An upcoming amendment to hotel tax laws in Pennsylvania could have a significant impact on Monroe County’s short term rental market, along with a sizable boost for the tax coffers.
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When a guest checks into a hotel or resort in Monroe County, part of the cost is a local hotel occupancy tax of three percent.
That is, unless that guest happens to get the room on Airbnb, Travelocity or another online booking agent, or if they rent a room or a house from a host through one of those sites.
In that case, the online booking agency is not necessarily responsible for paying the tax. Considering that Monroe raked in $11.4 million in host income throughout 2018, that means up to $342,000 in hotel occupancy taxes went uncollected.
And if a customer decided to book a room at Kalahari Resort through Airbnb, even if the tax is paid, it could be a reduced rate. As online booking agents routinely purchase rooms at a discounted wholesale rate in order to offer discounts through their sites, those taxes may be based on the discount rate, not what the customer pays for it.
But come Jan. 22, that is going to change.
‘Exploiting a loophole’
Act 109, signed into law by Gov. Tom Wolf on Oct. 24, 2018, will make online booking agents like Airbnb responsible for collecting and remitting hotel occupancy taxes on rooms and homes reserved through their platforms. It also dictates that the hotel tax will be based on the customer’s rate for the room, not the wholesale rates. Taxes collected by booking agents on accommodation fees will be directed to a Tourism Promotion Fund.
“With Act 109, any booking agent that is booking for an individual, a hotel, anybody, they have to apply to the Department of Revenue for a license to be able to do this and charge whoever is going to be staying in that hotel, short-term rental or bed and breakfast,” Monroe County treasurer Theresa Johnson said. “They are going to be collecting this tax money as well, and they have to register to be able to do this as a booking agent.”
Numerous agencies throughout the state have expressed support for the measure, including the Pocono Mountain Visitors Bureau.
“It is a fairness issue, because of the rates,” PMVB president and CEO Chris Barrett said. “The brick and mortar properties are at a significant disadvantage to the tune of three percent, so it’s totally a fairness issue in taxation. Those online, third party entities, they need to be taxed like a brick and mortar property. They’re exploiting a loophole, and in exploiting that loophole, they’re profiting from it.”
That loophole lies in the fact that the Tax Reform Code of 1971 was drafted well before the introduction of the internet, let alone online booking agencies like Airbnb.
“When Part V of the Tax Reform Code of 1971 was written, the imposition of an occupancy tax (aka “excise” tax) of 6 percent on the rent charged for the occupancy of a hotel room, the internet and [online travel companies] did not exist,” Rep. Marguerite Quinn (R-143) wrote in the House Co-Sponsorship Memorandum for HB1511, the progenitor to Act 109. “By closing this unanticipated loophole in the Tax Code, this legislation would revive the original intent of the General Assembly and restore an impartial application of the Code across the entire industry.
Due to the fact that online travel companies were not part of the tax code, the responsibility for payment of the hotel occupancy tax fell upon the property owners.
“What happens is, everyone who owns a home and wants to rent it out as a short-term rental, in order to do that they need to register with the county to be able to charge the customer the three percent, plus the additional six percent for the sales tax,” Johnson said.
Five of Monroe’s 20 townships and boroughs currently have ordinances that also require hosts to submit their registration and additional information to the local government office as well.
But not all hosts are privy to the tax code. While some owners in the area retain the services of a management company or real estate agent to maintain their investment property and handle the business end, those who are taking on the endeavor by themselves may be unaware of the numerous rules, regulations and taxes that come with property rental.
Over the past few years, Airbnb has taken to establishing agreements to address those taxes for hosts in many areas, with a goal of streamlining the process for hosts and local governments, Airbnb Northeast Press Secretary Liz DeBold Fusco said.
“We collect and remit taxes on behalf of our hosts all over the world, and it really varies from state to state, country to country and so on and so forth,” DeBold Fusco said. “We have for the past three years collected and remitted taxes in Pennsylvania. We started collecting in the city of Philadelphia in 2015, and shortly after that started collecting and remitting in the state of Pennsylvania. Over time, we have worked to reach agreements with counties that have applicable taxes.”
While Airbnb does offer information on their hosting website concerning hotel occupancy taxes in counties where there is no collection agreement, there is no hard data to show that all hosts paid those taxes, though those who were aware of the issue may have gone through the necessary steps on their own.
“Our hosts are very responsible members of their communities, so it is very possible that a lot of hosts are paying it,” DeBold Fusco said.
Tom Ford, Mount Pocono councilman and owner of Maurrocks Pocono Bed and Breakfast in Mount Pocono, is more skeptical, suggesting that most hosts may not go through the trouble, and for good reason.
“I would speculate that most Airbnb hosts do not register with the county and therefore do not pay over the tax,” he said. “I don’t even collect the tax from my Airbnb guests, I just pay it out of my own pocket. It just seems nickel and dime-ish to collect $1.75 from a guest for a one night stay.”
With the implementation of Act 109, and the possibility of an agreement between Airbnb and Monroe County, the hassle for the average host could be greatly reduced. Airbnb would be registered to collect the hotel taxes at the time of the booking.
With the influx of cash into the tax coffers, there is some potential to use that cash to help clean up some of the problems that tend to come along with tourism. Barrett said that the current state of affairs leaves the county in a tight spot.
“A lot of times, a guest who uses an Airbnb cannot leave their trash on that property, and they have to take it with them,” Barrett said. “So, a lot of times, that trash ends up on our roads, or it ends up in somebody else’s dumpster who didn’t expect it. We’re still left with all the issues; we’re left with the problems related to it, without the revenue to help remedy it.”
However, the language of the Tourism Promotion Fund appears to focus more upon marketing than beautification, so the potential to use those funds for such a mission are questionable at best.
Even with Act 109 coming into play, it appears that Airbnb representatives, hosts and local government officials are eager to solidify an agreement. With the combination of the act and an agreement, Monroe County’s hospitality industry could take advantage of a modernized set of standards and a far more simplified system for hotel tax collection.
“We can then start to collect and remit on behalf of the hosts, and in an ideal world, we want to reach agreements everywhere so we can do this, and we want to do the same in Monroe County as well,” DeBold Fusco said.