FAYETTEVILLE — Gretchen Schlump started looking for an extra source of income after her roommate moved out.
She lives in a two-story, three-bedroom house near Dickson Street, the University of Arkansas and the Razorback Greenway. Starting up her own Airbnb seemed like the perfect idea. Airbnb, an online service, helps people renting out their homes to visitors and makes its profit from service fees.
By the numbers
Hotel tax revenue remitted in 2015:
Bentonville — $754,329 Fayetteville — $6.1 million Rogers — $788,654
Springdale — $426,905
Source: Staff report
She’s had eight groups of people rent her house for a weekend at $89 per night since she started in March and has more bookings.
“I make more money doing this than having a roommate, and I don’t have to have a roommate,” she said.
Schlump, 37, operates the Airbnb with her fiance, Jeff Hunt, 44, on top of the couple’s home-inspection service, Scout Property Inspections. She stays at Hunt’s house while the guests are in her home in the 800 block of South Hill Avenue.
The St. Louis-area native said starting with Airbnb was as simple as getting a Facebook page. The company offers a $1 million insurance policy for its hosts in case guests become unruly and destructive, but it’s a largely self-regulating affair.
The unregulated nature concerns cities and the hospitality industry. Cities note their hotel and sales taxes often go uncollected and ordinances prohibiting businesses in neighborhoods are ignored. Hotels cite potential safety issues for the guests and homeowners.
Schlump said the cities need to adapt to change.
“Looking toward what’s going to happen in society in the future, this kind of economy is not going away,” she said. “So, might as well embrace it.”
Airbnb has a series of FAQs covering legal and regulatory issues for hosts and guests to read before signing up. However, the hosts may not be aware of the taxes they’re supposed to collect and remit, or what’s allowed under their local zoning district, said Paul Becker, Fayetteville’s chief financial officer.
“They’re playing with stuff that they shouldn’t,” he said.
STRIFE WITH HOTELS
A quick search yields more than 300 Airbnbs in the Fayetteville, Springdale, Rogers and Bentonville areas. Prices range from small bedrooms for about $20 a night to luxurious homes at $1,500 nightly and above.
The basic concept of Airbnb and similar Vacation Rentals by Owner, which is less prominent in this area, is someone traveling and looking for a place to stay could do so through a cellphone application. The application lists all of rentals in the area and can be sorted by location, price and time available.
The business has drawn the ire of the hotel industry much like many taxi companies decried Uber when its popularity surged, arguing the two services were essentially the same, but one wasn’t subject to the same regulations and taxes as the other.
“We want visitors, certainly, to come to our communities,” said Montine McNulty, executive director of the Arkansas Hospitality Association. “But, we want to do it in an organized fashion and make sure people are safe, and that it’s a level playing field.”
Staying at an Airbnb could be risky because the rentals aren’t subject to the same health and safety regulations as hotels and motels, McNulty said. Plus, she added, it’s your house on the line.
“I’d want to think twice before I had people — strangers — come and stay in my home,” she said.
MISSING TAXES
All four of the largest cities in Northwest Arkansas charge a 2 percent hotel tax, some or all of which goes to their respective advertising and promotion efforts. In Fayetteville, 1 percent goes to advertising and promotion and 1 percent goes to parks development. Receipts for 2015 ranged from $6.1 million in Fayetteville to $426,000 in Springdale.
The state collected $2 billion in sales tax last year and $14.8 million from its 2 percent tourism tax from lodging accommodations. Money collected from the tourism tax goes into the state’s tourism development trust fund.
Most Airbnb hosts are likely not paying their city’s hotel and motel tax, McNulty said. They’re also probably not paying the required state sales tax to the Arkansas Department of Finance and Administration, she said.
“We would like for them to be under the same scrutiny and the same regulations, and certainly collecting and paying the same taxes,” she said.
On its website, Airbnb has guidelines on taxes for its hosts. Occupancy tax rates can vary by city, county, state and country, the site advises, and Airbnb expects “all hosts to familiarize themselves with and follow their local laws and regulations.”
