Airbnb recently announced it would collect and remit hotel taxes from its users in Washington, D.C., as part of a broader move to resolve tax conflicts — should hosts pay them? how do they pay them? — in some of the company's largest markets. The move highlights a larger shift in the the "sharing economy," where thousands of people are now earning income off their second bedrooms, personal cars or spare time.
Namely: Companies like Airbnb and Uber are increasingly taking on some of the roles that have traditionally belonged to government.
Airbnb plans to collect taxes on behalf of individual users on the platform, and it will lump all that money into a single big tax payment to local governments (whether that's quarterly or monthly depends on the city). Because individual hosts won't file these taxes themselves (as many should have been doing until now), they won't have to give local governments their names, addresses, social security numbers, or basic details about how much they're charging or how many nights they rent their homes. Airbnb won't hand over that fine-grained information, either. To protect the privacy of its users, the company is effectively serving as the tax collector for them.
Hilton, of course, remits lodging taxes to city coffers, too, in a big lump sum, just as other retailers do sales taxes. But Hilton isn't making that payment on behalf of thousands of individual entrepreneurs who run their own room-sized hotels.
Cities like the District will reserve the right to audit the numbers Airbnb gives them, as they would any taxpayer. This model — companies enforce the regulation, cities try to check up on them — has already appeared elsewhere with Uber and Lyft. In Chicago, for instance, a new law requires drivers who give rides for pay in their personal cars to have background checks, vehicle inspections and random drug testing. But the vast majority of drivers won't have to complete these requirements with the city, in stark contrast to what licensed cab drivers must do.
Chicago instead requires Uber and companies like it to get government approval for their own background check and inspection processes. The city has decided that rules so important they must be directly enforced with taxi drivers can be carried out with UberX drivers instead by the third party that organizes them.
The California Public Utilities Commission similarly came up with a 19-point checklist for vehicle inspections in the state — then it tasked Uber and Lyft with making sure their drivers actually get them. In each of these cases, regulators have set the standards, leaving companies to carry them them out. With, in theory, some oversight.
This model of "delegated regulation," as NYU's Arun Sundararajan puts it, certainly has some skeptics. And it's left a lot of room for interpretation in California, where Uber and Lyft have tried to argue that drivers can conduct inspections for each other just as well as professional mechanics can. But there's a logistical reality here, too. Airbnb has vastly expanded the number of quasi-hoteliers needing to collect hotel or occupancy taxes. Uber has vastly expanded the number of drivers needing to comply with safety laws. From a city's perspective, these trends represent a sudden explosion in the need for oversight.
"As the number of small businesses gets larger, and as the size of each small business gets smaller," Sundararajan says, "the overhead that this is going to impose on a regulatory authority is going to be pretty extensive. It seems sort of socially efficient to delegate that."
It's also possible, he adds, that these digitally savvy companies may be better at doing some of these jobs than government itself — provided, that is, that we have reliable systems for auditing them. Ultimately, good regulation is meant to serve societal goals: keeping passengers safe, preventing services from discriminating against some consumers, generating tax revenue to support public services like police departments.
"I think it gets more interesting," Sundararajan says, "when the platform might have superior capabilities to fulfill these societal objectives."
Take discrimination, for example, which has historically been a significant issue in the taxi industry. Cab companies are still frequently accused of refusing to serve minority passengers or low-income neighborhoods. The only way to prove that is through patterns: by looking at where taxis operate over time, or where complaints of discriminatory service cluster. And it's highly likely that companies that have built sophisticated data platforms to track our travel behavior will be better at detecting such patterns than government regulators.
Sundararajan points to credit card companies that have over time developed a deep understanding of the telltale patterns of fraud. They've learned, for instance, that a one-dollar charge at a gas station may well mean someone is testing the viability of your stolen Mastercard. An Uber driver who routinely cancels trips destined for Anacostia might trigger similar flags about discrimination.
"There's no way we can set up a reporting system that will generate all of the information under which the government can do as good of a job," Sundararajan says.
Of course, there are potential downsides to delegating this oversight to companies founded not to serve the public but to make a profit. It may not be in Uber's interest to boot that driver off the platform (nor is it clear that a driver wrongly accused of discrimination and kicked off the service would have some fair way to appeal that decision). It is, however, in Uber's interest to find a loophole in delegated regulation where it doesn't have to pay professional mechanics to inspect drivers' cars.
Uber and Airbnb — or Etsy and TaskRabbit — may well be more sophisticated than government at maintaining order within the raucous new ecosystems they're creating. But we have to be really smart about how we get them to do that.