Adrian Loveridge, Peach and Quiet

The Adrian Loveridge Column – Airbnb and the TAX Conundrum

Adrian Loveridge

Adrian Loveridge

What can only be described as a battle royal to bring the ‘home sharing platform’ Airbnb into line with the traditional compliant taxpaying alternative accommodation providers is intensifying in the United States. In a recent report by AllTheRooms it is estimated that about US$440 million in tax would be payable if Airbnb had collection agreements with all 50 of the US states. The tax for one state alone, New York, is estimated at US$110 million based on revenue generated by Airbnb bookings. This is more than double the next highest tax bill in Hawaii at US$51 million.

These figures are based on the standard hotel tax rates currently collected in each municipality.

While New York Governor Andrew Cuomo has signed into law a bill that’s steps up enforcement against Airbnb hosts who violate short-term rental statues, the company is fighting back with a second law suit within four months against New York and officials of the city and state. Airbnb alleges, among other things, that the law violates its hosts’ rights to free speech and is ambiguous about whether Airbnb or its hosts would be liable for any violations.

It is clear that the Governor has some support, one travel trade publication recently highlighted a large sign as you entered a residential tower block in that city which boldly advised ‘Airbnb – renting is illegal in this building. If you rented through Airbnb you must leave this building or you will be escorted out by the police’.

For those of you unfamiliar with the website AllTheRooms.com, it searches many of the established accommodation platforms like booking.com, Expedia, Groupon, Hotwire, Jetsetter plus Airbnb, but also includes lesser known sites like Couchsurfing.

To put this in perspective, I put ‘Barbados’ into the search engine for two persons staying one week from 21st November and up popped a staggering 6,615 accommodation choices, or a mind boggling 40 lodging options per square mile.

Its mission statement boasts ‘Every room – Everywhere’ and from ‘Couch to castle – we’ve got your spot’ and perhaps most blatant of all ‘bringing you every room on the planet’.

This is the reality of doing business today and the question still remains, just how much longer Barbados as a destination can continue not to reap the full benefits of a level playing field tax collection?

While individual states within the US may eventually find ways of extracting proportional and comparable taxes from Airbnb, we simply lack the lobbying ability and frankly the creditability within the Caribbean to achieve those goals.

When Governments’ grant unilateral tax concessions to a single tourism player, which is then further negatively impacted by the majority of the generated revenue from that property remaining offshore, what moral argument can it raise or object to, when smaller players are simply trying creative ways to pay their bills?

It is really similar to why we failed so dismally to persuade the British authorities to eliminate the Advanced Passenger Duty (APD). How could you challenge the imposition of the tax, when at the same you were levying 17.5 per cent VAT on air travel, when that figure in many cases was higher than the APD? Would ‘we’ have been happier if the Brits imposed their 20 per cent VAT rate on all outgoing air fares, substantially increasing the cost of travelling to Barbados?

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37 Comments on “The Adrian Loveridge Column – Airbnb and the TAX Conundrum”

  1. chad99999 November 7, 2016 at 3:36 AM #

    Adrian

    It is time to stop saying that Sandals keeps the majority of its revenue offshore.

    Sandals is not a Barbadian company, so there is no reason to expect it to park its profits in our banks.

    But it has to pay the bills (for utilities, food, drinks, wages etc) to operate its property on the island, and the only way it can do so is to take most of its revenues for Barbados, which it presumably receives in US and Canadian dollars, and convert them into Barbados dollars, or into another foreign currency that is then converted into Barbados dollars. (Sandals does not generate significant revenues from Barbadians living in Barbados).

    Understand: Sandals has to surrender foreign currency to acquire the Barbados dollars it needs to conduct business operations on the island. Whatever that currency is, if it is not US or Canadian currency, it can be exchanged for US or Canadian currency.

    Translation: Sandals has to finance most or all of its operations with foreign exchange, and Barbados benefits from the supply of foreign currencies as well as from the advertising, jobs and tourism infrastructure that Sandals creates.

    We may “lose” the company’s profits, assuming they are kept elsewhere. But that would also be true of any foreign company that chose to repatriate its profits.

    Like

  2. David November 7, 2016 at 5:32 AM #

    @chad99999

    You do have a way of distilling issues in a narrow form.

    Theoretically what you posit is correct but what about the accounting for tax purposes. Are we comfortable with the amount of concessions given and the foreign currency Sandals send to Barbados on a need to cover expenses basis? Is Sandals an offshore entity and is therefore not obligated to surrender all cash earned by the operations?

    Just asking.

