Airbnb and the housing crisis
Secrecy, confidential deals and the impact on Big Sky
Residents of Big Sky have become increasingly familiar with housing issues. When living circumstances change, few options exist. Some are fortunate to find a couch, while others are forced to sleep in their cars until something opens up. Some end up over an hour away – at least temporarily – doing the long commute when they were used to making it to work in 10 minutes, tops.
Big Sky is a place where out-of-state homeowners lock their personal possessions in closets and open their homes up to strangers in an effort to cushion their investment, technically called commercial-style short-term rentals.
Big Sky is also where some year-round residents remove their personal belongings from their condos in the summer, periodically sleep in their campers, and are able to make their mortgage payments for a full year from three to four months of sacrifice, otherwise known as home-sharing.
Home rentals made available by cutting out the middle man have cornered the short-term market, perhaps especially in places like Big Sky. The vacation rental website behemoth Airbnb now touts more than three million rentals in 191 countries.
According to the South Dakota Department of Revenue, a deal was reached with Airbnb there in Sept. 2017. “Beginning Sept. 1, Airbnb will begin collecting and remitting state and municipal taxes on all eligible bookings in South Dakota… With this new agreement, South Dakota joins a list of more than 310 jurisdictions globally where Airbnb has collected and remitted more than $300 million in hotel and tourist taxes.”
The numbers behind the South Dakota agreement were released to the public: a U.S. News story reported that the company remitted $568,000 in tax revenue through the first year of the agreement. Due to the nature of the deals cut and multiple layers of secrecy within the structure of the company, there is often no way for municipalities to know if that is the amount actually owed. Furthermore, no audits are allowed.
Back in Big Sky, Dennis Downing, president of Parkview West Homeowners Association located in the Gallatin Canyon north of Big Sky, said they began confronting the issues head-on about six years ago with a resolution passed one year prior to his presidency which banned home rentals for anything less than 30 days.
“This is a small family community and we didn’t want to see it turned into a situation where people who don’t live here are coming in, having parties and changing the complexion of the community. It’s not a party kind of place. We’ve got a lot of children and families: nice and quiet and that’s how we really like to keep it,” he said. “We feel like we’ve got a handle on it and if anybody else would like to talk with me about what we do, I’d be glad to talk with them.”
An in-depth study
Dan Bucks, former director of the Montana Department of Revenue as well as former executive director of the Multistate Tax Commission, created a 50-page study of Airbnb titled “Airbnb Agreements with State and Local Agencies: A Formula for Undermining Tax Fairness, Transparency and the Rule of Law,” which was underwritten by the American Hotel and Lodging Association. In an interview with Fortune, he described such situations where Airbnb is willing to cut a big check in negotiations as “dangling a carrot in the form of a big check” for “cash-strapped cities” because they lack the “resources to conduct long-running investigations into the company and its software.” He deemed the practice backdoor policy making which undermines the democratic process and “provides special treatment to Airbnb and its commercial allies.”
Bucks also iterated the deals are unusual in nature because they don’t require the hosts to pay any back taxes while shielding them from audits.
The study outlines the widespread, multi-layered secrecy of Airbnb with agreements which are “startling in terms of the degree to which they construct a shield of secrecy protecting lodging operators and occupants from becoming known to local authorities, especially those responsible for local regulations and law enforcement.”
The Airbnb website enforces secrecy as the address of the property is not identified prior to a booking. Also identified within the study is a 2015 memo from Humboldt County treasurer-tax collector to the county supervisors which discussed the extreme tax collection issue from it being “nearly impossible to know the locations of the rentals,” thus making collection efforts “unreasonably difficult and too costly to collect.”
Bucks further stated that, “he asked Airbnb to help solve the tax collection issue. Airbnb responded, of course, with a version of its tax collection agreement that preserves that secrecy and provides many other benefits to its lodging operators and occupants.”
Airbnb has even gone so far as demanding tax agencies not speak with the media about deals without the company’s permission.
Airbnb cut a tax deal with the State of Montana effective June 1, 2018. However, by all indications, neither Airbnb nor the State of Montana is willing to share details of that negotiation with the public or with the 12 resort tax communities throughout the state. The attorney for the City of Whitefish is looking into the legality of the state withholding that information.
This has been an ever-present discussion at Big Sky Resort Area District Tax Board meetings for many months and was discussed at length during the recent Third Annual Resort Tax Summit – a gathering of representatives of all Montana resort tax area districts.
The Big Sky tax board has been discussing the stripping of the long-term rental housing market by over 1,000 units for some time. These homes are often difficult to track Airbnb and VRBO rentals, and many are not paying the required three percent resort tax.
The board instituted a new computer program – LodgingRevs – in an effort to track the homes and collect more of the required resort tax from these homeowners.
This is “in an effort to identify and make people aware that they need to register,” BSRAD Revenue Manager Kristin Drain said, also noting that they are seeking mutually beneficial relationships moving forward. “Obviously, the taxes are collected for a reason – to support and benefit our community. We’re all in it together.”
Compliance remains a major issue for the county, health department and resort tax board officials.
Attorney Mindy Cummings has been working with Big Sky HOAs to confront the difficult issue. One main hurdle is that homeowners are simply unaware of any kind of regulations. Candace Carr Strauss, CEO of the Big Sky Chamber of Commerce, has been in communication with Cummings about offering a class to Big Sky homeowners, so they are aware of requirements.
Cummings shared a brief overview of those requirements:
- The Gallatin portion of Big Sky is within the Gallatin Canyon/Big Sky Zoning District. Short-term rentals are defined in zoning regulations as “Rental of a dwelling unit lodging purposes only, for a period of less than 30 consecutive days.”
- Short-term rentals require a permit through Gallatin City County Health Department. They are referred to as tourist homes/rentals. Also, depending on frequency of rental, homes may be required to have spa licenses.
- Short-term rentals also are required to pay resort tax and lodging facility and use tax. Links to the pertinent websites are: https://resorttax.org; https://mtrevenue.gov/taxes/miscellaneous-taxes-and-fees/lodging-facility
- There can be impacts on getting a loan for a condo when the association has rental units. These restrictions are applicable to FHA backed loans. Further information can be found at https://fhareview.com/the-guidelines-fhaapprovalguidlines; https://hud.gov/program_offices/housing/sfh/ins/sfh_ins_condominiums