Engaging with new economy businesses in San Francisco.

• Author: Augustine, David

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San Francisco, California--like most jurisdictions--has been facing the realities of a changing economy More people than ever are engaging in the sharing economy and using web-based portals to generate alternative income from their property. The most common of these businesses are home-based, short-term residential rentals (found through sites like AirBNB, VRBO, TripAdvisor, Craigslist, and others), drivers for transportation network companies like Uber and Lyft, and people who provide a variety of personal services such as meal delivery, cleaning, or repair services. In San Francisco alone, there are thousands of people providing (and, critically for tax purposes, selling) these services--we'll call them new economy businesses--and many have been unaware of their responsibilities as a business.

Many of the people who provide these services may not think of themselves as conducting business. They may only rent out a room in their apartment a few days a month, they may not have an office, they may not have business cards or a sign out front, and they may have a full-time job doing something else. But under the tax laws in San Francisco, for example, the definition of doing business includes anyone who performs work or renders services for seven or more days during any year.

Three factors have allowed San Francisco to make some progress in educating the public: a focus on tax compliance rather than other (or all) regulatory issues, outreach and education to the new economy community, and putting the entire process online.

SHORT-TERM RESIDENTIAL RENTALS

There are many different ways in which short-term residential accommodations can be rented through a website platform. Some websites merely advertise rentals, but require a separate booking process. Conversely, some websites only allow a guest to book on the website itself. And some websites allow multiple pathways for a guest to effectuate a transaction with a host.

The San Francisco Office of the Treasurer and Tax Collector addressed this issue by creating a 2012 regulation holding that website platforms that collect rent and hosts who receive rent must pay a tax. The office is agnostic in terms of who pays it, but between two parties, the tax must be paid, or both parties are on the hook.

Second, the office allowed any website platform to voluntarily collect and remit the tax on behalf of all its hosts. A category called "Qualified Website Company" was created...