    Like

  3. chad99999 November 7, 2016 at 6:17 AM #

    David

    Barbados has given tax concessions to hotels since the 1950s. Refer to the old Hotel Aid Acts.

    Sandals is not only providing the island with free TV and newspaper advertising in North America, which other hotels do not, but it seems to be a better managed and more profitable company than its competitors. That makes it a better training environment for Barbadians in the tourist industry.

    Skills are in short supply in tourist hotels. A large, well-run resort is an enormous asset for Barbados.

    Like

  4. Adrian Loveridge November 7, 2016 at 6:59 AM #

    Chad, Have you actually EVER personally stayed at any Sandals and can quote from that experience. ‘large and well run’ certainly not from my 4 day stay.

    Like

  5. Bernard Codrington. November 7, 2016 at 8:31 AM #

    Very informative article and an interesting perspective. Governments need to make sure that no one escapes from his obligation to pay for publicly provided goods and services.

    Like

  6. Vincent Haynes November 7, 2016 at 8:31 AM #

    The future of tourism lies with high end Hotels,Villas and Airbnb type operations all others will become unprofitable due to govt impositions and the increasing assertiveness of the traveling public to find their own accomodation amongst the locals.

    Like

  7. Vincent Haynes November 7, 2016 at 8:46 AM #

    Bernard Codrington. November 7, 2016 at 8:31 AM #

    Governments need to make sure that no one escapes from his obligation to pay for publicly provided goods and services.
    ………………………………………………………………..

    Could you spell out the meaning of the above sentence within the context of the tourist industry.

    Like

  8. ndtewarie November 7, 2016 at 11:19 AM #

    DON’T PRAY WHEN ITS TOO LATE

    Do not wait for a crisis
    To give a loved one kiss
    Don’t wait when you’re hijacked above
    To call loved ones to give them your love
    Don’t call on God too
    To pray and help you
    Show them you do care
    All 365 days of the year
    You think now is the time to pray
    Sometimes it’s bit too late I’d say
    You obey the moral laws as you should
    Then you tow the line doing only good
    With fear in your eyes as you don’t know
    Like when you’re faced with a butting cow
    But Mister Karma dictates otherwise
    Now you’re helpless cut down to size

    Like

  9. Bernard Codrington. November 7, 2016 at 11:52 AM #

    @ Vincent Haynes at 8:46 AM

    Which part of no one do you not understand?

    Like

  10. Vincent Haynes November 7, 2016 at 12:02 PM #

    Bernard Codrington. November 7, 2016 at 11:52 AM #

    What are the….. publicly provided goods and services…….that everyone is obliged to pay?

    Like

  11. NorthernObserver November 7, 2016 at 4:17 PM #

    On target.
    These “intermediary” websites are a nightmare for the tax collectors.
    And there are many such sites which connect buyers and sellers. Even the so-called “free classifieds” have become non bricks and mortar storefronts. Sellers even advertise “no tax”. As bad are those who collect tax, but never remit it.
    There is a scam going here in Toronto, and I imagine elsewhere, where a person rents a condo, and then turns around and AirBnB’s it by the night. It is against most sublet clauses in the lease, but the landlord has to figure it out, which in condos with people coming and going, is usually only discovered via excessive noise.

    Like

  12. Pachamama November 7, 2016 at 6:15 PM #

    We wonder why ‘innovations’, like AIRBNB, could never come out of a place, like Barbados, which sees itself as a mature tourism destination.

    Instead, the industry continues to rely on government welfare to keep the old system of tourism in place.

    These White ‘uckers and their Black lackeys have been for generations sustaining an industry in ways which would require the earth to remain flat.

    To them it was always better to have systems of institutional racism within the tourism sector than to have a more inclusive industry, at all levels and especially at the ownership levels.

    Given these circumstances, we have no sympathy for these new pleas for more protections which would undoubtedly emerge.

    We say let this archaic industry die on the vine. Let the average Bajan now be their fiercest competitor and let the chips fall where they might.

    Like

  13. chad99999 November 7, 2016 at 9:48 PM #

    Pacha

    In the 1960s, Barbados reached a fork in the road.

    It could choose to continue its historical specialization in export agriculture – presumably by increasing sugar output and adding new products like cotton and flowers. It could try to develop a manufacturing sector, producing high-volume components like computer chips. Or it could develop service industries like tourism and offshore banking.

    It was pointed out at the time that agriculture is a hard way to make a living — it requires a lot of backbreaking work in the tropical heat; exposure to hazardous agricultural chemicals, and it closes out most opportunities to develop the mind. Not good.

