The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Presenting a live 90-minute webinar with interactive Q&A

Uber, Airbnb and Municipalities: Maximizing

New Tax and Licensing Revenue Opportunities Navigating Emerging Legal, Regulatory and Tax Issues in the Peer-to-Peer Economy

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, OCTOBER 5, 2016

Jordan E.A. Ferguson, Esq., Best Best & Krieger, Los Angeles

Christy Gunvalsen, Neighborhood Preservation Manager, City of Sunnyvale, Sunnyvale, Calif.

Rebecca L. Moon, Senior Assistant City Attorney, City of Sunnyvale, Sunnyvale, Calif.

Tips for Optimal Quality

Sound Quality

If you are listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, you may listen via the phone: dial

1-866-871-8924 and enter your PIN when prompted. Otherwise, please

send us a chat or e-mail sound@straffordpub.com immediately so we can

address the problem.

If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Quality

To maximize your screen, press the F11 key on your keyboard. To exit full screen,

press the F11 key again.

FOR LIVE EVENT ONLY

Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your

participation in this webinar by completing and submitting the Attendance

Affirmation/Evaluation after the webinar.

A link to the Attendance Affirmation/Evaluation will be in the thank you email

that you will receive immediately following the program.

For additional information about continuing education, call us at 1-800-926-7926

ext. 35.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please

complete the following steps:

• Click on the ^ symbol next to “Conference Materials” in the middle of the left-

hand column on your screen.

• Click on the tab labeled “Handouts” that appears, and there you will see a

PDF of the slides for today's program.

• Double click on the PDF and a separate page will open.

• Print the slides by clicking on the printer icon.

FOR LIVE EVENT ONLY

Agenda

• The Sharing Economy Online Vacation Rental Marketplaces Transportation Network Companies

• What issues are posed by Ridesharing Technologies?

• What Issues are posed by Home-Sharing Technologies?

• Recent Developments • Drafting and Enforcing Regulations and

Ordinances • Strategies for Recovering and Maximizing Revenue

5

The Sharing Economy

6

“Innovative Disruption”

• Use of technology to create new markets and displace existing industries

• Key to understanding the mindset of companies like Uber and Airbnb

• Tech has moved into highly regulated areas of the economy like transportation, housing, and employment relationships

• Not afraid to “disrupt” existing laws

7

The Sharing Economy

• Refers to businesses that provide consumers the ability to share resources, like housing, vehicles, home-cooked meals, and more, generally through apps or websites that connect users with potential customers.

• Examples: Uber, Lyft, Sidecar, Airbnb, VRBO, Mealsharing

8

The Sharing Economy

• The basic principle of the sharing economy is simple: One person has resources, another person wants to rent/borrow/use them temporarily.

• Businesses in the sharing economy claim that they are merely facilitators: they connect those with resources with those who want to utilize them, for a fee.

9

Short Term Rentals

• Websites that enable homeowners, tenants, or occupants to rent out their living space.

• May rent entire home or just a couch or spare bedroom.

• Typically lasts less than 30 days. • Major players: Airbnb, Homeaway (VRBO)

10

Transportation Network Companies

• Web-based applications that connect users and drivers through smartphone apps.

• Allow prospective passengers to view and select from nearby available drivers, who are guided to them using the smartphone’s GPS.

• Major players: Uber, Lyft

11

Exponential Growth

• Uber (valued at $50B) is world’s most valuable private start-up. Worth more than FedEX ($48B) and Nissan ($47B).

• Airbnb (valued at $10B) worth more than Wyndam Hotels ($9.4B) and Hyatt ($8.4B)

12

Airbnb: Exponential Growth

Source: Airbnb.com

13

What Issues Are Posed By Ride-Sharing Technologies?

14

Objectives

• Ensure Safety of Both Drivers and Customers. • Encourage Competition in the Market. • Ensure Fairness of Employment Practices.

15

Issues

• Competition with Taxi Industry • Lack of regulations • Employee Classification

16

Issues: Competition with Taxi Industry

• Controversy surrounding Uber’s effect on the taxi industry.

• Taxi medallions de-valued by unregulated competitors like Uber and Lyft.

• Taxis pay higher fees, must abide by more stringent regulations.

17

Why Protect the Taxi Industry?

• TNC success fueled by dissatisfaction with taxi service as well as changing values/preferences of consumers

• However, taxis still provide valuable service to many in the community (e.g. elderly, disabled)

• Taxi ordinances require vehicle inspections, insurance, driver background checks, posting/regulation of fares and universal service/non-discrimination

18

How To Help Taxis Compete

• Lobby state for appropriate laws/regulations to ensure public safety and protect consumers

• Modernize taxi ordinances to make taxis more competitive

• If state law limits local enforcement options of TNC’s, consider what other laws may apply (e.g., unfair competition, labor laws)

• Impose business license tax on TNC drivers

19

Issues: Lack of Regulation

• TNCs enter a market without permission, presume legality until told otherwise.

