NEW YORK UNIVERSITY SCHOOL OF LAW SPRING 2015 COLLOQUIUM ON TAX POLICY AND PUBLIC FINANCE . “Can Sharing Be Taxed?” Shu-Yi Oei Tulane University Law School March 31, 2015 NYU Law School Vanderbilt Hall-208 Time: 4:00-5:50 p.m. Number 9 SCHEDULE FOR 2015 NYU TAX POLICY COLLOQUIUM (All sessions meet on Tuesdays from 4-5:50 pm in Vanderbilt 208, NYU Law School) 1. January 20 – Brigitte C. Madrian, Harvard Kennedy School. “Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions.” 2. January 27 – David Kamin, NYU Law School. "In Good Times and Bad: Designing Legislation That Responds to Fiscal Uncertainty." 3. February 3 – Kimberly Blanchard, Weil, Gotshal & Manges. "The Tax Significance of Legal Personality: A U.S. View." 4. February 10 – Eric Toder, Urban Institute. “What the United States Can Learn From Other Countries’ Territorial Tax Systems.” 5. February 24 - Linda Sugin, Fordham University, School of Law. “Invisible Taxpayers.” 6. March 3 – Ruth Mason, University of Virginia Law School. “Citizenship Taxation.” 7. March 10 – George Yin, University of Virginia Law School. “Protecting Taxpayers from Congressional Lawbreaking.” 8. March 24 – Leigh Osofsky, University of Miami School of Law, “The Case for Categorical Nonenforcement.” 9. March 31 – Shu-Yi Oei, Tulane University Law School. “Can Sharing Be Taxed?” 10. April 7 – Lillian Mills, University of Texas Business School. “Managerial Characteristics and Corporate Taxes.” 11. April 14 – Lawrence Zelenak, Duke University School of Law. “Up in the Air over the Taxation of Frequent Flyer Benefits: the American, Canadian, and Australian Experiences.” 12. April 21 – David Albouy, University of Illinois Economics Department. “Should we be taxed out of our homes? Leisure and housing as complements and optimal taxation.” 13. April 28 – David Schizer, Columbia Law School. “Tax and Energy Policy.” 14. May 5 – Gregg Polsky, University of North Carolina School of Law, "Private Equity Tax Games and Their Implications for Tax Practitioners, Enforcers, and Reformers." SYO & DMR Draft 3/15/15. In progress. Please email the authors for most updated version. CAN SHARING BE TAXED? Shu-Yi Oei* & Diane M. Ring** 93 WASH. U. L. REV. ___ (forthcoming 2016) ABSTRACT The past few years have seen the rise of a new model of production and consumption of goods and services, often referred to as the “sharing economy.” Fueled by startups such as Uber and Airbnb, sharing enables individuals to obtain rides, accommodations, and other goods and services from peers via the Internet or mobile application in exchange for payment. The rise of sharing has raised questions about how it should be regulated, including whether existing laws and regulations can and should be enforced in this new sector or whether new ones are needed. In this Article, we explore those questions in the context of taxation. We argue that, contrary to the claims of some commentators, the application of substantive tax law to sharing is mostly (though not completely) clear, because current law generally contains the concepts and categories necessary to tax sharing. However, tax enforcement and compliance may present challenges, as a result of two distinctive features of sharing. First, some sharing businesses opportunistically pick the more favorable regulatory interpretation if there is ambiguity regarding which rule applies or whether a rule applies. The existence of these ambiguities has been exacerbated by the structures of the new sharing economy and this has led to compliance and enforcement gaps. Second, the “microbusiness” nature of sharing raises unique compliance and enforcement concerns. We suggest strategies for addressing these dual challenges, including lower information reporting thresholds, safe harbors and advance rulings to simplify tax reporting, and targeted enforcement efforts. * Hoffman F. Fuller Associate Professor of Law, Tulane Law School. ** Professor of Law & The Thomas F. Carney Distinguished Scholar, Boston College Law School. 2 CAN SHARING BE TAXED? [17-Mar-15 TABLE OF CONTENTS Abstract ................................................................................................................... 1 Table of Contents .................................................................................................... 2 Introduction ............................................................................................................. 3 I. The Sharing Economy ........................................................................................ 8 A. Vehicle Ridesharing .................................................................................... 10 B. Peer-to-Peer Lodging and Accommodation ................................................ 