldn’t be classified as “a hosting platform” and thus shouldn’t be forced to collect fees in the hometown of its rival (Airbnb).”
Airbnb Tax Secret #2: The sharing economy operates from tax havens
Companies like Uber and Airbnb all have complex tax structures with international administrative headquarters based in countries where they pay almost no taxes (Ireland, Netherlands and Bermuda). This currently creates a massive tax evasion from Canada and from many countries in the world, costing governments lots of money in a period of austerity.
“The peer-to-peer property renting website, Airbnb, makes it possible for people in crisis-stricken states to earn extra money, but the company itself has placed its headquarters in places like Ireland, Jersey and Delaware to avoid paying tax.”
Here is an Airbnb proof of income showing that all my payments from hundreds of customers all come from Airbnb UK.
According to this Fortune magazine article, the tax structure is very similar with Uber.
“In May, Uber formed a new business entity in the Netherlands called Uber International C.V. Over the next few weeks Kalanick’s San Francisco startup executed a flurry of transactions that shifted ownership of several foreign subsidiaries to Uber International C.V. and formed an agreement with the Dutch business to split the profits from Uber’s intellectual property. By mid-June, Uber was ready to continue with its dizzying rise, but with one critical difference: From that point on, nearly all its ride-share income outside the U.S. would be effectively shielded from U.S. taxes.”
Airbnb Tax Secret #3: To prevent tax evasion, governments must collect all sales taxes directly on these web platforms
Uber and Airbnb are generating way more than $30,000 a year in Canada and they currently do not pay any sort of sales taxes in our territory. To be fair to all citizens and businesses of our country, our governments need to force these emerging sharing economy global players to collect all sales taxes on their web platforms, as they already do for any traditional companies that operate in the real world. I personally use Uber frequently and if we look at my October 16th, 2015 invoice from a ride I took with them, we see that no sales taxes have been added to my bill. Yet at the same time, all taxi companies based in Montreal are currently charging these taxes to their customers.
In an interview on the famous Quebec show “Tout le Monde en Parle” (Everybody’s talking about it), Jean-Nicolas Guillemette, the General Manager for Uber Quebec (featured on the right), dodges the issue of collecting the 15% sales taxes by saying that it is the drivers that should pay these taxes. Jugand Benedict, spokesperson of the union grouping 4,000 taxi drivers (on the left) deplores that, after verifying with the government, it looks like no Uber drivers have collected these taxes so far in Quebec. Of course, the Uber manager also avoids mentioning that because Uber collects all payments from theirs customers, this created a grey fiscal zone on the taxing subject.
“It’s the war between the taxi industry and Uber. Jugand Benedict, spokesperson of the union grouping 4,000 taxi drivers (on the left), deplores the Uber unfair competition.”
In this interview, the Uber manager also admits that the service generates over 450,000 monthly rides in Quebec.
If we calculate that an average ride costs about $20, we can estimate that Uber generates approximately $9 million per month in Quebec alone. If Uber was collecting the 15% sales taxes on all these rides, this would represent a taxing revenue of over $16 million per year for our governments. On top of that, Uber is growing exponentially. As more and more people are using this service, Uber is planning to expand its offering across the province, meaning these tax revenues will only increase over the coming years.
Over a period of 10 years, the potential tax revenue should be well over 200 million, just from Uber!
Do I have to remind you that our government is collecting $0 on all these rides at the moment?
Also, as highlighted by the journalist François Cardinal from La Presse, in the case of Uber, the important thing is to ensure that taxi drivers in Quebec are waging a “fair competition,” even if they work for a conventional taxi company or UberX. This principle also applies to Airbnb and hotels. And to make a “fair competition” possible, it is essential to collect sales taxes on these web platforms.
“1) GST / QST (Sales taxes) We force Uber to collect the provincial and federal taxes at the source, with its drivers, and to transmit the money to the revenue agencies. And to be fair, we impose the same thing to everyone operating in the transportation industry (taxis, limousines, etc.).”
On Airbnb’s side, in all places of the world where this platform becomes regulated, it is Airbnb that usually starts collecting hotel taxes on behalf of all Hosts.
But in my case, I spoke to Airbnb and they’ve told me that collecting the provincial and federal sales taxes is not part of their strategy at all, even if these taxes apply to the entire hotel industry in Canada.
In the meantime, if you are trying to book an hotel room in Montreal on Hilton.com, or anywhere else in the country for that matter, you’ll notice that all hotels are collecting these sales taxes, even when the booking is completed via their website. This taxation issue is a huge source of frustration for all hoteliers in the country.
