Taxes are for old businesses. That seems to be the sentiment coming from the oft-offended Silicon Valley sycophants. I’m not talking about the measured approach of Mayor Ed Lee and Ron Conway who are doing what every major city in American is doing, luring businesses to their neighborhoods by issuing tax breaks for highly attractive growth industries. That has always been good civic policy, and it still is today. I’m talking about the entitled indignation of the fringe bloggers who believe that all businesses touched by technology deserve tax exemptions and that calling something “ridiculous” is the only evidence need to support such a thesis.
I’m a soon to be an Airbnb lister and I’m thrilled about renting out one of my flats for collaborative consumption. When not renting, we’ll have a great place for family and friends to stay. My fiancé has a dream of providing free nights for families of cancer patients at CPMC, just down the street. But what part of any of this entitles me to a blanket amnesty from an occupancy tax that the hotel around the corner pays?
The argument that the technology solipsists make is: Taxes are a burden on innovation and consumers are not businesses. But let’s examine the two central claims of the thesis:
Consumers are not businesses – In the Airbnb case the argument goes that hotels are B2C and Airbnb is C2C. Therefore hotels should be taxed and Airbnb listers should not be taxed. This is not true because as soon as one takes payment for a product or service, one is operating a business. It may be a sole proprietorship, but it is still a business. So what is really being suggested is that one class of business is better than another. I’m perfectly willing to concede that some businesses are better than others. For instance giving tax breaks to attract a company like Twitter downtown is good for the city. But is my rental apartment really the equivalent of Twitter as the writer suggest? If so, I’m going to give my Chihuahua stock options.
Taxes are a burden on innovation – This may be true of some taxes. When I operated a start-up in San Francisco and was hit with a $50K city tax for the pleasure I felt fairly burdened. I would have much rather allocated the $50K to revenue generating activities. But how is a tax on listers in Aribnb a burden on innovation? I’m a lister, and I haven’t innovated anything that I can think of. I painted a few walls, bought some nice furniture at Cost Plus and I’m in business. Sites that enable small businesses to effectively compete with large businesses are innovative, but the businesses themselves are not necessarily innovative. They are just businesses. By the logic, Uber drivers should be exempt from paying gasoline tax and any suggestion otherwise is a burden on innovation. What what?
Lastly, as collaborative consumption models start to gain traction, taxes will be incorporated in the pricing models of the service providers and eventually passed onto the consumers. It is probably inevitable and frankly it’s OK. Temporarily exploiting a tax loophole that a traditional business does not enjoy simply puts the traditional provider at a disadvantage, artificially rigging the marketplace in favor of the individual provider of the same or similar service. There is no innovation there, just artificial leverage. The playing field should be even. And if a review and tax overhaul is happening, great, as long as it applies to all participating parties.
I’d rather compete on a level playing field as that will lead to a more sustainable long-term business. I know I can compete with the hotel around the corner because our apartment is fantastic, we’ll provide superior service and we have a yard that is pet friendly. I’d rather win on those terms than an artificially low price that punishes local businesses.
To sum, all taxes are not created equal and simply using technology as part of your business operations does not entitle one to tax exemption. But using tax exemptions to attract high paying jobs to distressed neighborhoods, is probably good for all involved.