Airbnb Competitor Sues San Francisco For Making New 'Legalize Airbnb' Law Too Restricted To Airbnb

from the interesting-legal-theories dept

We've reported a bunch of times on the various legal fights that Airbnb has had to go through lately. Just a few weeks ago, NY's Attorney General Eric Schneiderman (who has admitted in the past that his interest in Airbnb is really about protecting NYC's big hotels), said that he believed most Airbnb listings in NY to be illegal. Under his standards, every Airbnb I've stayed at in NYC would almost certainly be illegal, despite the fact that I have had nothing but fantastic experiences with Airbnb in NYC (much better than my experiences with hotels). San Francisco seemed to be going in a different direction, however, with the city passing a new law just last week that effectively legalized many Airbnb rentals. This law was actually fought by so-called "housing interests" in San Francisco (who seem to have some trouble understanding basic economics).

So you might assume that any legal challenge to the law would come from those "housing interests." Instead, however, it's Airbnb's biggest competitor, HomeAway, perhaps best known for its VRBO site (unofficial motto: "we were Airbnb before Airbnb, dammit"). HomeAway is arguing that the various restrictions that San Francisco put in this new law to appease those "housing interests" are actually unconstitutional in that it unfairly enables Airbnb's particular business model, while limiting HomeAway's. The key issue: many of the people who use HomeAway use it to rent out second homes, while the new law targets short-term rentals of primary residences only.

How could that possibly be illegal? Well, that's where you have to dive into the convoluted legal argument of HomeAway, which argues that this new law violates the Commerce Clause of the Constitution by "discriminating against interstate commerce" because there's "differential treatment" between SF-based residents and non-California residents.

The Ordinance violates the Commerce Clause because it discriminates against interstate commerce through differential treatment of San Francisco-based and non-San Francisco-based interests that benefits the former and burdens the latter. This unconstitutional discrimination takes two forms. First, by its express terms, the Ordinance allows only permanent San Francisco residents to rent out on a short-term basis (which the Ordinance defines as thirty days or less) residential property they own or lease in San Francisco. Non-permanent residents of San Francisco who own or lease property in San Francisco are barred on the face of the Ordinance from renting out their property on a short-term basis. Second, the Ordinance requires entities that provide “Hosting Platforms,” on which owners and lessees of property may advertise their property for short-term rentals, to conform their business operations in San Francisco to one particular model, and no other, under pain of monetary penalties. This anti-competitive measure forces those seeking to rent property to turn over control of selecting short-term tenants to entities that operate the type of Hosting Platform model sanctioned by the Ordinance and to pay whatever fees those entities might charge today or in the future. While facially neutral, the Ordinance’s Hosting Platform rules have the purpose and effect of discriminating against non-San Francisco-based interests.

This seems like a massive longshot.

Admittedly, many of the restrictions in the law do seem silly and pointless. It seems reasonable to let people rent out their homes for short-term rentals whether or not it's their primary residence. But to sue the city of the law? And, it seems worth noting that it's not clear that anyone was seriously enforcing the existing law (which is why Airbnb has been so successful), and even with this law in place, it's not clear that anyone would be enforcing it against VRBO owners. Still, it's interesting to see the kinds of legal fights these new kinds of services are facing from all angles these days. It's hard to innovate without a legal team, apparently.

Filed Under: commerce clause, interstate commerce, san francisco, sharing economy, short term rentals
Companies: airbnb, homeaway, vrbo

The Coming Fight Over Sales Tax For Online Retailers

from the congressional-battle dept

For years, we've written about the back and forth in various attempts by states to force Amazon to collect sales tax for purchases in states where it doesn't have a presence (or, well, claims it doesn't have a presence). Existing law says that states have no right to force out of state businesses to collect sales tax for transactions in states in which they have no presence. This rule came out of questions concerning the requirements on catalog retailers, but easily carried over to online retailers. For years, two main groups have been very upset about these rules: brick-and-mortar retailers and state governments. The brick and mortar retailers, of course, don't like having to compete with retailers who don't have to charge sales tax, since it puts them at a disadvantage. State governments hate it, of course, because they want more tax revenue anywhere they can find it (even if it harms their constituents).

Of course, there are some good reasons for not forcing out-of-state retailers to collect sales tax in states where they have no presence. There's the general question of the taxing authority of a state to reach cross borders to get a sales tax, for example. Related to this is the massive complication in collecting such a tax. There are so many different local tax rules, requiring any single entity to understand them all seems like a complete compliance nightmare. Separately, there's a question of the purpose behind such a tax. Generally speaking, a sales tax is supposed to cover the public infrastructure that a retailer uses -- e.g., the streets and clean downtown area that make it easy for customers to come to the store. But with the internet, the retailers aren't really getting the benefit of all of that, so why should they be taxed for it? You can argue that they still get some of the benefits in the roads/infrastructure used to deliver the goods, but that seems like a much more limited benefit. Finally, there's a more recent argument: we want to encourage growth in the internet sector, because it creates wonderful efficiencies and positive externalities that we should encourage. The brick-and-mortar folks really hate that one.

