Montgomery County says it could bring in nearly $230,000 next fiscal year from taxing the use of popular room rental services such as Airbnb.
But doing so would be akin to busting Al Capone for tax evasion on his profits from illegal criminal activities, according to a County Council analyst.
That’s because the county’s recently enacted zoning code makes it illegal to rent out a room in a home for less than 30 days, the type of arrangement that makes up many Airbnb transactions.
“Although the morality of taxing an illegal activity may be debatable, the law would allow such a tax,” council attorney Jeffrey Zyontz wrote in a report to be taken up Thursday morning by the council’s Government Operations Committee.
“Al Capone went to jail for tax evasion because he did not declare or pay taxes on profits from his illegal bootlegging business,” Zyontz continued. “In that instance there was also an active anti-bootlegging enforcement effort at the same time. There is also no doubt that taxing illegal land uses is current practice.”
County Executive Ike Leggett submitted a bill to the council last month that would impose a tax of 7 percent of the cost of any rental in the county on websites such as Airbnb, HomeAway and Loft.
The county predicted the new tax would bring in $228,725 in fiscal year 2016, which starts in July. Leggett has included the expected income from the tax in his recommended county budget, which the council is now finalizing.
The new zoning code, which took effect last fall, makes it illegal to rent out a room or a home for fewer than 30 days.
A zoning text amendment that would make short-term Airbnb rentals legal has been held up due to complications with how the change would impact rules governing bed-and-breakfast establishments, Zyontz said.
Council staff also thinks the county’s revenue estimate for the new tax is too high. A Department of Permitting Services review of active Airbnb listings in the county found less than 270.
The 7 percent tax per rental would be the same rate paid by hotels in the county. Washington, D.C., taxes so-called “transient housing” at a rate of 14.5 percent. And the District is set to impose a new tax on Airbnb rentals despite those short-term rentals being illegal per the jurisdiction’s zoning rules, just as is the case in Montgomery County. Airbnb approached the D.C. government about the issue and the sides worked out a tax deal earlier this year.
About 10 million people worldwide rented rooms in 2014 using Airbnb. The San Francisco-based website surpassed 800,000 listings worldwide, meaning it now offers more lodging than any hotel chain in the world.
Airbnb’s popularity has led to major cities—including San Francisco and New York—changing hotel tax laws to recoup revenues.