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VOL. 38 | NO. 40 | Friday, October 03, 2014

Change in the Air for in-home vacation rentals: Airbnb, VRBO, others face same rules, taxes that apply to area hotels, B&Bs

By Ellen Margulies

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When Hume-Fogg teacher Elizabeth Smith and her husband became empty-nesters, they talked about downsizing.

But they didn’t want to sell their home in East Nashville, arguably the hottest segment of Nashville’s sizzling real estate market. Plus, Smith is hopeful she’ll need that upstairs space for grandchildren someday.

When a former student blogged about his experience with Airbnb, one of the fastest-growing companies in the emerging short-term rental industry, the light bulb clicked on.

“I thought, ‘this is the answer to what to do with all the space that is going unused,’” says Smith, also president of the Lockeland Springs Neighborhood Association.

“I’m very Southern, and this is a chance to be very hospitable to visitors, which I love. I saw a chance to be ecological by using the space I have well. And making some extra money is never a bad thing.”

But being in business for yourself is never as straightforward as it may appear from the outside.

Smith was definitely in business for herself but quickly discovered there was no definitive way to remit taxes to the city of Nashville.

She wasn’t running a hotel, and the short-term rental concept is so new here that the city has not yet created any regulations to govern things like tax rates.

Homeowners making money through short-term rental sites like Airbnb, VRBO, Homeaway and others are arguably in a different category than hotels and even bed-and-breakfasts, which must submit to health inspections and commercial property taxes because they typically rent out three or more rooms to three or more separate parties.

That doesn’t mean Smith and others in the field want to shirk their fiscal responsibility, however.

“One of the things I would like to see is a very clear-cut method for us to remit taxes,” says Smith, who rents out the upstairs part of their home on average about five nights a week for $75 a night.

“I’ve been doing Airbnb for a year, and I spent a lot of time figuring out how this is done... I don’t know anything about remitting taxes, and I couldn’t figure it out. I wanted some methodology included so we do this correctly.”

To that end, Smith and other owners created the Nashville Vacation Rental Alliance about a year ago.

The group is eager to have a voice in crafting pending legislation, and its official position is one of cooperation all the way.

Two groups, two opinions

Metro Councilwoman Burkley Allen is on a mission to make sure the legislation happens the right way – with everyone’s input.

She’s been attending neighborhood alliance meetings and holding community forums, seeking input, and she sees short-term rental advocates falling into two categories: Those who want to help craft the inevitable legislation and those who want a hands-off, this is just part of the sharing economy approach.

“One group says, ‘we understand why it’s reasonable to pay hotel/motel taxes and some of us have been doing it already, or we would if we could.’

Another group says, ‘this is part of the shared economy; we’re just small business owners and we don’t think it’s fair to regulate us.’

Allen

“I think it’s somewhat inevitable,” Allen says. “I think the websites are realizing that. They’ve wanted to be involved in the process and have provided good input.”

Allen is particularly concerned about balancing the needs of the entrepreneurs with the needs of the neighborhoods as residential places where people can raise their families.

“We’re trying to come up with ways that can work with our current code system. Other cities have limited the number of short-term rentals per block or per mile, but that has become very difficult to enforce.

“One of the goals is to make this reasonable so it doesn’t overwhelm the system with something that’s not workable.”

Now on draft No. 7, Allen anticipates presenting something for a vote before the full Metro Council by year’s end.

“I’ve met with all the Metro departments. It’s very much a collaborative process and continues to be,” she says.

Why regulate?

As far as fewer regulations are concerned, the hands-off, short-term rental owners might consider nearby Franklin.

“I’m not convinced there is a need to regulate,” says Franklin Alderman Dana McClendon.

McClendon says although there have been some owners in Franklin who’ve also run into blank walls when trying to pay taxes on their new enterprises, he’s not sure the industry is big enough to merit additional city oversight.

“I don’t want to take regulation where it doesn’t need to be,” he says. “If we start seeing a year-round or even seasonal business that is regularly engaged, that is competing unfairly or avoiding taxes, maybe we need to look at that. For the time being, I think the scale at which this is happening [in Franklin] is pretty small.”

Big business in Nashville

In Nashville, the issue is more complex.

One recent survey by Airbnb put Nashville at the top of a list of cities in which short-term rentals are exponentially growing – an estimated 300 percent-plus in the last year alone. There were 900 listings in Nashville on one recent day on the Airbnb site alone.

The economic impact is undeniable.

A study commissioned by the Short Term Rental Advocacy Center showed what effect short-term rentals are having in cities like Chicago, where $108 million was generated in Chicago last year alone.

For every $100 spent on a short-term vacation rental in Chicago, another $69 is spent on food, $24 is spent on transportation, $59 is spent on shopping and $48 is spent on entertainment. Nashville definitely stands to benefit – but only if things are properly governed, says Greg Adkins, President and CEO of the Tennessee Hospitality & Tourism Association and the Greater Nashville Hospitality Association.

“We’ve seen a tremendous amount of growth in short-term rentals, including Airbnb and VRBO. We’ve probably seen exponential growth just like you’ve seen major growth in retail expansion,” Adkins says.

“The one thing we have always been cognizant of is that if you hold yourself as a business for Airbnb or VRBO, you have to play by the rules as a traditional lodging property because of safety factors and sales and hospitality taxes.

“It’s been the position of our association that has always been the case. If there’s one thing the government should do, it’s to create a level playing field.”

That should include things like making sure short-term rental owners have adequate insurance, submit to health inspections as needed and operate under a legitimate business license, in addition to paying their fair share of taxes.

Adkins says GNHA is on board with the basic premise of Allen’s legislation, and he wants to continue working with her and the other groups to see that everyone is treated equitably.

“We’re not opposed to them at all; they’re viable lodging options,” he says. “They just have to be under the same regulations as everyone else, including bed and breakfasts, cabins and hotels.”

Room for everyone

CMT week saw a huge surge in the awareness of Nashville’s potential short-term rental market. Hotels fill quickly, and homeowners see a way to capitalize on a money-making opportunity. And obviously, the more people who visit Nashville, the more businesses and the city itself stand to benefit.

“What we offer with Airbnb is more reasonably priced accommodations so our guests can go spend their money in those other places,” says Smith.

“The kind of guest we have is not really ever going to stay in a big fancy hotel because they can’t afford it. I think we do a great job selling Nashville to a lot of people. I would say the hotel industry is not thrilled to have Airbnb here, but we don’t have enough hotel rooms in Nashville for all the different events.”

Smith says she welcomes the legislation over short-term rentals. It only makes sense, she says, when the niche industry has grown as large as it has and as quickly as it has in Nashville.

“I’m thinking all the time, what if I’m doing something wrong and I just can’t figure it out? Now, with this legislation, we have an opportunity. And it is a great opportunity because we bring a lot of value to the economy in Nashville,” Smith says.

As for being in the short-term rental business, Smith is extremely happy.

“It has been one of the most rewarding experiences of my adult life,” Smith adds. “We’ve met fascinating people from all over the world. Some you don’t interact with as much; some really want to spend time talking after a day of sightseeing.

“We had a guest recently who teaches in Norway. Every evening when he came in, we all sat around outside on our patio and talked about education. It’s been a great opportunity to meet a lot of new people. We haven’t had a negative experience yet.”

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