Post on 04-Jul-2020
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Presenting a live 90-minute webinar with interactive Q&A
Uber, Airbnb and Municipalities: Maximizing
New Tax and Licensing Revenue Opportunities Navigating Emerging Legal, Regulatory and Tax Issues in the Peer-to-Peer Economy
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, OCTOBER 14, 2015
Christopher T. Lutz, Attorney, Horwood Marcus & Berk, Washington, D.C.
Rebecca L. Moon, Senior Assistant City Attorney, City of Sunnyvale, Sunnyvale, Calif.
Robert T. Shannon, Partner, Hinshaw & Culbertson, Chicago
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Overview of Regulatory & Financial Implications of
the
Shared Economy
Robert Shannon Partner
Hinshaw & Culbertson LLP
Office 312-704-3901
rshannon@hinshawlaw.com
www.hinshawlaw.com
"Sharing Economy"
The system of accessing products, services, transportation, travel or other resources for the purpose of reusing, renting or sharing. The economic effort is supported by digital technology and website availability that matches the consumer with the business provider. Mason University
Frank Shafroth, George
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6
Overview of Ride-sharing and Home- sharing Issues
Governmental Impact – sharing economy
includes activities that traditionally were
subject to robust regulatory structures but that may or structures.
may not operate within those
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7
Overview of Ride-sharing sharing Issues
and Home-
Historic Examples:
•
•
•
Common carriers (taxis)
Innkeepers (hotels/motels)
Food purveyors (restaurants)
© 2015 Hinshaw & Culbertson LLP, an Illinois Limited Liability Partnership. All rights reserved.
8
Overview of Ride-sharing and Home- sharing Issues
Those driven
historical regulatory by:
schemes were
1)
2)
3)
4)
5)
Licencing
Public safety
Zoning
Revenue
Maintaining infrastructure
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9
Overview of More Recent Developments
Rise of Shared Economy Business
Uber Lyft Sidecar •
•
•
Airbnb
HomeAway
VRBO
But Also:
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10
Overview of More Recent Developments
Innovative Technology
•
•
•
Bitcoin
E-cigarettes
Drones
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11
Challenge for Local Regulators – Balance
•
•
•
Encouraging innovation
Protecting traditional governmental interests
Maintaining level competitive playing field
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12
3 Questions
From a Regulatory
Perspective
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13
Question 1:
Do these shared economy and innovative technologies come under the existing
regulatory schemes?
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14
Question 2:
If not, are they engaged in the same activities as the traditional industries that are
subject to the existing regulations?
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15
Question 3:
If yes, how should they be regulated as unavoidably engage
compared to traditional industry in same or similar activity?
© 2015 Hinshaw & Culbertson LLP, an Illinois Limited Liability Partnership. All rights reserved.
16
How Some Municipalities
are Dealing with These
Regulation Issues
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17
Examples of Shared Ride Regulatory Approaches
Chicago's Transportation Network
Provider ("TNP") Ordinance
•
•
•
•
•
Background checks
Train affiliated drivers
Inspect affiliated vehicles
Obtain insurance
Cannot service airports © 2015 Hinshaw & Culbertson LLP, an Illinois Limited Liability Partnership. All rights reserved.
18
Philadelphia
• Philadelphia Parking Authority has banned rideshare services
However, Pennsylvania Public Utility • Commission has approved rideshare throughout the rest of the state
services
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19
Other governmental ride-share examples
•
•
•
•
New York
Virginia
Dallas
"Regulation Delegation" NYU Arun Sundararajan
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20
Examples of Shared Residence Regulatory Approaches
• Denver
Banned short-term rentals of less than 30 consecutive
days altogether
Charlottesville, Virginia
Proposal to require provisional use permits
San Francisco
Requires registration with the Office of Short-Term Rental
Registry
•
•
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21
How is This Playing Out in Court
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22
Growing wave of legal challenges
In many places
Involving different legal theories
Examples:
Boston
St. Louis
Broward County, Fl
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23
Illinois
Illinois Transportation Trade Association, et al. v. The City of Chicago
• Judge dismissed all counts except for Plaintiffs' equal protection claims.
Judge reasoned that The city’s requirements in several areas
including background checks, drug tests, insurance, annual fees,
unregulated fares and vehicle age, maintenance and inspection
“are far more onerous” for taxi drivers
Judge concluded that the differences in the rules that govern taxi
operations and ride-sharing services in Chicago “appear utterly
arbitrary.”
•
•
© 2015 Hinshaw & Culbertson LLP, an Illinois Limited Liability Partnership. All rights reserved.
24
How Local Regulators Balance and Minimize
Can Risk
Manage this of Lawsuits
•
•
•
•
•
Become educated
Be
Be
Be
Be
approachable
collaborative
open minded
fair
© 2015 Hinshaw & Culbertson LLP, an Illinois Limited Liability Partnership. All rights reserved.
25
THE NEW ECONOMY
IN CALIFORNIA
Rebecca L. Moon
Sr. Assistant City Attorney
City of Sunnyvale, California
rmoon@sunnyvale.ca.gov
LAWS ARE MADE TO BE BROKEN?
