Texas Cities Losing Out on Tax Revenue from Sharing Economy

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Legislations requiring short-term rental platforms to collect the hotel occupancy tax along with the state tax that is collected now as part of the online booking process would relieve cities of the burden and lead to sharp increases in collections.

Scott Ball / Rivard Report

Legislations requiring short-term rental platforms to collect the hotel occupancy tax along with the state tax that is collected now as part of the online booking process would relieve cities of the burden and lead to sharp increases in collections.

The City of San Antonio could generate millions of dollars in new revenue by following other U.S. cities and passing an ordinance taxing rideshare companies like Uber and Lyft. A second ordinance could require short-term rental companies like Airbnb and HomeAway to collect the 16.75 percent hotel occupancy tax that hotels, motels, and short-term rental property owners are required to pay under state law.

Unfortunately, Texas cities no longer control their own destinies. Gov. Greg Abbott and the Texas Legislature moved aggressively in the 2017 legislative session to curb municipal powers and local control. House Bill 100 stripped cities of regulatory authority over rideshare companies. That now is a state function.

That new law comes with unintended consequences. Texas cities are losing out on millions of dollars in new revenue because they lack the authority to tax such business activity.

In the case of short-term rental platforms like Airbnb, the City has no efficient enforcement mechanism to collect the occupancy tax from the estimated 2,000 short-term rental property owners here. It’s an honor system. Imagine the Internal Revenue Service depending on individuals to voluntarily make their federal income tax payments. Fewer than 300 short-term rental operators have registered with the City, and of those, only 82 paid occupancy taxes in February.

Legislations requiring short-term rental platforms to collect the hotel occupancy tax along with the state tax that is collected now as part of the online booking process would relieve cities of the burden and lead to sharp increases in collections. Cities currently are left to enforce tax collections with each and every individual operator, many of whom will not pay the tax unless they have no other option. The City will probably spend what money it does collect chasing down tax dodgers.

The loss is significant, totaling millions of dollars a year, especially in months like March when the Final Four brought tens of thousands of visitors to the city and short-term rental operators enjoyed a windfall.

Since the State regulates Uber, Lyft, and other rideshare companies, any local taxation of transportation network companies (TNCs) would be possible only if the State requires companies to collect the tax with each ride and forward the money to Austin for distribution to cities.

Other U.S. cities are taxing rideshare and generating new revenue. Chicago collects 67 cents each time a rideshare company transports a passenger, with plans to go to 72 cents in 2019. It is using the new revenue to improve its aging subway system. New York City, plagued by vehicle gridlock and a troubled subway system, is considering a far more ambitious tax of $2-$5 per ride that would help finance an accelerated subway system overhaul.

A number of states have passed rideshare tax legislation that returns money to the cities that bear the cost of street maintenance, vehicle traffic, and registering drivers.

Pennsylvania allows cities to collect a 1.4 percent tax on all rideshare usage. Philadelphia is spending its new revenue on the city’s public schools. Portland uses its 50-cents-per-ride tax that it charges both TNCs and taxi companies to pay for city transit enforcement and operations.

Massachusetts, which some refer to as “Taxachusetts,” was the first state to implement a tax on rideshare in 2016, and uses 5 cents of the 20-cent surcharge to help prop up the failing taxi industry.

Texas law requires hotel occupancy tax revenues collected by the City and County to support the visitor industry, as noted on the San Antonio Hotel and Lodging Association website: “Under the State of Texas Tax Code, every event, program, or facility funded with hotel occupancy tax revenues must be likely to do two things: 1) directly promote tourism; and 2) directly promote the convention and hotel industry. ‘Tourism’ is defined under Texas law as guiding or managing individuals who are traveling to a different, city, county, state, or country.”

A comfortable Airbnb room in San Antonio. Photo by Gretchen Greer.

Gretchen Greer for the Rivard Report

An Airbnb room in San Antonio.

A rideshare tax would not have any limitations on its uses. City Council would be free to invest in infrastructure improvements such as sidewalk and street repairs, or to help VIA Metropolitan Transit expand service.

No one likes taxes, but smart citizens understand that it takes money to fund a growing city, especially one trying to overcome decades of underinvestment in the urban core and in minority communities. At the same time Abbott and the Republican majority in the Texas Legislature seek to limit municipal taxing authority on real property, they also have prevented Mayor Ron Nirenberg and City Council from developing new revenue streams.

