“VOLUNTARY COLLECTION AGREEMENTS” – Its about the money
Collecting taxes from legitimate hotels is relatively straightforward. They are big properties in one location that are built, zoned and licensed as hotels so there is no confusion about what they are or how they are classified.
Collecting taxes from STRs is not so easy. STRs are small operations and widely spread out. The properties almost always started out as residential and the transition to STR use is not clear cut. It’s easy for an operator to “fly under the radar” to avoid regulations, restrictions and taxes.
The obvious solution for collecting STR taxes is to collect them at the “point of sale”, that is, have Airbnb, VRBO, etc collect taxes when the sale is made, just like legitimate hotels or retail stores. But the online platforms refused to take responsibility for tax collection since they are “only a booking service” and the taxes were due from the STR operators, not from Airbnb.
The tradeoff came in the form of “Voluntary Collection Agreements (“VCAs”)”. Airbnb would collect state and local taxes, but in exchange they wanted permissive zoning (or at least clear zoning) from the various government entities. Airbnb would also ask for and usually get:
- Non-disclosure of the agreements so everything stays secret.
- Immunity from audit – auditing STR operators is prohibited using Airbnb numbers – this should outrage any taxpayer
- No information sharing between governments – more secrecy
To date, Airbnb has signed more than 400 VCAs, usually with towns and cities since zoning is usually done at the local level. Airbnb would push hard (often going to court) to get favorable zoning, but most places set tough limits, often limiting STRs to the operators’ actual residence and putting limits on how many days per year the property can be offered for rent (see our section on comparative municipal limits on STRs).
Then came Arizona. The Big One. The Grand Slam. Airbnb’s dream and Arizona residents’ nightmare.
Instead of having to deal with lots of municipalities, Arizona gave Airbnb a VCA that covers the whole state in one shot. Every town, city and county. Every residential property in the state. Everything. In one shot. So far, Arizona is the only state to fall for it.
If that wasn’t enough, Arizona also gave Airbnb zoning that went beyond “permissive” – way beyond – Arizona actually stripped away existing residential zoning and PROHIBITED restrictions and regulations of STRs (except in very narrow circumstances). Unlimited occupancy, no rules, no restrictions, and towns were prohibited from making new ones.
The clear winners from this deal are Airbnb billionaires and STR investors and operators in Arizona. The clear losers are Arizona residents that had single family zoning stripped away and neighborhoods invaded by commercial transients and party houses.
Did anybody else benefit from the Agreement? We’ll never know because the details and data are secret. Does this sound like a good deal to you?
For more on Voluntary Collection Agreements, see this excellent report:
Airbnb Tax Agreements with State and Local Tax Authorities – A Formula for Undermining Fairness, Transparency and the Rule of Law