NEW YORK – On Monday, New York’s Attorney General, Eric Schneiderman, subpoenaed Airbnb in an attempt to collect room rental taxes. The move was driven by Airbnb’s resistance to efforts to regulate their fast-growing business, which allows travelers to rent apartments instead of hotel rooms. However, local Governments are complaining that sites such as Airbnb circumvent laws governing the hotel industry and are depriving cities of much need taxes.
Previously, Airbnb’s response has been that local law are outdated and do not apply to their business model. However, as the Attorney General moved closer to taking action, the company stated that it was open to collecting room rental taxes – a major reversal. In a statement, the company said, ‘we believe it makes sense for our community of hosts to pay occupancy tax to the cities in which they live, with exceptions under certain thresholds, and we are eager to discuss how this might be made possible.’
Airbnb is just one of many startups that have sprung up in recent years a burgeoning online niche that lets users rent a spare bedroom or use their personal car like a taxi. This ‘Sharing Economy’ had largely flown under the radar until recently, and the Attorney General’s move could be a significant test of the business models of companies in this sector.
Some analysts have viewed the recent developments as a sign that the ‘Sharing Economy’ is starting to mature; for example, more than 8.5 million people have rented rooms on Airbnb. According to Jeremiah Owyang, founder of Crowd Companies, ‘it’s better to get ahead of this trend than wait and deal with more regulation later. It’s a way to legitimize the movement, whether at the state level or the municipal level. It indicates that it’s something that’s real.’
In September, California’s Public Utilities Commission (PUC) paved the way for ride sharing services to operate in the state. This decision will benefit players such as Lyft and Sidecar. Another player, Uber, recently received a $ 258 million investment from Google (NASDAQ:GOOG). Ride sharing services connect passengers with drivers, in some cases unlicensed, via smartphone apps and charge a fee or accept donations.
To gain acceptance, the firms were able to convince the PUC to create a new category of transportation services, but the companies must meet 28 basic insurance and safety requirements. The approval green lights ride sharing in the entire state of California, making it difficult for individual cities to regulate the industry.