    Factory work is not much better. The physical discipline and endless repetition required for assembly line work can make life a living hell, and blacks would never be able to compete with the East Asians. Never.

    So that left the service industries, which offer a lot of easy office and hotel jobs in air conditioned comfort. Was the path forward ever in doubt?

    Enter the ideologists — like you Pacha — who can’t get past the 18th century. Service is really slavery and subordination. You can’t wait for the Revolution.

    Thing is, do you really understand how far this little island can fall if things go wrong? Do you really want to turn away from the easy life. Do you think the rest of Barbados can keep up with you. And if you do, what’s ahead for all of us?

    Like

  14. Pachamama November 8, 2016 at 7:54 AM #

    @ Chad99999999999999999999

    Your’s is an answer to other questions

    Simply put we make two points

    One, that the tourism industry, as presently structured, cannot be viable and will perpetually depend on government support, like agriculture.

    For agriculture we asked for a response, central to which, is a radical land reform.

    Second, for tourism, we say end the government welfare to the industry and turn it into a cottage industry helped by marketing devices that AIRBNB, and others.

    Finally, it cannot make sense to continue to offer all types of concessions to the tourism industry because it as regionally, globally relatively not competitive.

    Like

  15. peterlawrencethompson November 8, 2016 at 8:13 AM #

    @Chad99999

    Your analysis of the revenue distribution from operations like Sandals is correct as far as it goes. The problem for Barbados however, is that foreign companies that repatriate all their profits do not contribute to local capital formation; this makes it impossible for us to escape the vicious cycle of offering more and more concessionary terms to attract foreign capital.

    Like

  16. peterlawrencethompson November 8, 2016 at 8:27 AM #

    @Adrian

    What are the taxes, in addition to income tax, that Airbnb hosts should be remitting to the treasury?

    Why doesn’t the Ministry simply monitor Airbnb listings and ask the proprietors, respectfully, to comply with the laws. It is trivially easy to see a losing’s prices and booking rate to estimate the income generated.

    Like

  17. Vincent Haynes November 8, 2016 at 8:36 AM #

    Diversified agriculture can be viable…….

    In the late ’90s the then govt approved a study to make the Scotland District the bread basket of Bim,its land area is 1/7th of the Country,it is under developed and is ideal for certain crops that would also stabilise the land.

    Since then technology has advanced to the point that with solar greenhouses many crops that we import can be produced here in temperature controlled greenhouses.

    Sugar cane should still be produced for molasses and sugar,which would be converted
    to rum and speciality sugars for export.

    All the above have been studied and papers exist on them……unfortunately a massive land grab and merchant importation is the order of the day.

    Like

  18. Adrian Loveridge November 8, 2016 at 8:48 AM #

    Peter, VAT in our case, but the column is based on the USA and occupancy tax that the hotels pay.

    Liked by 1 person

  19. chad99999 November 8, 2016 at 9:49 AM #

    Pacha

    The tourist industry is “not competitive”?

    Are you out of your mind? The Caribbean has a clear comparative advantage in tourism, not just because of its physical geography (the small tropical island with white sand beaches is a place that has extraordinary appeal in the myths of European civilization), but because of its proximity to wealthy North American cities.

    It is shocking that the hotel owners in our region are so incompetent their profits are actually smaller than the profits of hotel owners in rural America.

    Anyway, my question to you is if tourism is turned into a cottage industry, what takes its place as the engine of the economy?

    A plain English answer, please.

    Liked by 1 person

  20. peterlawrencethompson November 8, 2016 at 9:52 AM #

    @Chad99999 said “agriculture is a hard way to make a living — it requires a lot of backbreaking work in the tropical heat (…) Factory work is not much better. The physical discipline and endless repetition required for assembly line work can make life a living hell”

    Both of these stereotypes are out of date. Post-industrial technologies are transforming both agriculture and manufacturing in ways that make production for specialised niches entirely practical on a small scale that is well suited to Bajan circumstances. Bajans need to catch up to the 21st century, not be hampered by 18th century trauma.

    Like

  21. peterlawrencethompson November 8, 2016 at 9:59 AM #

    @Chad99999

    It is the concept of “engine of the economy” that is the weak point of your argument. That concept mitigates against economic diversification because it presupposes that the economy requires a single dominant sector. The domination of any single sector is exactly what makes our economic future so precarious. It is like an agricultural monoculture, fatally susceptible to a new disease or environmental change.

    A sustainable Bajan economy requires several engines, no single one so dominant that its loss is catastrophic.

    Like

  22. chad99999 November 8, 2016 at 11:25 AM #

    PLT

    My post began with the following words, “In the 1960s ..”

