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Is what it creates more valuable than what it undermines?  Photograph by Getty Images

Airbnb Faces Scrutiny Over Secret Tax Deals With Cities

Mar 07, 2017

Airbnb wants to sign deals with hundreds of cities by year's end to remit more hotel taxes to local governments, part of an effort to clear some of the regulatory clouds hanging over the home-sharing company. But the language in the agreements is raising some questions.

In a report published on Tuesday, a former Montana state tax official claims the Airbnb arrangements shield commercial hosts from audits and back tax obligations, while wrapping the deal terms in a web of secrecy In some cases, tax agencies—including the city of Santa Fe and the Florida Dept. of Revenue—have reportedly agreed they will not speak to the media about the deals without Airbnb's permission.

The report, which was underwritten by the American Hotel and Lodging Association, is based on a review of 12 agreements from across the country. According to the author, Dan Bucks, the tax reports were easy to obtain in states like California thanks to open meeting laws, while others had to be obtained through freedom of information requests.

While the report has a partisan cast (the hotel industry is a frequent critic of Airbnb), it does point to unusual concessions on the part of tax agencies. For instance, the deals do not permit the cities to audit Airbnb's books or identify the addresses of its hosts. The report claims this amounts to an inappropriate shield for the hosts at a time when Airbnb is increasingly relying on commercial rental operations—as opposed to the "home sharing" scenarios depicted in its marketing material—to achieve growth:

Secrecy allows lodging operators to run hotels that violate zoning laws, avoid public health and safety standards, and reduce the current housing supply for long-term residents. Secrecy allows Airbnb, if it decided to do so, to avoid accountability for taxes and even to make ill-gotten gains from tax collection. Airbnb first creates the secrecy problem by hiding lodging addresses on their website, making it difficult for state and local authorities to identify the facilities and their owners. Airbnb then offers agreements as a solution. But the agreements only make the problems worse. The Airbnb agreements extend secrecy further, giving it an unfair advantage in lodging markets by offering a tax and regulatory shield to affiliated lodging operators.

In an interview with Fortune, Bucks said cash-strapped cities often agree to the concessions because Airbnb offers a carrot in the form of a big check, and because they lack the resources to conduct long-running investigations into the company and its software. He complains such arrangements amount to a form of back-door policy making that can undermine the democratic process, and provide special treatment to Airbnb and its commercial allies. Bucks, who used to direct the tax agency of the state of Montana, added the deals are unusual because they don't require the hosts to pay any back-taxes while shielding them from audits.

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The secretive nature of the tax agreements, which are signed by city officials, also figure prominently in the report. In addition to imposing a media ban on some tax agencies, some agreements also repeatedly state that the terms of the deal are confidential—despite the absence of any sensitive commercial information.

In response to a request for comment, Airbnb said the company pays its taxes, and criticized the hotel industry for undercutting Airbnb's work with tax authorities. It also said it has stopped describing the tax deals as confidential.

"Confidentiality requirements are no longer included in the Voluntary Collection Agreements that we propose and we have provided substantial information to lawmakers and the public about our tax collection efforts," said an Airbnb spokesperson.

Airbnb's push to sign deals with cities comes as the company is reaching for stratospheric growth. As my colleague Leigh Gallagher explains in her new book, The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made Billions…and Created Plenty of Controversy, the company expects to make as much as $3.5 billion annually by 2020—more than 85% of the companies in the Fortune 500.

For that growth to happen, Airbnb will have to keep the regulators at bay. In the last year, the company has faced opposition in some of its major markets like New York, which recently banned entire home rentals that last less than 30 days (a fact that does not appear to have stopped one woman from renting her place in Trump Tower).

This uncertainty led CEO Brian Chesky to tell the Financial Times in November that Airbnb intends to secure 700 tax agreements in cities that account for 90% of its revenue. As of late last year, it had 500 such agreements in place.

(This story was updated at 11:15ET to provide additional response from Airbnb)

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