Cracking Down on Online Rental Providers

WHY TAXES AND FEES ON PARTICULAR INDUSTRIES PROTECT 
ESTABLISHED COMPANIES AND STIFLE INNOVATION 

Companion bills S.862 and H.4329 would stipulate that a third party that makes an accommodation reservation and accepts an accommodation charge is liable for the payment of accommodation taxes. That “third party” could be a rental agent, an online travel company, or a short-term rental listing service.

These bills have two main purposes: first, to increase the revenues flowing to government via the accommodation tax; and second, to remove some of the competitive advantaged enjoyed by companies like Airbnb, an online listing services that facilitates homeowners providing short term rental space to visitors or tourists.

It will come as little surprise that the hotel industry is pushing these bills, and that, according to the Post and Courier, “the South Carolina Restaurant and Lodging Association ‘worked with lawmakers’ on the legislation.”

This isn’t the first attempt to crack down on non-traditional accommodation providers. A bill creating a partnership between the Department of Revenue and local jurisdictions in order to enforce the payment of accommodations taxes on renters – the legislation included a fiscal penalty for renters who failed to pay accommodations taxes – was signed into law by Gov. Nikki Haley last year. These new bills are no doubt intended to make tax enforcement easier by collecting taxes from larger central entities (like Airbnb) rather than individual renters.

Whenever the state imposes cost on an industry, whether those costs are in the form of taxes or regulations, the new costs will almost always benefit larger, more established companies. Large established firms will be more able to bear state imposed costs than their less established entrepreneurial competitors: thus state-imposed costs on an industry will usually increase or secure the market share of already dominant businesses.

If South Carolina governments want to see an open and competitive accommodations market that best serves consumers, there is a better way to achieve that goal than by ramping up tax enforcement. A far better approach would be to abolish accommodations taxes (much of the revenue from which goes to tourism promotion – properly a private responsibility) and allow all accommodation providers to compete in an unhindered market.

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