Airbnb and Vrbo rentals in the four towns on the Boothbay peninsula generated more than $15 million in bookings last year and $8.5 million through this July, according to an independent analysis by Air DNA, which tracks rental data from both websites.

Owners of short-term rentals are required to register and collect the state's 9% lodging tax, "...even if all of their rentals are facilitated by either a property manager or a transient rental platform," Sharon Huntley, director of communications for Maine Department of Administrative and Financial Services (DAFS), told the Register in an email reply to questions.

While a 9% tax doesn't sound like much, based on the amounts above, last year Airbnb and Vrbo rentals on our peninsula should have returned about $1,372,653 in sales tax to the state and $771,931 through July 31 this year.

But does an agreement with Airbnb make it hard for the state and hosts to know how much is due in lodging taxes? And have IRS rules limited income reporting for these properties as well?

A bit of background

In 2017, Maine entered into a "Voluntary Collection Agreement" (VCA) with Airbnb so it could collect and pay lodging taxes for hosts on rentals it booked.  Many states have similar collection agreements and some towns that charge occupancy taxes also have VCAs with Airbnb, facilitating lodging tax collection and payments.

That's the way it's supposed to work; thus, streamlining the process for the hosts and the state.

But has the process always been smooth?

Advantage Airbnb?

Over the years, comments from Maine hosts on Airbnb community forums complained that problems arise because Airbnb pays all sales taxes due in one lump sum without documenting which properties they are for.

When The Register asked recently if this was the case, DAFS responded, "Transient Rental Platforms, like Airbnb and VRBO, report their total rentals to MRS in aggregate, which means they do not report to the state the collection breakdown associated with each individual property."

Airbnb is not the only platform that collects and pays sales taxes on lodging to the state in this way. But over the years when states or towns with collection agreements have asked Airbnb to provide detailed information verifying the taxes collected, the response from the company has frequently been to claim that would violate the hosts' privacy.

A January story from WVTF radio in Virginia shows the frustration when a town tried to obtain information from Airbnb. Todd Divers, Charlottesville revenue commissioner, credits other national rental platforms like Vrbo – which is owned by Expedia – with following the law. "They’re providing the data, they’re providing the gross receipts. The only one that’s not is Airbnb ... With Airbnb, they’re just saying, ‘Trust us.’"

A 2019 report by Dan Bucks, former director of Montana Revenue Department and Multi-State Tax Commission, found that, "Regardless of the amounts, what we know is that at best the payments Airbnb is taking credit for are uncertain, illusory and unreliable. Worse yet, Airbnb’s secrecy business model impairs the administration of a variety of taxes and thus causes significant, unacceptable losses of revenue at all levels of government."

How can you know what you can't know?

Without having this detail, how can a tax authority know whether the payment of sales tax is accurate?

Some states have posted their VCAs online, sharing information about the terms set by Airbnb. Typically, an audit would verify the accuracy of lodging tax payments. Examples show some VCAs limit when and how an audit can take place.

In Sonoma, California, a town report referred to its Airbnb agreement limiting an audit to "... once every 4 years. We are in the 5th year of the agreement and this will be the first opportunity to audit (if) Airbnb is in compliance..."

When asked how MRS would confirm that the amount of tax remitted by Airbnb is accurate, DAFS responded, "The State relies on taxpayers to be aware of, and remit, the appropriate amount of taxes due on their rental properties as required by law. If Maine Revenue Services is alerted to an issue concerning a possible violation from a Maine taxpayer, there are compliance tools and procedures that allow MRS to verify and enforce proper reporting."

Professor Chris McLaughlin of University of North Carolina Chapel Hill wrote in a 2022 blog, "Problem is, there’s no way ... to know which entity collected which rent ... The company has signed hundreds of 'voluntary collection agreements' with state and local governments, almost all of which prevent those governments from learning the names or addresses of Airbnb’s hosts."

Moreover, some VCAs have strict non-disclosure clauses.

A VCA between Airbnb and the City of Santa Fe is an example of the company's non-disclosure policy, requiring the terms and discussion or negotiation about it"...shall remain strictly confidential." The provision requires "... prior written authorization of Airbnb" before releasing information "... in the press, on the internet or any other form of media ..."

While streamlining the process is the goal, is permitting one payment without the ability to verify its accuracy unfair to other transient lodging establishments in the state, many of which are local small businesses? Does a VCA with Airbnb give it more favorable treatment than small businesses?

It's not just states that experience difficulty with Airbnb's verification of the amounts actually paid in sales taxes. Over the years, chats continued to surface on the platform's "Community" pages among Maine hosts questioning Airbnb's process around tax reporting. Hosts said how Maine reconciles what they report with what Airbnb pays in bulk for all Maine hosts is a mystery as Airbnb does not have their Sales Tax license number; and a host said Airbnb apparently provides zero documentation to its hosts confirming how much sales tax is paid to Maine or when.

Another host said they have been stuck paying the entire tax due, even when AirBnB has collected the funds from guests, because Maine has no record linking any AirBnB payments to their properties; another added, AirBnB never asked them for their State tax ID numbers. 

MRS requires a host to file a sales tax return but show the amount as "exempt" because Airbnb has told the state it has already paid taxes owed for the property. Without any documentation showing actual dollars paid to the state reconciled with the host's tax license, there is no way to know this.

Asked about this, Maine Revenue Services responded, "A property owner who has all of their rentals through a transient rental platform would still have to file a return for those rentals, but report them as exempt, as the transient rental platform is the party responsible for collecting and remitting the tax to the State."

Which raises another question: Are hosts caught in the agreement between Airbnb and the state by "vouching" for a sales tax payment that Airbnb won't verify and the state can't? If Airbnb doesn't make data available, is the state requiring hosts to certify an unknown?

What about the first $20,000?

Sales taxes aren't the only concern. Maine residents must report and, if required, pay tax on income from rentals. Even if you are not a Maine resident, you are still required to pay the tax on income from rental property in Maine.

Typically, rental property owners who use a third party platform like Airbnb to sell goods or services receive a form (1099-K) from the platform showing the amount of income they earned that year. The IRS also receives a copy of the reporting form.

But several years ago, Congress voted that platforms did not need to report sales and issue a 1099-K unless the total sales are more than $20,000 and 200 transactions, according to a May 2022 report from the Congressional Research Service. Below these amounts, no forms are sent to the taxpayer or to the IRS and reporting the income falls to the taxpayer filing an income tax return.

This is not unique to Maine. IRS rules for 1099-K reporting for platform sales are expected to change in the future although some states, like Massachusetts, have already lowered the reporting requirement to $600 for state income returns.

As Maine Revenue Services confirmed, "For your awareness, the IRS has announced that they are reducing the threshold for 1099-K reporting in phases, eventually adjusting down to $600."

Airbnb hosts commenting in online chat rooms like Reddit explained, Airbnb doesn't always provide a tax form for all income, but they do send the host a notice that their taxable earnings for the year are available for the host to download.

Which prompted discussion from hosts questioning why anyone would declare the unreported income or pay taxes on it if under $20,000 since it isn't reported to the IRS? One asked if AirBnb doesn't issue a 1099, how anyone would know about the income?

With Airbnb providing a lump sum payment that is not linked to any individual and the IRS rule setting the reporting threshold at $20,000 of income, how can a state know how much in sales and income taxes are due?

Is a collection agreement with Airbnb obscuring taxes for the state and hosts?

Next: How many short term rentals are here? Will adu's help or hurt and how do higher home prices affect property taxes?