The City of San Antonio could generate millions of dollars in new revenue by following other U.S. cities and passing an ordinance taxing rideshare companies like Uber and Lyft. A second ordinance could require short-term rental companies like Airbnb and HomeAway to collect the 16.75 percent hotel occupancy tax that hotels, motels, and short-term rental property owners are required to pay under state law.
Unfortunately, Texas cities no longer control their own destinies. Gov. Greg Abbott and the Texas Legislature moved aggressively in the 2017 legislative session to curb municipal powers and local control. House Bill 100 stripped cities of regulatory authority over rideshare companies. That now is a state function.
That new law comes with unintended consequences. Texas cities are losing out on millions of dollars in new revenue because they lack the authority to tax such business activity.
In the case of short-term rental platforms like Airbnb, the City has no efficient enforcement mechanism to collect the occupancy tax from the estimated 2,000 short-term rental property owners here. It’s an honor system. Imagine the Internal Revenue Service depending on individuals to voluntarily make their federal income tax payments. Fewer than 300 short-term rental operators have registered with the City, and of those, only 82 paid occupancy taxes in February.
Legislations requiring short-term rental platforms to collect the hotel occupancy tax along with the state tax that is collected now as part of the online booking process would relieve cities of the burden and lead to sharp increases in collections. Cities currently are left to enforce tax collections with each and every individual operator, many of whom will not pay the tax unless they have no other option. The City will probably spend what money it does collect chasing down tax dodgers.
The loss is significant, totaling millions of dollars a year, especially in months like March when the Final Four brought tens of thousands of visitors to the city and short-term rental operators enjoyed a windfall.
Since the State regulates Uber, Lyft, and other rideshare companies, any local taxation of transportation network companies (TNCs) would be possible only if the State requires companies to collect the tax with each ride and forward the money to Austin for distribution to cities.
Other U.S. cities are taxing rideshare and generating new revenue. Chicago collects 67 cents each time a rideshare company transports a passenger, with plans to go to 72 cents in 2019. It is using the new revenue to improve its aging subway system. New York City, plagued by vehicle gridlock and a troubled subway system, is considering a far more ambitious tax of $2-$5 per ride that would help finance an accelerated subway system overhaul.
A number of states have passed rideshare tax legislation that returns money to the cities that bear the cost of street maintenance, vehicle traffic, and registering drivers.
Pennsylvania allows cities to collect a 1.4 percent tax on all rideshare usage. Philadelphia is spending its new revenue on the city’s public schools. Portland uses its 50-cents-per-ride tax that it charges both TNCs and taxi companies to pay for city transit enforcement and operations.
Massachusetts, which some refer to as “Taxachusetts,” was the first state to implement a tax on rideshare in 2016, and uses 5 cents of the 20-cent surcharge to help prop up the failing taxi industry.
Texas law requires hotel occupancy tax revenues collected by the City and County to support the visitor industry, as noted on the San Antonio Hotel and Lodging Association website: “Under the State of Texas Tax Code, every event, program, or facility funded with hotel occupancy tax revenues must be likely to do two things: 1) directly promote tourism; and 2) directly promote the convention and hotel industry. ‘Tourism’ is defined under Texas law as guiding or managing individuals who are traveling to a different, city, county, state, or country.”
A rideshare tax would not have any limitations on its uses. City Council would be free to invest in infrastructure improvements such as sidewalk and street repairs, or to help VIA Metropolitan Transit expand service.
No one likes taxes, but smart citizens understand that it takes money to fund a growing city, especially one trying to overcome decades of underinvestment in the urban core and in minority communities. At the same time Abbott and the Republican majority in the Texas Legislature seek to limit municipal taxing authority on real property, they also have prevented Mayor Ron Nirenberg and City Council from developing new revenue streams.
Legislators in Texas have tended to react defensively as innovation and technology disrupt traditional businesses. The way legislators have viewed rideshare and short-term rental platforms suggests they do not really understand how new applications are changing Texas and the rest of the world.
Those who regularly use rideshare here could easily afford a 25- or 50-cent surcharge, and users of short-term rental platforms can afford to pay the hotel occupancy tax. Neither tax would significantly hurt the visitor industry here, but both could help City leaders fund their growing share of governance.
The reality for Texas cities, however, is that a rideshare tax can’t be implemented by ordinance, while the short-term rental occupancy tax can’t be efficiently collected. In both instances, that means lost revenue. It also means local taxpayers must carry more of the burden that otherwise could be shared by the millions of visitors we welcome to San Antonio each year.