    Are you reading …?

    Liked by 1 person

  23. Vincent Haynes November 8, 2016 at 12:39 PM #

    A typical Airbnb host earned £3,500 from renting their place for 50 nights a year.
    Airbnb’s share of London lets has tripled in a year
    Agents say 7.6% of overnight stays in capital now via gig economy website
    ft.com

    http://on.ft.com/2fAYnFn

    Like

  24. chad99999 November 8, 2016 at 2:33 PM #

    PLT

    Can you outline a practical proposal for economic development in Jamaica and Barbados?
    I would like to get a better idea of your thinking.

    Like

  25. peterlawrencethompson November 8, 2016 at 3:39 PM #

    @chad99999
    I’ll restrict myself to comments about Barbados since that’s closest to my affections.

    Fiscal Policy: Freeze all civil service hires and compensation— reduce the size of the government wage bill through attrition and retirements. Stop subsidizing state corporations; they either need to break even within 12 months or be sold. Reduce parliamentary and senatorial salaries by 10%: this is purely a public relations exercise— since the public service will suffer their masters must lead by example. Close corporate tax loopholes and stop inventing corporate welfare programs. Keep our offshore business legislation stable rather than trying to react to every shift in the international environment— that is simply a race to the bottom to remain competitive.

    Educational Policy: Introduce entrepreneurship education at the primary school level and keep it available through secondary education— this is a fundamental life skill for Bajan children & youth. Eliminate religious education education from all public education— it is at best useless, at worst a source of bigotry and intolerance. Encourage talented people, particularly men, to contribute to formal education at the primary and secondary levels; our boys need role models in the schools. Put resources into training school principals— there is a good [program in Jamaica called ILEAD that dramatically improves school performance by improving school leadership.

    Economic Policy: Encourage community tourism by exploiting new technologies like AirBnB— train and oversee community tourism providers to protect our brand. Devise a small business policy that is rational— small fully repayable loans to promising startups if they are able to match that with bonafide angel investment. Use the Diaspora community to build a vibrant angel investor community— use technology like Kickstarter and legislation to build an equity investment portal ahead of major jurisdictions instead of playing catchup after they do it. Encourage Charities to build social enterprises so that they can make money to fulfil their social mission— this removes pressure from the public purse and builds a more balanced private sector that has motivation beyond greed. Encourage the growth of cooperatives and other social enterprises by devising a better legislative environment.

    Agricultural Policy: Use the Ministry, the University, and the nonprofit sector to innovate in the direction of widely distributed small scale market gardens to improve our food security….

    I’ve gopt to get back to work and I haven’t touched on energy policy or climate change adaptation or…

    Like

  26. chad99999 November 8, 2016 at 4:19 PM #

    Thanks. Looking forward to the rest of it.

    I’m particularly interested in which products and services you think offer the best chance of success as exports.

    Also, some of your ideas sound similar to initiatives that have been tried before, or proposed before. Can you address economic policy failures in Barbados and Trinidad since independence?

    Why didn’t cooperative capitalism and import substitution industrialization work in Guyana?

    Like

  27. peterlawrencethompson November 8, 2016 at 4:52 PM #

    @chad99999
    The Bajan products that offer the best chance of success as exports are those tied to our tourist industry: tourism itself, rum, music & other cultural products.

    I really can’t address policy failures except on a theoretical level since I’ve paid very little attention to Barbados for the past forty years. I understand Arthur Lewis’ recommendations to focus on import substitution to conserve foreign exchange, plus industrialization to utilize the surplus labour and to create more competitive exports. But he assumed that the multinational corporations courted for foreign investment would reinvest some of their profits and transfer durable skills and technology rather than simply exploit the cheap labour for a limited time, export all their profits and move on. Guyana, in addition, is plagued by intercommunal intolerance and it has poisoned both their politics and their economy.

    Like

  28. David November 8, 2016 at 5:52 PM #

    Aruba, Airbnb Sign Tourism Agreement

    Airbnb Aruba

    Aruba and Airbnb have signed what the two sides are calling an “historic” tourism agreement.

    The deal will “create a framework to allow the Aruba Tourism Authority and Airbnb to address the issue of taxes, host accommodation standards and regulations and ensure that it is in line with Aruba’s tourism policy,” according to a statement.