• Uber in particular has displayed willingness to flout local laws and operate despite bans.

• Lack of regulation has led to deaths, injuries, and crimes by drivers who passed less onerous background checks.

20

Issues: Employee Classification

• Two ongoing lawsuits by drivers of Uber and Lyft, who allege that the companies have misclassified them as independent contractors instead of employees.

• Independent contractor: Drivers set hours Drivers choose to accept or reject fares

• Employee: Right to terminate drivers if customer ratings fall

below threshold Uber’s “Driver Handbook” governing conduct

21

What Issues Are Posed By Home-Sharing Technologies?

22

23

Objectives of Regulation

• Preserve the Community’s Residential Character • Prevent Nuisances in Single-Family Neighborhoods • Limit Conversion of Housing to Full-Time Short

Term Rental. • Generate Taxes/Fees to Cover the Cost of Short

Term Rental Occupancies and offset lost hotel taxes.

• Ensure that Short Term Rental Users are Adequately Protected Against Fire, Hazards, Health Risks.

24

Issues

• Housing Market Issues • Taxing Issues • Code Enforcement Issues • Policy Enforcement Issues

25

Issues: Housing Markets

• Short-Term Rental Marketplaces can create major problems for housing markets in pricing and availability.

• Owners may use Airbnb and HomeAway full-time to generate greater revenue than simply renting or selling the property.

• As this practice becomes more prevalent, housing availability for residents will likely decrease, with the price likely to increase.

26

Who rents on Airbnb?

Source: triplepundit.com

27

Issues: Housing Markets • In New York City, the number of

short-term private rentals has increased from 2,652 in 2010 to 16,483 in the first half of 2014, including instances of people permanently renting out second bedrooms through Airbnb, people renting out their whole property, or landlords renting out multiple apartments in the same building.

• One commercial host generated $6.84 million from renting out their properties through Airbnb between 2010 and 2014.

Source: Statista.com, http://www.statista.com/statistics/339766/private-short-term-rentals-booked-through-airbnb-in-new-york-city/

28

Not Just Vacation Rentals!

Techie dorms

Hacker homes

Intern houses

Not your grandma’s

youth hostel!

(These come with WiFi)

29

“Highly Distributed” Luxury Hotels

“Geekhut’s” rentals include high-end work stations, a

fridge full of groceries, 500 Mbps WiFi and free Netflix,

Hulu, and HBOGo. 30

Do the Math

• $3,000 per month (median rent in Silicon Valley) = $100 per day

• That same apartment for $270 a day on Airbnb = $8,100 per month

• 3 bedroom home = 7 bed “hacker dorm” at $35/night = $7,350 per month

31

Issues: Taxes • Most local governments

tax hotel stays (usually called “Transient Occupancy Taxes”).

• Tax collected from guest through hotel bill.

• Hotels responsible for remitting these taxes to local governments on a monthly or quarterly basis.

32

Issues: Taxes

• Airbnb and HomeAway leave the obligation to comply with local laws (including paying TOT) to the host and guest.

• Hotels must typically register with local governments; Airbnb properties often have no such requirement. How to track and audit?

• Communities are often forced to search websites themselves then send letters to collect taxes.

• This has inefficiencies, with lost tax revenue as a result.

33

Issues: Code Enforcement

• Large numbers of temporary occupants linked to several code enforcement problems, including: Excessive noise complaints Parking Problems Trash problems Smokers congregating

outside home/in backyards Degradation of

neighborhood’s residential character

34

Issues: How to Regulate?

• Whatever policies a city adopts, you have to make sure they are enforceable as a practical matter.

• Harsh regulations are only effective if you can identify violators.

• Burdensome permitting/licensing schemes tend to deter compliance.

• Random compliance inspections of home businesses not allowed in 9th Circuit without a warrant

35

Recent Developments in Ride-Sharing and Home-Sharing

36

Ride-Sharing Developments

• As of October 2016, 34 states and more than 69 cities have passed legislation governing TNCs.

• Most commonly impose insurance and background check requirements

37

Ride-Sharing Developments

• Finger-print based background checks Local governments argue

they are a necessary security measure

Uber and Lyft have argued they act as a disincentive for drivers to sign up

Uber has threatened to leave Houston over current fingerprint requirements

38

Ride-Sharing Developments

• New Massachusetts law requires two-part background check, but no finger-printing

• Requires cars to be fitted with decals • Requires commercial insurance while trips are in

progress • Imposes a fee of $0.20 a ride for transportation funding

at state and local levels.

39

Ride-Sharing Developments

• Google launching a ride-sharing service in San Francisco this fall.