“Innovative disruption” = use of technology to
create new markets and displace existing
industries
Concept introduced by Harvard professor
Clayton Christensen in the late 1990’s
Tech world is now disrupting highly regulated
areas of the economy (transportation, housing,
employment relationships), leading to conflict
with long established laws
27
BIRTH OF “RIDESHARING”
Uber debuted in San Francisco in 2009
Quickly followed by competitors such as Lyft
and Sidecar
Enormously popular with consumers
Immediately clashed with local and state
regulators
Business model – use every available means to
challenge government regulation of for-hire
transportation
28
REGULATION OF TRANSPORTATION IN CA
California Public Utilities Commission (CPUC)
regulates most forms of transportation
Taxi service is regulated locally
“Charter party carriers” (limo services) are
regulated by the CPUC
“Transportation Network Companies” (TNCs)
use a smartphone app to connect customers
with drivers using their personal vehicles – is
this a taxi service or more like hiring a limo?
29
TAXIS VS. CHARTER PARTY CARRIERS
Taxis can accept hails from the curb
Charter-party carriers can only provide pre-
arranged travel
CPUC had to decide if an “electronic hail” using
a smartphone app is pre-arranged or not
Huge consequences for how TNCs are
regulated. Taxi regulation is incompatible with
TNC business model.
30
CPUC RULING
In Sept. 2013, CPUC ruled that TNCs offer pre-
arranged travel and are therefore subject to
state jurisdiction like limo services
Legal challenges by taxi industry unsuccessful
Legislature enacted law requiring TNC drivers
to carry $1M liability insurance
CPUC now considering rules for insurance,
driver drug testing and other issues
31
PROS/CONS OF TNC’S
TNC success fueled by dissatisfaction with taxi service as well as changing values/preferences of consumers
However, taxis still provide valuable service to many in the community
Taxi ordinances require vehicle inspections, insurance, driver background checks, posting/regulation of fares and universal service/non-discrimination
CPUC has reputation for being too cozy with industries it regulates
32
WHAT CAN CALIFORNIA CITIES DO?
Lobby CPUC and Legislature to ensure that
appropriate laws/regulations are adopted to
ensure public safety and protect consumers
Unfair competition lawsuits? (LA, SF)
Modernize taxi ordinances to make taxis more
competitive
Note: state law does allow local regulation of
limos and TNCs at municipal/public airports
Business license tax? – limo exemption
33
ONGOING ISSUES
Pending class action lawsuits may determine
that TNC drivers are employees not
independent contractors. California law is very
favorable to employee status.
CPUC rulemaking in progress
New services are continuing to challenge
existing regulations (e.g. options for riders to
split fares; private bus services)
34
SHARED HOUSING IN SILICON VALLEY
Techie dorms
Hacker homes
Intern houses
Not your
grandma’s
youth hostel!
(These come
with WiFi)
35
CURRENTLY LISTED ON AIRBNB
A tent in someone’s backyard: $25 per night
(San Jose)
36
THE HIGHLY DISTRIBUTED LUXURY HOTEL
“Geekhut’s” rentals include high-end work stations, a fridge full of
groceries, 500 Mbps WiFi and free Netflix, Hulu, and HBOGo. 37
CURRENTLY LISTED ON AIRBNB
School bus converted to a 6-bedroom “luxury
mobile office/living space” for your startup
company: $300 per night (Palo Alto)
38
SUNNYVALE
Suburban community in heart of Silicon Valley
Median home price around $1 million
Average rent approx. $3,000 per month
Not a tourist destination, but critical shortage
of housing for expanding workforce
39
DO THE MATH
$3,000 per month (median rent in Sunnyvale)
= $100 per day
That same apartment for $270 a day
= $8,100 per month
7 bed “hacker dorm” at $35/night
= $7,350 per month
40
HOUSING 2.0
Many cities in California prohibit or regulate
short term rentals in residential zones
Short term rentals through Airbnb, Flipkey etc.
may be considered unlawful hotels/motels
under many city ordinances
Popularity of short-term rental services caught
many cities off-guard and overwhelmed local
code enforcement resources
41
SUNNYVALE’S NEW ORDINANCE
Allows “hosted” short term rentals only (must be host’s primary residence, host must be present on site)
Requires registration and city approval
Maximum of 4 short term renters not including minor children
Prohibits rental of non-habitable space for sleeping
Requires payment of transient occupancy tax
Must be approved by HOA/landlords 42
CONSIDERED BUT NOT ADOPTED
Allow “unhosted” rentals up to “X” days per year? (tried in many cities but difficult to enforce)
Random compliance inspections? (likely unconstitutional – City of LA v. Patel)
Pre-approval inspections, minimum parking requirements, neighbor notification, annual renewals etc. (burdensome permit process will deter compliance with ordinance; compliance in other cities has been extremely low)
43
ENFORCEMENT ISSUES
Hard to prove violations without cooperation from hosting sites
Need warrants or consent to enter homes
May need to use administrative subpoenas to obtain information (see Western City article)
Limited resources available for investigations, surveillance, criminal prosecution and civil nuisance actions
LA Times recently reported that LA is not enforcing its short term rental ordinance
44
TRIAGE APPROACH
Focus available resources at the most
egregious situations especially those with
significant neighborhood impacts or life/safety
issues (unpermitted construction, fire hazards,
rental of non-habitable spaces)
Work with hosting sites to collect TOT
You will not be able to stop all short term
rentals – use regulations as a tool against the
bad actors
45
Tax Compliance Issues in the Sharing Economy
Christopher Lutz
Horwood Marcus & Berk Chtd. Washington, DC
Clutz@hmblaw.com
Types of Cases that Have Arisen
• Classification of products and/or services – Is software a service, intangible, or tangible property?