Anyway, for years there have been a series of fights and attempts to "deal" with this -- mostly pushed by the brick and mortar guys. Amazon seems resolved to accept having to collect sales tax, but has pushed for rules to simplify such taxes across borders to avoid the compliance nightmare. Unfortunately, it looks like the brick-and-mortar guys may be getting their wish with a new bill that will make it easier for states to force out-of-state retailers to pay up... and without many of the safeguards or requirements for simplified/standardized rules across states. While Amazon has suggested it might be okay with this, it could be a massive pain for any smaller retailer. In an age of micro-retailers -- think the musician selling products off his or her own website -- having to comply with every states' tax laws is going to be huge pain.

Thankfully, it appears there's at least some opposition to this. Senators Ron Wyden and Kelly Ayotte are trying to pre-empt the legislative effort, by getting a resolution through that would say that the Senate won't pass "burdensome or unfair" taxes on internet retailers. The resolution points out that such out-of-state tax requirements could become a massive burden on smaller players, and given today's unemployment situation, it seems like the wrong time to put in place such taxes:

Whereas any Federal legislation that would upset the free and fair Internet marketplace and allow State governments to impose new, onerous and burdensome sales tax-collecting schemes on out-of-State, Internet-enabled small businesses would adversely impact hundreds of thousands of jobs, reduce consumer choice, and impede the growth and development of interstate commerce; and

Whereas at a time when national unemployment numbers are high and businesses across the country are struggling to keep their doors open, the Federal Government should promote pro-growth and pro-business policies instead of enacting legislation that extracts additional taxes from our Nation�s Internet-enabled businesses

For a while now, it's seemed like such taxes were going to be unavoidable, even as they could end up creating significant problems for small businesses and individuals who sell items directly. Hopefully this small bit of opposition helps those on the other side think twice about the unintended consequences of a massive new tax regime for small businesses online.

Filed Under: internet, interstate commerce, kelly ayotte, retail, ron wyden, sales tax, states
Companies: amazon, ebay, walmart

Bezos: Attempts To Collect State Sales Tax On Amazon Sales Is Unconstitutional

from the won't-stop-'em dept

For quite some time now, we've covered how various states have tried to avoid laws that say mail order companies don't need to collect sales tax in states where they have no staff (while individuals are supposed to self-declare and pay that tax, almost none do). The main target has been Amazon, with various states pushing to get Amazon to pay taxes anyway. Amazon has taken a hardline with many of these states, even announcing plans to move subsidiaries out of Texas if it kept on trying to collect sales tax because of those subsidiaries. The latest, found via Slashdot, is that Jeff Bezos is claiming that such attempts to collect sales tax are unconstitutional without Congressional approval:

And in the U.S., the Constitution prohibits states from interfering in interstate commerce. And there was a Supreme Court case decades ago that clarified that businesses � it was mail-order at that time because the Internet did not exist � that mail-order companies could not be required to collect sales tax in states where they didn�t have what�s called �nexus.�

And that�s a very clear decision.

This is, of course, entirely accurate. Of course, Bezos also points out that Amazon would be perfectly happy with Congress stepping in and creating a sales tax system that works across states. There's been an ongoing effort for years, called the Streamlined Sales Tax Initiative, which tries to align all of the states and their sales tax practices, to avoid every company from having to follow 50 different sales tax laws. Bezos notes that Amazon would support such an initiative:

Our point of view on this is that we should simplify the sales tax system, and we�ve been consistent on this for about 10 years. It�s called the Streamlined Sales Tax Initiative. I think 22 or 23 states have signed onto it. Because the right way to fix this is with federal legislation. That�s where it can be fixed properly.

Sales tax collection is very complicated. And, you know, we�re no different from big chains of retailers � they don�t collect sales taxes in states where they don�t have nexus, either. So everybody is following the same rules. And I don�t think our customers would say, �Why don�t you just optionally collect the tax? I know you�re not required to do it, but aw, go ahead.�

This is actually a pretty big issue. It makes sense that companies shouldn't have to collect sales tax in states where they have no employees. Not only does it create a massive bureaucratic nightmare (especially for smaller e-commerce players), but it actually acts as disincentive to sell into those states. On top of that, the point of the sales tax is supposed to be about supporting the local infrastructure for those retailers (roads, and such). But if you have no local presence, there's a much weaker argument that such taxation is needed. Still, I have no doubt that eventually sales tax will be standardized at the federal level in some format or another, just because the government can't resist a chance to tax -- especially a tax that can be seen as regressive, like a sales tax.

Filed Under: interstate commerce, jeff bezos, sales tax, states
Companies: amazon