77.7 F
Charlotte Amalie
Sunday, April 14, 2024
HomeNewsLocal newsUndercurrents: How Much Tax Burden Should ‘Sharing Economy’ Shoulder?

Undercurrents: How Much Tax Burden Should ‘Sharing Economy’ Shoulder?

A regular Source column, Undercurrents explores issues, ideas and events developing beneath the surface in the Virgin Islands community.

While the Legislature has been mulling over the wisdom of imposing hefty fees on the timeshare industry – it is set to vote Tuesday on a new $25-per-day user fee – it’s barely glanced at the exploding private-owner short-term rental market.

There have long been vacation villas available for rent in the territory and throughout the region, but in the past five years the market has gotten a tremendous boost from such internet platforms as Airbnb, the industry leader, and such competitors as VRBO, HomeAway and Flipkey.

“These websites changed the game on it,” said Lisa Hamilton, president of the USVI Hotel and Tourism Association.

Just as eBay facilitates peer-to-peer sales of goods, the sites connect homeowners with customers looking for a short-term residential property rental, particularly in popular vacation areas. Without the overhead costs associated with a hotel, the property owner can rent his space at half or less the cost of a hotel room.

A recent report by the Caribbean Hotel and Tourism Association titled “The Caribbean Sharing Economy Resource Guide” chronicles the rise in the market and raises concerns about how private rentals should be regulated and taxed and how they are cutting into traditional hotel business.

In late 2015 and early 2016, more than 2,000 properties in the territory were listed on internet sites as available for short-term rentals, according to the report. Airbnb alone listed 1,144 U.S. V.I. properties and more than 25,000 throughout the Caribbean.

The numbers reflect a global trend. When the guide was drafted, Airbnb had two million listings worldwide, with properties in 34,000 cities in 191 countries. By comparison, the Marriott International hotel chain had 1.1 million rooms, Hilton Worldwide had 745,074 and the Intercontinental chain had 726,876.

The types of space offered as shared economy rentals ranges widely. It may be just the spare bedroom in someone’s home; a condominium unit that is used by its owner in the winter months and offered for weekly rentals the rest of the year; or a lavish 5-or 6- bedroom villa designed and built to accommodate guests for corporate retreats or family gatherings.

The average size, according to the resource guide, is 2.1 bedrooms. That means that 25,000 listings could be roughly equal to 52,500 hotel rooms – although many are not available year round.

Even ignoring the multiplier effect suggested by the report, short-term private owner rentals make up a significant part of the U.S. V.I. tourism market.

Hamilton said there are approximately 4,700 traditional hotel rooms in the territory. Add to that 1,500 timeshare units that are a recognized segment of the visitors’ market, and there is a total of 6,200 commercial rental offerings. That means the 2,000 shared-economy rentals (a conservative estimate and a number that fluctuates) represents almost one-fourth of the accommodations on offer to U.S. V.I. visitors.

“And they’re taking our air seats,” she said.

This is hardly the first time a tourism leader has complained of scanty airlift. But Hamilton said the situation is exacerbated by the number of private owner offerings. The major carriers are still basing their estimates of the number of seats they can fill on a maximum of 5,000 hotel rooms likely to be filled at a given time. At the least, Hamilton would like to see the airlines revise their estimates.

There have been court challenges to the shared-economy market in other U.S. jurisdictions, Hamilton said, but laws involving property rights and fair trade have protected the fast-emerging market.

“It’s not going to go away,” she said.

Instead of fighting the trend, the Resource Guide suggests that local governments find the best way to integrate the market into existing tourism frameworks – and to cultivate it as a new revenue source.

Typically, hotels must pay an occupancy tax of some sort. In the territory, that’s a 12.5 percent hotel room tax. The report notes that taxes vary from place to place and lists numerous other common taxes and fees, including commercial (as opposed to lower, residential) real estate taxes, corporate income tax and gross receipts taxes.

Then there are the safety and other requirements. A hotel needs a license, proof of property liability insurance, pest control certification, clearly marked exit signs … and a host of other things, all of which cost money and drive up the cost of doing business.

Clearly, shared-economy rentals should not be held to the same standard as hotels, the report states, nor should they pay comparable taxes. But the guide does suggest that government set some sort of minimum safety and aesthetic standards in order to protect the visitor and to protect the destination’s reputation, as well as impose some sort of revenue measures.

Print Friendly, PDF & Email
Keeping our community informed is our top priority.
If you have a news tip to share, please call or text us at 340-228-8784.

Support local + independent journalism in the U.S. Virgin Islands

Unlike many news organizations, we haven't put up a paywall – we want to keep our journalism as accessible as we can. Our independent journalism costs time, money and hard work to keep you informed, but we do it because we believe that it matters. We know that informed communities are empowered ones. If you appreciate our reporting and want to help make our future more secure, please consider donating.

4 COMMENTS

  1. Left out of your report is the fact that any short term rental, 90 days or less, must also have a business license and pay the 12.5 percent hotel tax as well as gross receipts on rentals in excess of $9000 per month. Short term renters complying with the law are significant contributors to the coffers of the VI government. My understanding of the proposed fee for time share occupancy is because they currently do not pay the 12.5 percent hotel tax.

  2. As a rental owner on St. Thomas, I do have a business license and I charge and remit the 12.5% hotel tax. I would of course also paid gross receipts tax if I ever hit that threshold, which I do not. I am fine with being required to pass a safety test and comply with any requirements for pest-control. The main difference between a vacation rental and a hotel is that most of us are just trying to cover expenses, so that we can afford to own and live in this beautiful place. Most of us do not make a profit from vacation rentals. This is why I am opposed to the provision in the new bill charging private homes the commercial rate for property taxes, which is almost double the residential rate. Burdening these private homes with additional taxes will harm the vacation rental industry in the Virgin Islands the same way the six pack rule devastated the charter boating industry.

  3. The holding (operating, expense, etc.) cost per unit for the short-term villa rental owners undoubtedly far exceeds the unit cost of the hotel operators, and, from my perspective (not owning a rental) the undercurrent here is to quash as much competition as possible. I understand that, too, given the state of the economy and the vacation options people have these days. However, many have been renting simply to help cover costs during economic downturn. And the question should be posed “why bother?” if a multinational corporation invests tons of money into a timeshare operation only to be told “by the way, we want more and we want it now,” given V.I. Government self-serving spending proclivities. Seek jurisdictions where its more profitable.

  4. Steve Marsh is absolutely correct. We have a one-bedroom condominium unit which we rent when we are not in residence.,

    We have a business license and pay the 12.5% hotel tax.I do not know how our real-estate tax is calculated, but as we are using it personally a substantial percentage of the year, a commercial rate would not be appropriate. We do not pay corporate taxes, because we do not operate as a corporation. Although we file a report for “gross receipts” as required, our gross receipts do not, and cannot possibly approach the monthly or annual deductibles.

    The condominium requires a liability policy for a minimum of one million dollars and, as it requires, we submit a copy of it annually. The condominium employs the services of a nationally recognized pest-control service, and all occupants are required to allow them access to the units at all times. We do not have the (two) exits marked because they are easily visible (day and night) from all points of the unit except the bathrooms.

    We may be cutting into the business of hotels, but we offer a very different vacation experience. We do it on a “level-playing-field”, pay our fair share of taxes. and are “good citizens” of the territory.

    It would be most inequitable to penalize us only because we present a small amount of competition to hotels.

UPCOMING EVENTS

UPCOMING EVENTS