• Powered by Waze • Focuses on shared-rides • Accessible to any Waze

user in San Francisco

40

Ride-Sharing Developments

• Uber and Lyft have both expressed interest in developing fleets of driverless cars

• Uber has teamed with GM to develop a fleet—began testing deployment in Pittsburgh in September

• Ford announced 2021 deployment date for driverless fleet and ride-sharing service—not just a carmaker, but a “mobility company”

• BMW and Mercedes Benz have also announced ride-sharing services

• The ride-sharing market is about to get much more crowded…

41

Home-Sharing Developments

• Airbnb struggling to curb discrimination by landlords

• Rampant reports of users being turned away based on race, later approved when using a white photo and fake name

• Airbnb increasing instant-booking and posting anti-discrimination policy

42

Home-sharing Developments

• Recent New York City investigation found over 100 listings allowing more than 13 guests using bunk beds or beds shoved into bathrooms or kitchens

• State of New York is contemplating legislation prohibiting the advertising of short-term rentals on Airbnb and similar sites

43

Home-Sharing Developments

• Airbnb is negotiating agreements to collect and remit Transient Occupancy Taxes for an increasing number of municipalities

• Will not share customer data, but will provide the amount each user owes directly to the City

• Increases City revenue but decreases transparency of local home-sharing market

44

Home-Sharing Developments

• CA Supreme Court heard arguments on September 29 in In Re Transient Occupancy Tax Cases

• Focused on internet-based online travel companies (“OTCs,” more like Expedia than Airbnb)

• Cities claim OTCs have failed to remit TOT collected on the sites

• May result in CA SC decision on who constitutes an “operator” and is responsible for TOT compliance

45

Drafting Regulations and Ordinances

46

Short Term Rentals

47

Housing 2.0

• Many cities in California prohibit or regulate short term rentals in residential zones

• Short term rentals through may be considered unlawful hotels/motels under many city ordinances

• Popularity of short-term rental services caught many cities off-guard and overwhelmed local code enforcement resources

48

Regulation Rundown

• Require all Short Term Rentals to Register and pay fees.

• Establish Minimum Stay Requirements (NYC). • Establish Maximum Total Number of Days Property

Can Be Used as Short Term Rental (SF). • Establish Maximum Number of Short Term Rentals

(Austin). • Establish Maximum Density of Short Term Rentals

(San Luis Obispo). • Require Safety Inspections (Deep Creek Lake, MD). • Require Payment of TOT (SF, DC, Portland, Chicago…)

49

New York City: Outright Ban

• NYC enforces its law making it illegal for property owners to rent out homes for fewer than 30 days (Ewing v. Carmel-by-the-Sea).

• City has been granted preliminary injunctions against owners of two residential buildings being run as “illegal hotels.”

• Ongoing fight over release of “host” information to State Attorney General.

50

Sunnyvale, CA

• Suburban community in heart of Silicon Valley • Median home price around $1 million • Average rent approx. $3,000 per month • Not a tourist destination, but critical shortage

of housing for expanding workforce

51

Sunnyvale’s Ordinance • Requires host be present on

site

• Requires registration and City approval

• Maximum of 4 short-term renters (not incl. minors)

• Prohibits rental of non-habitable space for sleeping

• Requires payment of TOT

• Must be approved by HOA/Landlords

52

Sunnyvale: Considered But Not Adopted

• Allow “unhosted” rentals up to “X” days per year? (tried in many cities but difficult to enforce)

• Random compliance inspections? (likely unconstitutional – City of LA v. Patel)

• Pre-approval inspections, minimum parking requirements, neighbor notification, annual renewals etc. (burdensome permit process will deter compliance with ordinance; compliance in other cities has been extremely low)

53

Santa Monica: Tight Regulations

• New Ordinance prohibits property owners from renting their homes unless they are present in the unit throughout the rental period.

• Mandates platforms collect and remit TOT, disclose names and addresses of all hosts.

• City intends to create an enforcement department exclusively dedicated to home-sharing.

54

San Francisco: Regulation • Legalized short-term rentals,

but requires “hosts” to be permanent residents of the City (must live in their unit for at least 275 days per year).

• Rentals where host is not present limited to 90-days-per-year.

• Aim to keep housing market open to residents.

• City has run into serious enforcement problems

• Airbnb won’t give booking data, no way to tell when people are present in their homes.

55

San Francisco: Regulation

• San Francisco also has several other requirements that are becoming commonplace, including: Registry and Permits.

Insurance requirement ($500,000 in coverage).

TOT must be paid (San Francisco has contract with Airbnb to remit).

Airbnb required to notify hosts of the City’s laws.

Tenants must notify landlords, new law does not affect lease restrictions against subletting.

Airbnb recently agreed to pay the City roughly $25 million in past-due TOT.

56

San Francisco: Opposition

• HomeAway filed suit against San Francisco to block the new law.

