Airbnb has secret tax deals around the nation. Is there one in your city?

Secrecy is rarely a good thing. When state and local government agencies meet, Sunshine Laws usually require those meetings be held in public, and for good reason. Government agencies meeting publicly builds confidence in our institutions, allows the public a voice in their governance and prevents the possibility of creeping corruption.

{mosads}So the idea that local or state government officials would meet behind closed doors with a private company, and agree to a one-of-a-kind tax deal proposed by that company that applied only to itself and its affiliates is simply unacceptable. Worse yet, in about 200 cases, government officials who have made such deals have agreed at the company’s insistence to seal them off from the public and the press, making them secret, even though they likely contain no sensitive business information.

The company, in this case, is Airbnb, the $30 billion lodging behemoth. Despite their best efforts to keep the tax agreements secret, about a dozen of them have become public. It’s easy to see why Airbnb did not want the sun to shine on what they were negotiating with government officials behind closed doors.

This month, in a presentation to dozens of officials at the Multistate Tax Commission from many of the nation’s state tax and revenue collection agencies, I presented findings of a new report on those Airbnb agreements. I’ve spent more than 40 years in tax administration, was executive director of the Multistate Tax Commission and Director of the Montana Department of Revenue, and what I found was unsettling.

Though Airbnb says these are simply “voluntary collection agreements,” they are nothing of the sort. These secret agreements are, in fact, filled with wide-ranging special rules benefitting Airbnb and its lodging operators, known as “hosts.”

In the dozen now released agreements, there is no proprietary or confidential information that would have justified withholding them from the public — also likely true for the still secret agreements. Besides, even if sensitive information exists, agencies can redact it. There is no doubt that public policies in these agreements should be subject to public disclosure and scrutiny.

The structure of these agreements should be reviewed for legality. The agreements provide major benefits to third-parties, especially lodging operators, who do not sign the agreements and do not commit to any performance in exchange for benefits received.

The agreements provide a shield of secrecy for lodging operators that prevents their discovery by public agencies and creates a de facto tax and regulatory haven for those operators. The tax agencies cede substantial control of the payments and audit processes to Airbnb leaving no effective “audit trail” to ensure that Airbnb’s supposed tax payments are, in fact, proper and complete.

Many of the agreements bar the agency signing it from sharing information with other government agencies. Tax agencies should be especially concerned about suspending exchange of information processes related to Airbnb and its lodging operators. Beyond questions of legality and favoritism, agencies should consider the impact of withholding information from other agencies in terms of adversely affecting the cooperation they receive from other agencies in the future — cooperation that is important to fair and proper tax administration and broader enforcement of other laws.

The Airbnb agreements undermine the rule of law. The agreements create risks of reduced compliance with lodging tax laws, with state and local tax laws more generally, and with local land use, housing and building safety laws. 
Additionally, the agreements provide unfair competition for community residents and citizens seeking a place to live.

Perhaps worse, these agreements have led to state legislation in Arizona, which other states are considering copying, that undermines local land use and zoning laws that might affect Airbnb by severely narrowing local regulatory authority. The law codifies the anonymous data reporting that undermines Airbnb’s tax accountability. It also blocks the exchange of Airbnb information with the IRS and tax agencies of other states, a provision that benefits those who abuse the tax system the most at the expense of honest taxpayers.

For the exchange of information that does remain, the law requires notification of Airbnb of potential exchanges and gives Airbnb the power to reach into the tax agency and block that exchange of information. It allows the CEO of Airbnb to exercise governmental authority that under standards of constitutional government are reserved to public officials.

The reason states and localities sign these documents, of course, is obvious. Easy money. Airbnb promises thousands or even millions of dollars in ‘tax revenue’ to cash-starved legislators or city councilmen. That money may not represent what the state or city would collect if things were done properly.

However, the promise of a regular check, even if it cannot be verified, has great appeal — especially when Airbnb opposes identifying its most-profitable commercial-style lodging operators who may be violating both zoning ordinances and tax laws. Doing the right thing is hard for public officials. Airbnb is banking on it.

Regardless, state and local tax agencies need to stop signing Airbnb’s so-called voluntary tax agreements, since they are nothing of the sort. Instead, tax agencies should seek legislation updating lodging tax laws to require registration, reporting and collection, and payment by online booking companies and lodging operators, with a single payment process coordinated as it is for sales taxes between wholesalers (here, lodging operators, or “hosts”) and retailers (online booking companies like Airbnb).

Given the community and neighborhood impacts of short-term rentals, at a minimum, Airbnb’s operations should be treated like every other business.

Dan Bucks served as director of the Montana Department of Revenue from 2005 to 2013 and as executive director of the Multistate Tax Commission from 1988 to 2004. He previously held executive positions in the Montana and South Dakota state governments. He now serves as a revenue policy and administration consultant and is a contributor to State Tax Notes. His report on the Airbnb agreements cited in this column were underwritten by the American Hotel and Lodging Association.

The views expressed by contributors are their own and are not the views of The Hill.