Philadelphia City Council Considers Taxing Airbnb

Published May 26, 2015

Spurred by Pope Francis’ upcoming visit to the city, the Philadelphia City Council is considering expanding the city’s hotel tax to include “peer-to-peer economy” sharing services such as Airbnb, even though the city currently prohibits short-term rentals in residential districts.

A Taxing Question

Allegheny Institute Senior Policy Analyst Eric Montarti says the city lacks the legal authority to expand the hotel tax to include Airbnb.

“State law enables cities to tax things, whether it’s property, earned income, alcoholic beverages, or lodging,” said Eric Montarti. “… That all comes from state law. There’s nothing that says a local government in Pennsylvania can say, ‘We feel like taxing “blank,” let’s start doing it.’ It all comes from general state laws or state codes that apply to specific municipalities.”

Matter of Principle

Towson University professor Howard Baetjer says the city should not be taxing Airbnb.

“I don’t think it matters if the city is exceeding its authority,” said Baetjer. “My take on it, as a pretty staunch free-market guy, is that they probably shouldn’t be taxing this at all.”

Baetjer says the sharing economy reduces the costs of connecting buyers and sellers.

“The benefits of the sharing economy, with things like Airbnb, are that it dramatically, gloriously reduces the transaction costs of people finding one another—those who have rooms they’re willing to rent and those who would like to rent a room,” Baetjer said. “By giving competition to hotels and motels, it forces them to be more efficient. It’s a wonderful use of resources that would otherwise not be used.”

Instead of taxing Airbnb like a hotel, Baetjer says Philadelphia should stop taxing hotels.

“I do think the people in the hotel industry have a reasonable argument when they say, ‘It’s not fair to us to have to pay a tax when the people who work with Airbnb are not taxed,'” Baetjer said. “They’re playing by different rules, and that doesn’t seem fair. The right response to that is to stop taxing hotels.”

Elizabeth BeShears ([email protected]) writes from Birmingham, Alabama.