After Deregulation, Airbnb Regulation Goes Statewide

By FOCUS, a Leonine Company

Over the last several years, the Airbnb mobile app and website has exploded in popularity, challenging the dominance of hotels and creating an entirely new front in the sharing economy by allowing individuals to monetize their apartments or empty rooms around the globe. Though known by many names, these types of accommodations are typically referred to as “short-term rentals.” For as long as these rentals have been around, their regulation and taxation has perplexed lawmakers, with some seeking to cash in on their popularity. Others have preferred a hands-off approach to let the market grow. While the hands-off approach has been the most common type of state legislation to date, an increasing push in the opposite direction – to tax and regulate these rentals at the state level – has begun to take hold.

According to research from the Pew Center, nearly one in 10 Americans have stayed overnight at a short-term rental, while one percent have earned income through a short-term rental platform. This rapid proliferation has made the question of how to tax and regulate more and more pressing, with states pointing to both public safety and potential tax revenue as rational for establishing a regulatory regime on short-term rentals.

Regulation on short-term rentals has started from the ground up, with municipalities first seeking to impose taxes and limits on such rentals. This type of municipal regulation spawned the first breed of state legislation on short-term rentals, state-level bans on the municipal regulation of short-term rentals, following the rationale that such regulation will only hinder the economic benefits provided by short-term rentals.

According to NCSL, Arizona, Florida, Idaho, Indiana, Tennessee and Wisconsin have all passed legislation prohibiting the local regulation of short-term rentals. Such legislation is also currently pending in Maine, Michigan and Nebraska. A bill seeking to repeal Indiana’s ban is also pending in that state.

Following the push to deregulate, this year a new wave of short-term rental legislation is cropping up, seeking to establish a statewide regulatory regime on these rentals, rather than a patchwork of municipal ordinances. Critics argue that such regulation is necessary because the proliferation of short-term rentals has had a negative effect on local housing markets, as individuals seek to purchase homes specifically for the purpose of renting them out. Proponents also cite the public safety and financial benefits that municipalities have used in regulating these rentals.

This past December, Massachusetts became the first state to pass sweeping statewide regulations on short-term rentals with HB 4841, scheduled to take effect this July. Governing reports the bill would create a statewide registration on short-term rentals, require those providing short-term rentals to obtain insurance coverage, impose a five percent statewide tax and authorize municipalities to impose an additional six percent tax. During the 2019 legislative sessions, similar bills have been introduced in Connecticut, Indiana, Maryland, New Hampshire, New Jersey, Virginia and Washington. New York has passed some restrictions on short-term rentals, but a solution on the taxation issue has continued to elude the state.

To date, there has been no major action at the federal level regarding the regulation of short-term rentals, a trend that is likely to hold as states and municipalities continue to navigate the area through a variety of measures. While short-term rental hosting platforms would undoubtedly prefer blanket federal regulation rather than a patchwork of state and local rules, such action appears unlikely in the current federal political climate. With such federal regulation extremely unlikely, states will undoubtedly continue their push to tax and regulate local short-term rentals, specifically with an eye on how things unfold for Massachusetts in the coming years.