If you thought 2023 would bring pre-pandemic normalcy
to the lodging industry, think again.
True, the lodging industry has largely rebounded from
COVID. Short-term rentals experienced phenomenal growth in 2022, and the American Hotel & Lodging Association
expects the hotel industry to experience pre-pandemic
levels of demand in
2023. So that’s good.
Yet success usually comes at a price. For some in the
lodging industry - notably accommodation platforms, online travel agencies
(OTAs) and short-term rental (STR) operators - that price could be greater
scrutiny, increased regulation and new tax obligations.
Technology could help businesses in the lodging
sector address these looming challenges, but those businesses won’t be the only
ones pinning their hopes on technology. City, county and state officials will
increasingly use technology themselves, both to uncover noncompliance and
enforce compliance.
Technology can unearth noncompliant businesses
“2023 is likely to be the year that government
adoption of technology to automate auditing short-term rental compliance in
their jurisdictions hits its stride,” reports American City & County. Fort
Worth and Galveston, Texas, as well as more than 20 other cities, are looking
to use data mining powered by artificial intelligence to identify and
monitor noncompliant properties.
A future compliance sweep could include automated
audits, whereby AI-powered data-mining technology scrapes information from
publicly available STR booking services to identify active properties in a
jurisdiction. Tax authorities could then cross-reference that information with
what they already know to uncover businesses that aren’t properly registered,
permitted or filing/remitting taxes.
This would be a monumental, resource-eating task if
done manually. Machines can do it while humans take care of other tasks - like
following up with noncompliant businesses.
As governments turn to technology to crack down on
compliance, STR operators can use it to be better neighbors.
Ready or not, travel’s back
After
taking a hit due to the pandemic, the travel industry has been seeing a steady
resurgence. According to Phocuswright’s Phocal Point data, gross travel
bookings globally are expected to reach $1.34 trillion this year and $1.48
trillion next year, surpassing 2019 levels.
Tourism experts from the United
Nations World Tourism Organization are “cautiously confident” about the state of
the industry. Despite rising inflation and high oil prices, 65% of the experts
surveyed expect better tourism performance in 2023 than in 2022.
There will still be long lines. Daily passenger caps
will continue until at least September 2024 at Amsterdam’s Schiphol Airport, which is also capping flights to reduce noise
pollution and protect the environment. And there could be more air industry strikes, leading to more flight cancellations and delays.
During the first quarter of 2023, air travel was impacted by strikes across Belgium, France, Italy, Portugal, Spain and
the United Kingdom.
That’s just what happens today when people are on the
move.
Lodging leads the travel recovery charge
Perhaps more than anything else, people on the move
need a place to stay. That could be why the accommodation sector is leading the
recovery for the travel industry.
Occupancy rates at hotels in the United States are improving, though they haven’t quite returned to pre-pandemic
levels.
Vacation rentals have been particularly popular.
Short-term rentals accounted for roughly 27% of the U.S. lodging market in 2021, a 10-point
increase over 2019. They’re such a successful business model that even
traditional hotel companies like Marriott International have entered the space.
Short-term rentals are practically perfect for bleisure,
blended business and leisure travel.
Business vs. leisure
Business travel is recovering more slowly than
leisure travel, but bleisure is helping to bring business travel back.
Digital
nomads have turned bleisure into a lifestyle. A growing number of people
able to work from anywhere (WFA) are traveling for an extended period
of time (more than 10 days).
According to
Phocuswright’s report, The
New Nomads: Work and Play from Anywhere, 17% of U.S. leisure
travelers took more frequent blended trips of remote working and leisure travel
or adopted a digitally nomadic lifestyle in 2020 or 2021.
Bleisure, laptop luggers, digital nomads,
WFA. As these trends shape our lexicon and alter the shape of travel, they also
help contribute to the rise of short-term rentals.
State and local tax requirements: A pain point for all
Because they tend to have more influence and clout
than individual hosts, many online travel agencies are in a position to
advocate for themselves and negotiate with tax authorities.
Where they’re not required to collect and remit
applicable taxes, hosts or property managers are. According to a 2022 study by
the National League of Cities, 82% of surveyed cities require short-term rental
hosts to remit taxes directly to the city, while only 5% require the platform
to collect and remit local taxes on the hosts’ behalf.
The Vrbo website clearly states, “Property owners and
managers are responsible for understanding and complying with the laws and
regulations applicable to their property listing. You’re also responsible for
collecting and remitting lodging taxes when we’re not liable to do so.”
Airbnb explains, “As a host, depending on your location,
you may be required to collect local tax … from your guests.” It’s made
agreements to collect and remit certain state and local taxes on behalf of
hosts in some jurisdictions but not others.
Unfortunately, Airbnb, Vrbo and similar platforms may
not tell each host exactly which taxes they do and don’t collect. They’re not
tax professionals; it’s not their job or responsibility.
So STR hosts and property managers have to figure out
where they’re required to register and which taxes they’re required to collect
and remit. It’s incredibly complicated.
Some hosts may accidentally charge customers tax that
the platform has also collected. Others may simply opt to not deal with tax at
all.
In the long run, playing that game can lead to some
serious consequences.