LTE: Address tax issues with third-party rental platforms
By Rep. Lauren H. Carson
Technology development keeps changing everyday life in ways that were unforeseeable only a few years ago. A decade ago, probably few people would have believed that our economy would soon be changed by apps that would let you hail a cab online, or websites that would crowdsource funding for entrepreneurs or charitable causes. Or that in 2018, a significant portion of travelers would sleep in a stranger’s home instead of a hotel.
Government at every level has struggled to keep up with the dizzying pace of this development, and the result is that policy has not caught up to technology. Short-term rentals coordinated through third-party hosting platforms is one such wild frontier where an entire economy has sprung up, unregulated, unchecked and very questionably taxed.
In my district in Newport, where hospitality is the driver of the economy, the effects of this development are particularly evident. Our tax and health and safety codes were developed with the expectation that residential properties housed residents, not travelers. This new hybrid use — and the use of third-party hosting platforms that complicate the identification of the properties being used — have left Newport, other municipalities and the state at a loss to determine how to ensure that hosts are complying with the measures that are intended to keep guests safe and in compliance with the collection of hotel and sales taxes.
An attempt was made in 2015 to collect the hotel tax from the third-party hosting platforms, but the result was the delegation of tax collection to the hosting platform, which submits only one double-sided form once a month with only a grand total of the taxes it says its users owe the state and the fraction that should go to each community. We’re just accepting the money and their word.
The tax problems are just the tip of the iceberg. This use may well also be putting a squeeze on our housing stock, as investors have begun buying properties solely to rent out the rooms in this manner.
Proponents argue that the model provides homeowners, particularly woman and seniors, with income that helps them afford their homes. But what can it do to protect these vulnerable populations from those who spend the night in their homes? Background checks and analytics cannot detect first-time offenders who recognize this opportunity.
I have submitted legislation that will help ensure compliance with our tax laws and building codes. My bill requires third-party hosting platforms to use best practices to ensure the properties they list are complying with all applicable local, state and federal laws regarding their rental and use, and ensure that they are complying with any local registration requirement. Additionally, the bill requires them to provide each property owner with a monthly accounting of the taxes collected for rental on that property. It would be the property owner’s responsibility to remit that accounting to the state along with any taxes they have collected themselves for rentals outside the platform.
The use of third-party hosting platforms will only continue to grow, and Rhode Island must adapt. We cannot continue to allow a very significant portion of our hotel taxes to be collected and submitted anonymously, without verification. I urge swift passage of my legislation to rectify this situation.
Rep. Lauren H. Carson, a Democrat, represents District 75 in Newport.