• Argued the rule unfairly limits rentals on its site, which caters to vacation rentals and second homes.

• 1,200 properties in San Francisco listed on HomeAway as of November 2014, many of which will be forced off the site entirely.

• Lawsuit was dismissed for lack of standing (HomeAway does not own property in San Francisco). The law took effect February 1, 2015.

57

Austin: Maximum Number

• Austin ordinance passed in 2013 allows annual determination of maximum number of licenses for short-term rentals that may be issued.

58

Rancho Mirage Ordinance

• Rancho Mirage, California passed an ordinance requiring every short-term rental agreement to be signed by someone older than 30.

• Lawsuit challenging that ordinance has since been dismissed on grounds that the Unruh Civil Rights Act does not apply to a City acting in its legislative capacity.

59

Transportation Network Companies

60

Regulation Rundown

• California requires baseline levels of insurance for every stage of TNC operation.

• Houston requires background checks, permits, and a minimum level of ADA compliant vehicles.

• Portland allowing cabs to set their own fares during Uber/Lyft pilot program.

61

Playing Hardball

• If Airbnb has shown a willingness to negotiate, Uber is close to the opposite, refusing to engage and flouting regulations it disagrees with to force court challenges.

62

Regulatory Complications

• Efforts to regulate are complicated by questions of who has authority.

• In California, the CPUC has preempted local regs.

• Elsewhere, cities are fending for themselves, illegalizing or regulating Uber.

63

California Regulations

• Insurance: Law requires drivers of

the services to maintain insurance coverage.

Three tiers:

• App is on, no customer

• Customer hails through app, en route to pick up

• Customer in car

64

Houston, Texas

• City Council ordinance allowing TNCs to operate.

• Establishes a minimum requirement for ADA compliant vehicles.

• Requires permit to operate.

• Eliminates minimum limousine fare.

• Requires full background checks.

65

But…

• Houston has experienced issues with enforcement.

• Drivers not registering with City.

• Alleged rape by driver revealed in April 2015. Driver continued to work for Uber for months after.

• City has threatened to revoke Uber’s permits.

• Uber sued City to block release of public records on drivers.

66

Changes of Heart: Nevada

• Banned TNCs entirely in 2014.

• Uber lobbied hard for legislation to legalize ridesharing in the state.

• Uber contends it is a technology company, not a transportation provider.

• May 2015, Legislature passes bill authorizing ride-sharing.

67

Changes of Heart: Portland

• Banned Uber and Lyft. • City approved a four-

month pilot program in April 2015.

• Business Licenses and Vehicle inspections required.

• Cabs able to set their own prices during pilot program.

68

Enforcing Regulations and Ordinances

69

Enforcement Tips: Short Term Rentals

• Rely on neighbors to alert authorities • Subpoena Short Term Rental company records

(legislative subpoenas) • Track individual online Short Term Rental activities • Require Short Term Rental companies to collect TOT

as a condition of operation • Establish strict penalties for noncompliance • Consider nuisance actions against problem hosts • Increase enforcement staff if possible

70

Enforcement Tips: TNC’s

• Rely on cab companies to alert authorities • Subpoena TNC company records to determine

drivers • Require (where authorized) minimum level of

insurance/background checks • Establish strict penalties for noncompliance • Increase enforcement staff if possible

71

Strategies for Recovering and Maximizing Revenue

72

Ride-Sharing

• Local governments can work to make taxis more competitive by reassessing local taxi regulations

• If drivers are independent contractors, may be able to collect business license tax (depending on state law/local ordinances)

73

Ride-Sharing

• Background Checks Help to recover costs

spent enforcing against unsafe or criminal drivers

Cities can impose fees for registration of drivers and for conducting background checks

74

Home-Sharing

• Require registration, including registration fee

• Collect and remit TOT—enter Agreement with Airbnb, pass ordinance requiring collect and remit, make it part of registration process

• Airbnb generally won’t cooperate unless you work with them to adopt an ordinance they like

75

Home-Sharing

• Registration requirements can include inspections to reduce code-enforcement costs

• Balance between interests in strong regulation and interests in revenue maximization

76

Questions? Jordan E. A. Ferguson Jordan.Ferguson@bbklaw.com Best Best & Krieger 300 South Grand Avenue 25th Floor Los Angeles, CA 90071 Tel: (213) 787-2564 Website: www.bbklaw.com

Christy Gunvalsen cgunvalsen@sunnyvale.ca.gov Neighborhood Preservation Manager, Sunnyvale, California 456 W. Olive Ave Sunnyvale, CA 94068 Tel: (408) 730-7255

Rebecca L. Moon rmoon@sunnyvale.ca.gov Sr. Assistant City Attorney, Sunnyvale, California 456 W. Olive Ave Sunnyvale, CA 94068

Tel: (408) 730-2705

77