    “As the No. 2 most tourism-reliant nation in the world, Aruba’s continued growth relies on having a healthy balance of on-island accommodations, offering a quality of experience to our visitors, ensuring that we meet consumer expectations and demands, and making sure the benefits of the sharing economy are beneficial for the industry, community and island as a whole,” said Ronella Tjin Asjoe-Croes, CEO of the Aruba Tourism Authority. “Aruba embraces the shared economy and is eager to formalize the first partnership in our region with Airbnb. Together as industry leaders, we will add value to authentic travel experiences while ensuring this on-island development is managed successfully.”

    http://www.caribjournal.com/2016/11/07/aruba-airbnb-sign-tourism-agreement/#

    Liked by 1 person

  29. peterlawrencethompson November 8, 2016 at 7:39 PM #

    A quick search on AllTheRooms showed 1,853 AirBnB rooms available next May in Barbados, with an additional 1.066 listed through VRBO (Vacation Rental By Owner). This is far more than are listed for the same dates in Aruba (898 AirBnB, 389 VRBO). This search captures only those rooms that are available, not those that are already booked. The Caribbean Journal article says that there “are currently 1,360 Airbnb listings on Aruba,” so if Barbados has a similar pre-booking ratio the estimate for the number of Barbados AirBnB listings is over 2,800.

    The number of hotel rooms in Barbados was about 5,400 in 2014 (can anyone point me toward more up to date figures?) and that is a 20% decline since 1980. It is clear that the pattern of capital infrastructure investment in the local tourist industry has changed dramatically. We can either cry over spilt milk or we can emulate Aruba and figure out how to make this change serve the larger interests of our tourist industry and economy.

    “Hosts in Aruba earn around $4,400 per year” according to the article. It is a far far better thing for our economy if 2,800 Bajans are making an extra US$4,400 each year, and paying taxes and spending that extra Bd$24 million in Barbados, than for the government to be trying to bribe international brands with your tax dollars to set up shop here.

    I expect that Adrian might well differ, but in my own opinion this is a change for the better— I have been using AirBnB for just about all my travel accommodation in the USA, Canada and Europe for the past 5 years. I almost always prefer it to a corporate hotel chain.

    Like

  30. David November 9, 2016 at 2:48 PM #

    Published on Wednesday, November 9, 2016
    Airbnb loses latest round in fight with San Francisco

    A federal judge has rejected calls from Airbnb to change a San Francisco law that requires it to block or remove hosts who haven’t registered with the city.

    The San Francisco ordinance, which came into force in August, means it is illegal for Airbnb to collect fees for booking services provided to the owners of properties, which have not been properly registered with the city.

    More than 75% of the 7,000 Airbnb hosts in San Francisco listed on the site are not registered.

    U.S. District Judge James Donato dismissed an argument from the homestay giant that the ordinance was motivated by a desire to suppress speech, reported Reuters.

    Airbnb claimed the law goes against federal laws, including the Communications Decency Act and the First Amendment.

    Although the judge disagreed, he said more clarification of the law was required.

    The decision could have major repercussions for Airbnb who has used similar arguments in its legal battles with other US cities and states.

    Airbnb said: “While we appreciate that the judge has acknowledged our concerns about the inadequacy of the screening obligations in the new law and has continued to postpone enforcement of these rules as a result, we respectfully disagree with the remainder of his ruling.

    “No matter what happens in this case, we want to work with the City to fix the broken system long before the legal process runs its course.”

    http://www.travelmole.com/news_feature.php?news_id=2024572&c=setreg&region=3

    Like

  31. Vincent Haynes November 9, 2016 at 4:40 PM #

    David

    Do we have any laws here requiring homes that provide rental accomodation to be registered?

    Like

  32. David November 9, 2016 at 5:15 PM #

    @Vincent

    Not aware that we do, perhaps Adrian can confirm.

    Like

  33. Adrian Loveridge November 10, 2016 at 7:15 AM #

    David/Vincent,

    not yet but a document called ‘the Draft Tourist Accommodation (Licensing and Classification) Regulations 22016’ document is currently under discussion and I have been asked to attention some of the sessions and submit my thoughts.

    Like

  34. Adrian Loveridge November 10, 2016 at 7:16 AM #

    Sorry should read ‘2016’

    Like

  35. David November 10, 2016 at 10:45 AM #

    @Adrian

    Thanks, a pity those in authority do not see the value in sharing these draft documents widely with the public.

    Like

  36. Adrian Loveridge November 10, 2016 at 11:13 AM #

    agreed David. Its a 201 page Draft document marked ‘Confidential’.

    Like

  37. Vincent Haynes November 10, 2016 at 12:53 PM #

    One can only hope this idea will not be one where the potential golden goose is stillborn because of the imposition of draconian strictures and taxes.

    Like

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