Post by Brian Fauls, Government Affairs Manager | This post is in conjunction with the monthly column “Brian’s Corner” covering policy topics that affect local business.
At what point does a hobby become a business? It’s an interesting question, and in my mind it is the central question at the core of the General Assembly’s most recent debate over regulating the so-called “Gig” or “Sharing” economy.
Last year, the General Assembly took up the challenge of legalizing online ride-sharing platforms like Lyft and Uber. Ultimately, an agreement was reached to require the companies to go through licensing procedures through the state’s Department of Motor Vehicles and required to companies meet and comply with specific requirements in order to receive operation licenses – such as ensuring that all drivers are at least 21 years old, properly licensed to drive and have gone through a background check. Overall, it was a fair compromise that balanced safety, passenger protection and economic innovation.
This year’s debate has focused on short-term online rental platforms, like AirBnB, and the path towards a compromise has been a bit harder to find. It’s not necessary to delve into the gory details of the debate, suffice to say, it boiled down to two competing options. Option one, highly oversimplifying the matter, amounted to deem AirBnBs legal and allow the homeowners to register as businesses, if they want to. Option two, boiled down to deem AirBnBs legal and require the homeowners to register as businesses.
For a time, it looked like the “they-can-register-if-they-want-to-I-guess” option was winning. In fact, at one point it looked like that option would win in a slam dunk. Then, Senate Majority Leader Tommy Norment, single-handedly (almost literally) slapped down that option by inserting language into the state budget forcing the General Assembly to pass the bill again next year before it could become law (it’s good to be the king, or in this case, the Senate Majority Leader and Co-Chair of the Finance Committee).
Not too surprisingly, people shouted dirty pool; and infringing on the freedom of Virginians to earn money; and diminishing the property rights of fellow Virginians; and the old tried and true cliché of protecting entrenched businesses that don’t want to adjust to a changing marketplace (i.e. the buggy whip analogy).
I think the move was a bit of dirty pool. But, I also think Virginia and the online room rental business itself is going to ultimately benefit from the time-out imposed by Senator Norment. I think it all comes back to my original question, at what point does a hobby become a business?
According to the Code of Virginia, any place “offering to the public for compensation transitory lodging or sleeping accommodations, overnight or otherwise” is a ‘Hotel,’ subject to health and safety regulations and business and lodging taxes. If you rent a room in your house for two or three days a year though, common-sense says you’re not a hotel. However, what if you rent it out for 10, or 20, or 45 days? At some point, even common-sense says your room renting shifts from being a hobby to make money to a business to make money. At that point, isn’t it better for you as the business/homeowner to adhere to basic set of rules that are transparent, enforceable and avoid you some legal protection?
Waiting a year to enact AirBnB legislation gives us time to carefully consider where the line between hobby and business lies and time to design a fair set of rules. Waiting a year also gives us time to consider the community implications of AirBnBs, such as, are there locations in our community where allowing AirBnBs doesn’t make sense. Some gentlemen in the United Kingdom literally listed a bed in a parking lot on UK AirBnB. While he was probably joking, it illustrates the point about needing standards.
More importantly for Loudoun County, waiting a year gives us time to understand the financial implications of the potential proliferation of legal AirBnBs. I’m not talking about the profits of Marriott or Hilton either. I’m talking about Loudoun County’s finances. Hotel and motel guests pay what’s called the Transit Occupancy Tax. Currently, Loudoun’s TOT rate is seven cents per dollar. Of that amount, two cents goes to the County’s General Fund, three cents goes to promoting tourism, travel or business that generates tourism or travel and the final two cents is used for local road improvements.
A quick search for Leesburg, VA on AirBnB today pulls up over 300 listings. None of those guests currently pay TOT. Think about the extra money that could be transferred to our schools or used to improve more of our roads if we could collect TOT from even a fraction of the AirBnB listings in Loudoun.
The sharing economy is here, and taking a reasonable amount of time to consider how best to properly and fairly regulate that economy, isn’t holding back innovation, it’s just good public policy.