It adds “if you determine that you need to collect occupancy tax,” a host can do so by incorporating the tax in the nightly price, adding it in a special offer or asking guests to pay in person.
In Arkansas, hotels, motels and lodging establishments have to pay a state, county and city sales tax, a 2 percent tourism tax and their local city’s hotel tax, said Tom Atchley, tax administrator with the state Department of Finance and Administration.
The same goes for Airbnb hosts, who potentially could be subject to a tax assessment if those taxes go unpaid, he said.
“Anyone providing accommodations needs to be registered and collecting proper taxes,” Atchley said.
A Fayetteville Airbnb host is supposed to pay the 6.5 percent Arkansas sales tax, 2 percent state tourism tax, 1.25 percent Washington County tax, 2 percent city sales tax and 2 percent hotel tax. That adds up to 13.75 percent of earnings.
So, if a host rents for $100 per night, $13.75 would go to taxes. Airbnb also charges hosts a 3 percent service fee. Guests also are charged a service fee, which can vary between 6 to 12 percent, according to its website.
For six nights per month at a $100 nightly rate, the Fayetteville host would have to remit $990 per year in taxes.
It’s about the same in Bentonville, except Benton County’s sales tax is 1 percent. A Bentonville Airbnb host would collect 13.5 percent in taxes.
That’s a lot of potentially unpaid taxes with more than 300 hosts in the four major Northwest Arkansas cities.
SIZING THE COMPETITION
Matthew Disheroon, a member of the Rogers Advertising and Promotion Commission and general manager at The Raymond Group, which owns Homewood Suites in Rogers, said Airbnb largely is seen as a competitor in the industry, but he doubted whether Northwest Arkansas hotels were losing much business because of it.
Either way, Airbnb hosts should be subject to the same rules, Disheroon said.
If they are enjoying the benefits of what the local advertising and promotion commission does, “then they definitely need to pay their taxes,” he said.
Disheroon and Fayetteville Advertising and Promotion Commissioner Matt Behrend both said Airbnb tends to serve a different kind of customer who may not be looking for a hotel experience. Behrend is regional operations manager at Krushiker Hospitality Group, which owns three hotels in Fayetteville and one in Springdale.
“There’s a lot more that we have to have safety-wise in place to operate a facility like that,” Behrend said. “I think that’s a big difference. There’s a certain amount of caution you have to take, I think, when staying at an Airbnb.”
The likelihood many Airbnb hosts don’t collect and remit local hotel tax is disheartening to Behrend because of activities and programs the money supports.
“We do some great stuff with it. We really try to put back into the community, and represent the community. That kind of takes dollars out of that bucket,” he said.
Bentonville’s Advertising and Promotion Commission tries to keep up with the city’s short-term rental hosts by contacting and educating them about lodging tax, said Kalene Griffith, president of Visit Bentonville.
A bookkeeper will follow up with a letter and the necessary paperwork for the host to start collecting and remitting the tax, Griffith said.
“As soon as the paperwork is turned in, we will then add them to our website and assist in promotions,” she said.
ZONING CODES
Operating an Airbnb in a residential area is against city code in Northwest Arkansas’ largest cities, but officials say there’s little they can do to stop it.
Regulation of a bed and breakfast operating out of someone’s home, like most code enforcement, is complaint-driven, said Fayetteville City Attorney Kit Williams.
“There’s a limit to what government should do,” he said. “They should basically try to solve problems and keep the peace, but not just go out there and enforce the rules because they’re rules.”
If someone is renting out space in his or her home for less than a week, it would be classified as a hotel or shortterm rental use, which, without a permit in a residential zone, is against city code, said Andrew Garner, Fayetteville senior planner.
Airbnb operating in Fayetteville hasn’t been an issue, Garner said.
“At some point, the city probably will need to look whether or not we really want to adopt an ordinance regulating these,” Garner said. “We’ve had so many questions about it.”