• Classification of businesses – Online travel company (“OTC”) cases – Sharing economy facilitators and vendors
• Economic or agency nexus – Where a seller of a service is located – When is a third part acting as an agent/representaive of a
remote seller
• Alternative apportionment – What is the appropriate mechanism for addressing new
technologies and business models? – Relevant with respect to income tax
47
Classification of businesses
• Sharing Economy facilitators • In the context of homesharing (companies such as
Airbnb), there are a number of similarities with the OTCs.
– No reported cases yet on tax liability; however, see New York AG’s subpoenas issued to Airbnb
• There has been much more movement on the legislative side, primarily at the local level
– For instance, Portland, Chicago, and California’s treatment of ridesharing companies. See Lutz, “Legitimizing the Sharing Economy: Reconciling the Tension Between State and Local Policy Concerns and Innovation,” Bloomberg BNA Dec. 5, 2014.
48
Classification of Products and/or Services
• Will be crucial at the state level for purposes of apportioning income
– Receipts from sales of services, intangibles, and tangible property will often be treated very differently
• Whether a transaction involves a product or a service may be dispositive of whether a particular transaction tax applies
– See City of Chicago Transaction Tax
– Most sales taxes exclude services
49
Classification of businesses
• OTC Cases – Priceline.com, Inc. v. City of Anaheim, No. 30-2009-00244120
(2/1/10); Travelscape LLC v. South Carolina Dep’t of Revenue, 08-ALJ-17-0076-CC (2/12/09); City of Charleston v. Hotels.com, LP, 520 F. Supp. 2d 757 (D.S.C. 2007); City of Fairview Heights v. Orbitz, Inc., 05-CV-940-DRH (S.D. Ill. 2006).
– This line of cases questioned whether the OTCs should have collected tax at the wholesale rate that they paid to the hotels, or whether they should have applied the tax to the marked-up price they charged to their customers.
– Most of the statutes imposed tax upon those engaged in renting hotel rooms to transients. Were the hotels renting out the rooms or was their service distinct from renting out rooms?
– The issues faced in these cases may be illuminative as the Sharing Economy develops
50
Economic or Agency Nexus
• Economic nexus is premised on the idea that physical presence is only required for sales tax, and income tax nexus merely requires a company to maintain a market within a state.
• Agency nexus incorporates a physical presence theory, but uses a third party’s presence in the state to give a remote seller nexus
– Click through, remote reporting
– Will the presence of a server create physical presence?
51
Nexus Considerations
• Nexus considerations often relate to interstate commerce; many of these concerns do not necessarily relate to local governments
– But, consider due process concerns
52
Problems and Solutions
• Similarities exist between traditional industry and many sharing economy businesses – Lodging, livery, food services
• Many state and local regulations are silent on the legitimacy of such business models or, in some cases, would appear to specifically proscribe such activities
• Striking a regulatory balance that legitimizes these sharing economy businesses will go a long way to resolving the tax revenue disparities between the traditional industries and sharing economy businesses
53
Problems and Solutions
• Case study: Portland – Prior to September 2014, all rentals of rooms in
people’s homes for less than thirty days were deemed illegal
• The city passed an ordinance allowing residents to rent out rooms if they obtained a $180 city permit and allowed the city to conduct safety inspections of their homes. The ordinance also set limitations; vendors may not rent out more than two bedrooms, nor may they rent out rooms in multifamily apartment buildings.
• With legitimization, Airbnb began collecting tax • Note, however, that the interplay between the Oregon
Lodging Tax and the City’s ordinance was a very important factor
54
Problems and Solutions
• State and Local governments have taken wildly different approaches in confronting sharing economy facilitators and vendors – California Public Utilities Commission (CPUC) initially issued
$20,000 citations to Lyft, SideCar, and Uber for “illegally operating.” These penalties were subsequently abated.
– New York City issued subpoenas to Airbnb seeking information regarding the approximately 15,000 hosts who rented rooms through Airbnb in new York. Airbnb estimates that it would have collected approximately $21 million in tax revenue were registration possible.
– Jurisdictions may have different policy concerns motivating them; recognize that refusal to legitimize these businesses will result in considerable enforcement difficulties and will result in a loss of revenue
55