A Crackdown on Accommodations Tax “Evaders”
LAWMAKERS’ ANSWER TO UNFAIRNESS:
PUNISH MORE BUSINESSES, NOT FEWER
Almost all forms of taxation raise the question of fairness. Why does one person pay a higher percentage of his or her income than another? Why is one industry given the advantage of a sales tax exemption, while another industry gets no such advantage? Why is one company allowed out of paying income taxes for a certain period, while others – sometimes direct competitors – have to pay it?
These are the kinds of questions we wish lawmakers would ask more often than they do. Unfortunately, however, on those rare occasions when they try to remedy unfairness in the tax code, they typically try to rearrange the unfairness rather than get rid of it altogether.
Take S.985. Here’s the problem the bill’s sponsors want to solve: Some businesses – typically hotels, campgrounds, condominiums – are required to pay an “accommodations tax” of 7 percent. Leave aside for a moment the sheer arbitrariness of taxing a business simply because it accommodates guests. The point is that hotels, etc., pay this punitive tax. There is a way around the tax, however: Some entrepreneurs have begun renting rooms in residential homes, and since these residences aren’t licensed as hotels, inns, campgrounds, etc., they don’t pay the 7 percent tax.
Understandably, hotel-owners feel it’s unfair that the state levies a tax on them but not on these residential renters. Rather than asking the state to remove the licensing requirement and the accommodations tax, however, the industry has persuaded a lawmaker to introduce a bill cracking down on the unlicensed entrepreneurs not paying the tax. S.985 would allow local jurisdictions and the Department of Revenue to crack down on anyone receiving rental income from their residential properties without a license and without paying accommodations taxes. The Department of Revenue and local jurisdictions would share data to find non-compliant renters and force them to pay – and impose a penalty on those who fail to pay after they’ve received notice that they’re required to.
The bill, which has passed the Senate with only one dissenting vote, is called the “Fairness in Lodging Act.” Yet it’s “fair” only in the sense that it imposes penalties on more people and so – presumably – a little more evenly.
But if it’s “fairness” lawmakers favor, why not remove the penalties on everyone? “Revenue” is the usual (unstated) answer to that question, but it’s difficult to believe much revenue is at stake in this instance, and passage of S.985 would require that more state resources – quite possibly a lot more state resources – be expended on bringing these residential “tax evaders” to justice.
There’s the larger question of fairness, too. Why should accommodating people be taxed – almost as if it were an undesirable thing to do? And why should bureaucrats in the Department of Revenue be empowered to decide what constitutes taxable accommodatory activity and what doesn’t?
We applaud the bill’s sponsor (Sen. Ray Cleary, R-Georgetown) for recognizing the tax code’s intrinsic unfairness, but this bill would effectively spread the unfairness wider.