15 C. Other Online Peer-to-Peer Marketplaces for Sharing ................................. 16 II. Tax Issues in the Sharing Economy ................................................................... 17 A. Income Taxation of Peer-to-Peer Ride Services ......................................... 18 B. Income Taxation of Home Sharing ............................................................. 22 C. Self-Employment Taxes and Local Occupancy Taxes ............................... 27 III. Tax Compliance and Enforcement Challenges in the Sharing Sector: Opportunism and Microbusiness ..................................................................... 33 A. Tax Opportunism: The Information Reporting Example ............................ 34 B. Other Examples of Tax Opportunism ......................................................... 47 C. The New Microbusiness Economy ............................................................. 56 IV. Tax Enforcement Strategies for Sharing and Beyond ....................................... 59 A. Short-Term Strategies for Managing Sharing’s Challenges ....................... 61 B. Medium- to Long-term Approaches ............................................................ 64 C. Beyond Sharing ........................................................................................... 67 Conclusion .............................................................................................................. 69 17-Mar-15] CAN SHARING BE TAXED? 3 INTRODUCTION The past few years have seen the rise of a new mode of production and consumption of goods and services. In this so-called “sharing economy,” startups such as Uber, Airbnb, and TaskRabbit enable consumers to summon rides, rent accommodations, or hire help from peers via the internet or a mobile app, in exchange for payment.1 On the supply side, these models enable owners of homes, apartments or vehicles, or those who possess certain skills (such as house painting, home organization, or dogsitting) to monetize those assets or skills.2 The technological platforms employed by these startups enable individual producers and consumers to transact with each other with unprecedented ease.3 Also known as “collaborative consumption,” the “peer-to-peer economy” or “peer-to-peer consumption,” a broad range of commentators suggest that the sharing economy is transforming the way people consume and supply goods and services, such as transportation, accommodations, and task help.4 Commentators note that sharing arrangements have the potential to significantly affect traditional industries such as taxicabs, limousine services, and the hotel industry.5 As such, the sharing economy 1 See generally UBER, https://www.uber.com, AIRBNB, https://www.airbnb.com, TASKRABBIT, https://www.taskrabbit.com. 2 THE PEOPLE WHO SHARE, https://web.archive.org/web/20140318160538/http://www.thepeoplewhoshare.com/blog/w hat-is-the-sharing-economy/ (describing the sharing economy as “the shared creation, production, distribution, trade and consumption of goods and services by different people and organisations.”); The Rise of the Sharing Economy, THE ECONOMIST, Mar. 9, 2013 (print edition) available at http://www.economist.com/news/leaders/21573104-internet- everything-hire-rise-sharing-economy. 3 See sources cited note 2. 4 See, e.g., Pricewaterhouse Coopers, “The sharing economy: how will it disrupt your business?” (August 2014), http://pwc.blogs.com/files/sharing-economy-final_0814.pptx (estimating that “[f]ive key sharing sectors (P2P finance, online staffing, P2P accommodation, car sharing and music/video streaming) have the potential to increase global revenues from around $15 billion now to around $335 billion by 2025” and warning that “[i]ncumbents need to see disruption coming from an expansion of sharing and develop effective strategies to respond, whether by acquisition, partnership or launching their own sharing services.”); NPR Special Series: The Sharing Economy: A Shift Away From Ownership, http://www.npr.org/series/244583579/the-sharing-economy-a-shift- away-from-ownership (exploring different aspects of the sharing economy). We note that the popular press has, in some sense, been ahead of scholars in examining the sharing economy, interviewing its participants, and commenting on its development. 5 See, e.g., Georgios Zervas, Davide Proserpio & John Byers, The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry (Feb. 2014), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2366898. 4 CAN SHARING BE TAXED? [17-Mar-15 raises important legal and regulatory issues, including questions of whether and how the new startups should be regulated and questions about the appropriate relationship between regulation and innovation.6 One set