The city has added two surcharges for hosts since 2016. Here’s a breakdown of what Chicago hosts pay in state and local taxes.
Since Airbnb first landed in Chicago in 2011, it has grown from a disruptive, unregulated startup to a multibillion-dollar company. Last July, Chicago City Council approved a 2% surcharge on home-share bookings, the latest of several tax hikes, bringing the effective rate for short-term rental hosts to more than 23%.
Airbnb’s relationship with Chicago has been mixed. The home-sharing platform has been a boon for homeowners and tourists, but has also negatively impacted hotel operators, neighbors and rent prices. Mayor Rahm Emanuel and the City Council contentiously debated new regulations in 2016, with some aldermen arguing the rules didn’t go far enough in protecting residents. Others — as well as Emanuel — were concerned about stifling growth.
The City has financial skin in the game. In 2011, it brought in $60.1 million in hotel taxes, accounting for 4.5% of its total tax revenues for the year. By 2017, that amount had climbed to $131.6 million, or 7.4%.
Airbnb voluntarily collects the taxes in 29 states including Illinois.
For several years, collecting those taxes fell to hosts, not Airbnb. That has led to multiple accusations that in many cities with similarly structured tax collection policies, Airbnb and hosts weren’t paying their full tax obligations, likely contributing to declining tax revenues. An estimate from AllTheRooms.com placed lost revenue at $440 million nationwide for 2016.
State and local governments have responded in various ways. According to the National Conference of State Legislatures, Arizona, Florida, Idaho, Indiana, Tennessee and Wisconsin have prohibited local governments from banning short-term rentals, while New York has gone the opposite direction, banning entire-home rentals for periods less than 30 days.
Chicago’s evolving short-term rental policies
Chicago has also sought to apply regulations and tax increases on short-term rentals. In June 2010, citing an “unregulated, growing industry,” the City Council passed the Vacation Rental Ordinance, requiring hosts to purchase $500 licenses to operate, have their listings inspected by the City, obtain insurance, and pay the same 3.5% tax paid by other short-term housing operators.
In February 2015, facing regulatory crackdowns across the country, Airbnb voluntarily began collecting hotel taxes — which by then had climbed to 4.5% — on behalf of state and local governments. Currently, 16 states require Airbnb, not hosts, to collect taxes when guests book their stay. Airbnb voluntarily collects the taxes in 29 states including Illinois.
However, Dan Bucks, former Montana Department of Revenue director, concluded in an analysis that such arrangements reduce transparency and can actually lead to Airbnb paying less in taxes.
From a 2% surcharge, the city expects to generate $1.3 million in revenue, which will go toward shelter beds for victims of domestic violence.
In June 2016, after heated debate, Chicago’s City Council passed the Shared Housing Ordinance, requiring platforms like Airbnb to register with the city and all hosts to register with Airbnb to obtain a city-approved license.
Under the ordinance, hosts must pay a 4% surcharge on bookings, with most of that revenue going toward providing services for homeless families. The new rules also limit how many units in a building can be used for home-sharing and set fines at $1,500 to $3,000 per day for hosts who list rentals without a license.
The Council approved an additional 2% surcharge in July 2018, raising hosts’ tax rate to 23%, where it currently sits. The city said it expects to generate $1.3 million in revenue, which will go toward shelter beds for victims of domestic violence.
Here’s a breakdown of what Chicago hosts pay in state and local taxes:
MyLodgeTax is an online service that prepares, files, and remits lodging tax returns for vacation rental operators.
CPA firm that helps those working in the sharing economy with tax planning, compliance, preparation and savings.
Airbnb has partnered with Stride, a startup insurance broker, to provide hosts with access to tax preparation guides and tools to help them identify and take advantage of deductions.