HomeAway sued the City of San Francisco a month ago claiming Airbnb bought itself a favorable and anti-competitive short-term rental ordinance, and now the city is seeking to have a federal judge throw out the lawsuit, arguing that HomeAway “misread the ordinance.”

In a motion to dismiss scheduled to be heard January 23, 2015 in federal court in the Northern District of California, the City of San Francisco argues that its new short-term rental law, which would go into effect on February 1, imposes no new obligations on “hosting platforms” such as HomeAway to collect transient occupancy tax from renters that short-term lodging websites wouldn’t already be subject to.

The City alleges that the new short-term rental law merely incorporates existing law and does not “extend the existing obligation to hosting platforms that are not already subject to it.”

New Short-Term Rental Law

Under existing San Francisco law, short-term rentals of fewer than 30 days are barred. The new law creates an exception and permits permanent residents who occupy their primary residence for at least 275 days during the calendar year to offer short-term rentals.

The City of San Francisco’s contention that HomeAway, Airbnb, and other short-term rental sites would face no new obligations under the new law seems to fall short in terms of real-world practicalities.

Rentals for fewer than 30 days were not permitted under the current ordinance so there would have been no transient occupancy taxes that hosting platforms such as HomeAway or Airbnb in theory would have been required to remit to the city.

As a practical matter then, since short-term rentals of fewer than 30 days would become lawful for the first time, the new law imposes a new tax-collection obligation on short-term rental sites that they wouldn’t previously have had to deal with.

HomeAway also argued that the new law’s provision that short-term rentals be limited to primary residents who own property in San Francisco hinders interstate commerce, but the City alleged that HomeAway lacked standing to make such an argument since it doesn’t own rental properties in the city.

The Business Model Issue

The new law excessively burdens interstate commerce and favors Airbnb and its agency/merchant of record business model over HomeAway’s advertising model because Airbnb can easily collect occupancy tax from renters, HomeAway alleged, while HomeAway’s business model precludes it.

HomeAway currently charges no fees to guests while Airbnb collects a 6% to 12% fee from travelers.

In its motion to dismiss the HomeAway lawsuit, the City countered that even if HomeAway decided to exit San Francisco because it believed its business model couldn’t handle ¬†collecting occupancy tax from renters, “the allegations of the complaint do not support an interference that there are no other interstate hosting platforms willing or able to take their place.”

The City also argued regarding HomeAway’s new pay-per booking model, which has owners paying HomeAway a 10% commission per booking instead of annual subscription fees, that HomeAway doesn’t “explain why it would be impossible for them to make any arrangement that would enable them to collect the TOT (Transient Occupancy Tax) when they are able to collect their own revenues as a percentage of the booking amount.”

While the City of San Francisco’s motion to dismiss HomeAway’s complaint seeks to show that the new ordinance does not favor Airbnb’s business model over HomeAway’s, the City does not respond to numerous contentions in HomeAway’s complaint that Airbnb board members and investors unduly influenced the crafting of the short-term rental ordinance through campaign contributions to the PAC supporting the California Assembly campaign of David Chiu, the board of supervisors president and the sponsor of the short-term rental law.

HomeAway’s general counsel tells Skift:””We are working on our response to their motion to dismiss and the arguments they set forth in the motion but we are not able to comment at this point.”

The City’s motion to dismiss the HomeAway lawsuit is slated to be heard January 23, 2015 by U.S. District Court Judge Joseph Spero.

Download (PDF, 141KB)

Photo Credit: A Bernal Heights house rental in San Francisco that's listed on HomeAway. HomeAway