Legislators in Texas have tended to react defensively as innovation and technology disrupt traditional businesses. The way legislators have viewed rideshare and short-term rental platforms suggests they do not really understand how new applications are changing Texas and the rest of the world.

Those who regularly use rideshare here could easily afford a 25- or 50-cent surcharge, and users of short-term rental platforms can afford to pay the hotel occupancy tax. Neither tax would significantly hurt the visitor industry here, but both could help City leaders fund their growing share of governance.

The reality for Texas cities, however, is that a rideshare tax can’t be implemented by ordinance, while the short-term rental occupancy tax can’t be efficiently collected. In both instances, that means lost revenue. It also means local taxpayers must carry more of the burden that otherwise could be shared by the millions of visitors we welcome to San Antonio each year.

10 thoughts on “Texas Cities Losing Out on Tax Revenue from Sharing Economy

  1. What a load of BS. The cities are flush with cash, even SA reported a surplus for this year. This entire article was apologia for outright theft by local tyrants to fund more BS “progressive” virtue signaling.

    The money belongs to the people, not the government. This is just a money grab, pure and simple, there is no “loss” to the cities

      • City Council literally just heard about a huge surplus this year from tax revenue. Cities and schools have never been funded at the levels they are currently.

        This is just theft.

  2. I don’t rent out my home or car, so my opinion comes from just a citizen’s view…. But my question always is, what about the big corporate tax breaks that are given as incentives for companies to come to SA. Or breaks for developers, etc etc. Cities are losing a lot of money in that way too. But I feel like it’s the smaller biz people who often get fingers pointed at while the bigger biz owners/families get to fill their pockets but not necessarily the cities they are in to the extent they may promise. I don’t know what the right balance is — as a capitalist model tends to never balance out no matter what. How much money has SA lost from the bigger players over the years because of breaks?

    I do feel however for the more established taxi/home rentals that existed before “the sharing” economy as they most likely have paid a lot of taxes and its not fair on them for the new generation not to. I also witnessed a lot of extended problems of all this while living in Portland, Oregon where its not uncommon for 3-6 people to share a house as roommates. The new way to rent out a room to a short term guest really caused a housing crisis for renters who no longer could find an affordable situation…because the owners could make more money on renting to strangers. but all that is really another topic.

    A fair regulation doesn’t seem unreasonable, but I think San Antonio also needs to watch the freebies thrown out to the bigger fish at the same time.

  3. You’re not losing out on something that doesn’t belong to you. I commend San Antonio local government to make the tough decision to not allow ourselves to pander to Amazon. It was a decision that was hard to make since it has the ability to bring many jobs, but this decision to tax local sharing economy is easy. Don’t do it! Congrats to our city and leaders who, based on written reports have been diligent with the budget and have a surplus. Keep on, keeping on San Antonio!

  4. We do not need more ways to tax home owners, such as by renting a room, having a garage sale, making a mistake on what is put in the recycle bin etc. A previous reader stated that the City of San Antonio announced a recent surplus in tax revenue. The surplus probably happened because the Bexar County Appraisal District has dramatically increased the appraised value of homes.

    Due to Texas law, the property tax increase is limited to 10% per year. But over a period of years, this tax increase protection is useless. Once a home is sold, the selling price is used for property taxation, and, the 10% tax protection goes away.

    Also, during my last year’s tax protest, I was unsuccessful in getting a copy of the written rule on how the Bexar County Appraisal District appraises the lot portions of homes. I discovered significant discrepancies in the appraisal rate for lots in my neighborhood. If we cannot get a copy of the written rules for these discrepancies, can we trust that our local government is taxing us fairly. Can we trust that our tax revenue is spent wisely?

    In the future, the City will spend any tax surplus before it becomes a tax surplus. New “services” and staff pay increase will prevent any tax surplus.

  5. How about fair and transparent taxation of commercial real estate? We should all know by now that tax appraisers hands are tied when it comes to commercial property. That’s one reason, among many, that homeowners pay so much.
    Another option might be a tax on commuters who flee outside city limits into expensive and expansive subdivisions. Why tax the folks who already pay to live inside the boundaries? We already support the services and infrastructure that make living and work possible.

  6. So you want to increase taxes on residents, while suburb folks can come and go as they please, storing their cars for free? Tax the people adding traffic and pollution, not the people already paying property taxes.

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