To say that Newark comes to this fight as the weaker party is an understatement. If the city wants to do more than just collect taxes and begin regulating short-term rentals, however, it might want to take a good look at a recent San Francisco city report that shows just how complicated that endeavor can be.
Newark, New Jersey, is set to become the second city in that state to legalize Airbnb and use the platform to collect and remit taxes.
On Tuesday, April 12, Newark Mayor Ras Baraka is expected to announce that Airbnb and his administration have signed a tax agreement whereby Airbnb will collect a 6 percent tax from hosts that’s equal to the lodging tax paid by hotels.
Newark joins Jersey City as the only two cities in the Tri-State area that will have legalized Airbnb. Just across the Hudson River, in New York City, however, restrictions regarding Airbnb are tightly managed, and the city has not made any effort to sign a tax agreement with Airbnb.
Jersey City announced it was signing a tax agreement with Airbnb back in October, and the city collected its first tax payments from Airbnb this February. When Jersey City Mayor Steven Fulop announced the contract with Airbnb, he estimated the city could collect up to $1 million annually in tax revenue by having Airbnb collect a 6 percent tax, the same as hotel tax in the city.
A spokesperson for Mayor Fulop told the Wall Street Journal that Jersey City has collected nearly $41,000 from a total short-term rental income of $704,000 for the month of February. At that rate, Jersey City would collect an estimated $492,000 or so in a year, not accounting for possibly increased business in warmer months.
A spokesperson for Mayor Baraka told the Journal that Newark expects to collect approximately $750,000 in tax revenue from Airbnb over the next year.
Airbnb has approximately 300 or so listings each in Jersey City and in Newark at the moment. Listings for both cities have an average nightly rate of approximately $128.
Taxes as a Path to Legalization
In recent years, Airbnb has made it a mission to establish these types of Voluntary Collection Agreements in more than 100 cities worldwide to more or less obtain legalization in those jurisdictions. In January, the company sent Chris Lehane, its global head of public policy, to meet with hundreds of American mayors at the U.S. Conference of Mayors. There, Lehane made his plea to mayors, saying that if the 50 biggest cities in the U.S. were to team up with Airbnb, they could have collectively received an estimated $200 million in taxes from Airbnb last year.
Some cities, like San Francisco and Portland, Oregon, and now Jersey City and soon, Newark, have agreed to partner with Airbnb to collect and remit hotel, occupancy, and tourist taxes. But other cities, notably New York City and Los Angeles — two of Airbnb’s biggest markets according to a January 2016 CBRE report — have not yet committed to those types of agreements.
On April 7, the city of San Francisco released a report analyzing the impact of its laws aimed at regulating short-term rentals. Even though the city has legalized Airbnb for its residents, the report found that a majority of Airbnb hosts operating in the city are not abiding by local laws.
Time will tell as to the kind of economic impact the collection of taxes by Airbnb in Newark and in Jersey City will have on those municipalities, and if those cities will act similarly to San Francisco to impose more specific regulations for short-term rentals.
Newark also hopes to apply the same monetary regulations and fees that taxi drivers have to drivers on ride-sharing platforms like Uber and Lyft. The city wants drivers from those sharing-economy businesses to pay $1,000 to pick up passengers at the city’s busiest transport hubs, including Newark Liberty International Airport, on top of a $500 fee that drivers already pay to drive within the city. In recent months, the city has banned Uber and Lyft drivers from operating at the airport and train station, lifted the ban temporarily, and then put the ban back in place. A city council hearing on the proposed fees took place on April 6 and another public hearing is currently scheduled for April 20 before the city council makes a final vote.
What Does the Future of Lodging Look Like?
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Photo credit: Newark will be the second city in the Tri-State area to legalize Airbnb and collect lodging taxes from the platform. Airbnb