Meanwhile, in the U.S, Airbnb swears they want to collect Hotel and Occupancy taxes with every booking.
“The startup, which is now the largest hospitality company in the world based on its number of listings, released a report at the U.S. Conference of Mayors’ winter meeting this week that estimates the 50 largest cities in the United States would make $2 billion in tax revenue from Airbnb over the next 10 years—if they work with Airbnb to collect hotel and occupancy taxes.”
Airbnb Tax Secret #4: By not collecting sales taxes on these web platforms, our governments are killing the local economy
Because of this grey area in the tax law in Canada, since Uber does not pay any sort of taxes in our country, the company can offer prices 50% cheaper than any conventional taxis in order to kill any local competition in this industry in Quebec.
“The war intensifies between taxis and Uber. Today, a trip on UberX will cost half the price of a taxi while the American company will reduce by up to 20% certain tariffs, The Journal has learned.”
“Why, for example, should the hotel clients only to be the ones charged a (tax) fee of $2 to $4 per night to finance tourism promotion? If everyone takes advantage, why should we not charge these taxes also on Airbnb?”
Airbnb Tax Secret #5: The internet has created a new category of workers operating in the sharing economy era
Uber and Airbnb share the same business model and by researching the web, you can find that Uber drivers, who were originally considered self-employed workers, have recently been declared employees in California. This decision may seem pointless but it has huge impact in this whole debate, because in Canada, it is the “employer” that is responsible for collecting all sales taxes and not the “employees”.
“Uber’s US operation has suffered another legal defeat in its efforts to class its drivers as independent contractors, after a California labour board ruled that a former driver was an employee and so eligible for unemployment benefits.”
“Uber drivers have filed a class action lawsuit claiming they have been misclassified as independent contractors and are entitled to be reimbursed for their expenses that Uber should have to pay, like for gas and vehicle maintenance. The lawsuit also challenges Uber’s practice of telling passengers that the gratuity is included and not to tip the drivers, even though you are not getting a tip!”
Of course, this outcome could become very costly to Uber.
“How much would it cost Uber if it was forced to reclassify its drivers as employees, rather than independent contractors? By my calculations, with help from some experts, I crunched the numbers and got an answer, and it’s a huge amount: $4.1 billion.”
But to me, categorizing Uber drivers as employees seems to be a binary way of thinking because we try to categorize a new type of internet worker of the 21st century in one of two categories of workers that existed before the invention of the internet in the 20th century – one can either be self-employed or an employee.
It’s as if we are trying to classify the color gray as black or white when it is in fact gray.
Since these laws were written in the pre-internet era, this explains why these definitions are not adaptable to new technology platforms – they do not seem to consider the new type of workers that has emerged through the new sharing economy.
For the purpose of this argument, let’s call this new category the “web platform worker”.
I personally think that the “web platform worker” is a hybrid worker, a cross between the self-employed worker and the employee. We do business with tens or thousands of customers trading through a single web platform that takes care of all payments. But to generate our income, we also have to generate many expenses that we need to deduct for tax purposes, even if the money that we generate in our own name comes from a single source, the company that owns the web platform.
And I really think that it is the emergence of this new type of worker, not listed in the current legislation, that is the source of many problems related to the taxation of sharing economy in Quebec, Canada and possibly in the world.
Airbnb Tax Secret #6: To maximize revenues, governments must have a long term vision on taxing the sharing economy era
As a citizen who has been making a living from the sharing economy for the last 3 years, I firmly believe that all governments of the world have many advantages for collecting sales taxes directly on this type of platform.
By collecting sales taxes directly on the web platforms, governments will:
• collect 100% of sales taxes on all transactions of websites like Uber and Airbnb, even if these companies operate from tax havens
• collect 100% of sales taxes, even on the unreported income of dishonest users
• get the customers to pay these taxes (not the “web platform workers”)
• create an equal market for all “web platform workers” within the platform
• create an equal and fair market for the entire industry in which the platform operates
• minimize the costs recovering these amounts while maximizing their taxing revenue
By the way, did you know that the vision of Uber is to develop a global fleet of driverless vehicles by 2030?
“Uber CEO, Travis Kalanick, has indicated in a tweet that he expects Uber’s fleet to be driverless by 2030. The service will then be so inexpensive and ubiquitous that car ownership will be obsolete.”
If our governments persist in saying that the responsibility of collecting sales tax is up to the “sharing economy workers”, how will they perceive sales taxes on a platform like Uber when there will be no more drivers in the cars?
On final note, Airbnb has already started collecting taxes on several territories around the world. Make sure to check this link to discover if your listing is covered with Airbnb taxation.
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