Bentonville has taken a similar stance. The city has a bed and breakfast ordinance, which requires a permit, but the law can’t feasibly be enforced unless a complaint is made, said Troy Galloway, community and economic development director for the city of Bentonville.
“We’re aware. It’s another manifestation of e-commerce, and people being very creative,” he said. “I completely get that.”
Airbnb and operations like it haven’t become a visible problem in Bentonville, and code enforcement would stretch the city’s staff too thin, Galloway said.
“There certainly are more pressing issues on a daily basis,” he said.
In Rogers, the definition of a residence doesn’t include “transient accommodations” such as a hotel, motel, tourist home or similar establishment, according to city code. However, someone living in a residential area can apply for a permit to operate a bed and breakfast.
Steve Glass, director of planning and transportation with Rogers, said discussions about Airbnb and its ilk haven’t come up.
Anyone who wants to rent a room or their home in Springdale has to do so within the confines of their residential zoning district. A single-family residential zone doesn’t allow a homeowner to rent his property for a profit, and only to fewer than four people, said Melissa Reeves, Springdale spokeswoman.
Permits for short-term leasing aren’t available in Springdale, Reeves said.
“We don’t have any rules that specifically refer to Airbnb, nor have we had any dealings with the service,” she said.
One city that has taken the reins to regulate Airbnb operating within its limits is Eureka Springs.
The City Council at its June 27 meeting issued a sixmonth moratorium on new permits for bed and breakfast operations in residential areas. The move came largely in response to confusion from Airbnb hosts. The city has a 12-year-old ordinance a bed and breakfast can’t operate within 200 feet of a similar business. The moratorium is meant to give the city time to work out the details of a new ordinance, Mayor Butch Berry said.
“One way or the other, you’re going to have to have a license to operate lodging establishments in Eureka Springs,” he said.
The city has searched the Airbnb and Vacation Rental websites and sent letters to more than 100 hosts within the city, saying they either need to apply for a permit or cease operation. Anyone operating a bed and breakfast without a permit while the moratorium stands is liable to get a citation, but Berry added they’re not exactly looking to kick anyone out.
Regulating something such as Airbnb is a little easier for a city of about 2,100 people, he said.
“As long as they’re operating legally, we’ll welcome them,” he said. “If you’re not operating legally, you better make sure you get your license, or you’ll get a letter.”
CHANGING ECONOMY
Airbnb collects occupancy tax from guests and sends it to the tax authority on the host’s behalf in some cities, such as San Francisco and Portland.
The service is mired in a legal battle with San Francisco, which has had several failed attempts to regulate vacation rentals in private homes. Voters there rejected a proposal that would have restricted the number of days homeowners could rent out their homes, and another failed amendment tried to restrict the number of shortterm rentals per household, according to the San Francisco Business Times.
Most recently, the city’s Board of Supervisors approved an amendment that would go into effect in late July to crack down on unregistered short-term rentals. Airbnb has filed a lawsuit to halt the enforcement measures, San Francisco Gate reported.
Portland enacted an ordinance in February 2015 pertaining to what it calls “accessory short-term rentals.” Anyone renting out space in their home has to get a permit, be registered and pay the required taxes, but the city has continued to wrangle with vacation rental websites.
There is no automatic collecting feature for Northwest Arkansas’ Airbnb hosts. Schlump said she wishes there were.
“I’d like for them to be able to collect the taxes from the guests,” she said. “It’s not me paying the taxes; I’d love it if Airbnb facilitated collecting that tax.”
When asked whether tax collection was involved in the signing-up process, Schlump was pretty clear:
“Heck, no,” she said. “Not at all. There is no tax guidance.”
Stacy Ryburn can be reached by email at sryburn@nwaonline.com or Twitter @stacyryburn.
“Looking toward what’s going to happen in society in the future, this kind of economy is not going away. So, might as well embrace it.”
— Gretchen Schlump, Airbnb operator