Please refund this guest in the spirit of Airbnb

[Inna22]

This is the message I received from Airbnb asking to refund in full a guest who cancelled last minute leaving me with an unbooked week. I host bigger groups and those do not usually decide to travel last minute, I get booked months in advance. The guest got half back per my cancellation policy.

I asked the rep what was that Airbnb spirit she is referring to. The one where Airbnb expect hosts to be the ones taking all the loss, like when the Covid refunds were given to anyone no questions asked? If so, the spirit has left me with those refunds. 

The subject has been beating to death (along with my Airbnb spirit) a year ago and I know there are lots of strong opinions about it and my post is not about those refunds but rather this delusion that we are one with Airbnb. I think the interests of Airbnb and hosts could not be further apart right now and until they see it, it will not get better.

[Noel102]

I always offer to credit any forfeited booking fees toward a future stay.  I process the credit as a rebate once the next stay's payment has been released to me and cleared my account.  Only once have I ever has someone book again and use the credit.

[Brenda328]

This is off-topic, but that was one reason Airbnb was so eager to allow guests to cancel last year and provide them with future credits as opposed to refunds - they knew a significant portion of guests will not use those credits.

However, there is one question that no one has been able to answer for me to this point 'What happened to all the lodging tax that was collected as a part of the booking and then issued back to the guest as a credit as opposed to a refund?'  If that credit was never used, did Airbnb keep the lodging tax in addition to their booking fee and the nightly rental amounts that should have belonged to the original host?

When we as hosts (at least in all the jurisdictions where I host) have cancellations and receive payouts, we have to pay lodging tax on all amounts we received even though lodging was not actually supplied.  When Airbnb pays us those 'cancellation payouts', lodging tax collected by Airbnb is included in the payouts we receive and then we as hosts pay the lodging tax to the appropriate jurisdiction based on where our properties are located.

But because Airbnb collected lodging tax based on the location of the initial booking and then converted those funds to a future credit which could be used anywhere, there no longer was a jurisdiction or location for Airbnb to pay lodging tax to.  So it appears all that lodging tax (10% - 13% for my properties) on those unused travel credits also disappeared into the Airbnb coffers.

[Inna22]

@Brenda328 that is a very interesting question. My first reaction was to say that I hope they paid the lodging tax at the time of the cancellation in the jurisdiction where the cancellation was made. As I read on, I realized that it won’t work because the new booking could be in a different location where a different tax would be owed. In Chicago it is whipping 25%. Does this mean that the guest was actually enriched by that amount if the first booking was here and then go to a place with no tax?

[Brenda328]

@Inna22   The guest isn't enriched because they just have a bulk amount they can use.  Most likely the second place they select will be at a different rate than the initial booking they cancelled.  So if they originally booked a property at $100 a night for 3 nights, $50 cleaning fee, $35 lodging tax (assuming 10% lodging tax), and $20 Airbnb service fee, they had paid Airbnb $405 and that is the voucher they received (after Airbnb started refunding their service fee which they were not doing originally).  

The guest might go to a new property that is $150 a night for 3 nights, $75 cleaning fee, $52.50 lodging tax, and $35 Airbnb service fee.  Their new bill is $612.50.  They get credit for their $405 voucher and owe $207.50.  

The voucher amount is a single lump sum as opposed to x dollars for rent, x dollars for cleaning, x dollars for lodging, and x dollars for Airbnb service fee.  Any part of the voucher amount that the guest doesn't use (and at one point the voucher could only be used on a single stay so the new stay had to be at least as expensive as the original stay or the guest lost the remainder) is retained by Airbnb.

In your example, if the guest went to a new property where all the costs were the same with the exception that there was no lodging tax at the new location, Airbnb would retain the 25% lodging tax from the original booking.  So the only entity enriched here is Airbnb.

[Michelle53]

@Brenda328    Lodging tax doesn't "disappear into the Airbnb coffers".

To begin with, any taxes collected on a stay are held in a separate account to be paid over later (depending on the rules of the collecting agency).     If the stay is cancelled or credited, those taxes get reversed out of the holding account. They are not revenue, and did not get received if the stay didn't happen. 

Example using random numbers. 

Room Charge: $90

Cleaning Fee: $10

Guest Service Fee: $15

Occupancy Tax: $20

Total charged to guest credit card : $135.

Airbnb collects $15  plus 3% of the room charge, $3, for itself, but this $18 goes into a holding account until the stay happens.  It only becomes actual revenue after the stay occurs and the payout happens. 

$20 goes into a tax holding account to be paid to the taxing agency (it is not Airbnb's money). 

The host receives $97. 

If a voucher is issued for the full amount, the full amount of $135 goes back to the guest, and the $20 tax is reversed out of the holding account as if it never existed, because the stay did not happen. 

$18 is reversed out of the Airbnb holding account for revenue, and the host loses $97. 

If there is a cancellation, but a partial payout to the host, the tax gets recalculated to the actual amount.

If you are filing and paying your own local taxes, you are, in fact, doing a similar thing. The tax you collect is not revenue to you, and should be held separately, to be paid over later. 

If the guest now has a voucher for $135 and uses it to book a stay with no tax, at $115, yes they have $20 left, of their own money, but in all likelihood, that will never get used, and no tax is collected or remitted.  So it's then probably a $20 loss for the guest. 

[Brenda328]

@Michelle53  But if the guest never uses the voucher, Airbnb retains the entire amount of the voucher.  So you when say it is 'a $20 loss for the guest', that is a $20 gain for Airbnb.  And if the guest never uses the $135 voucher, Airbnb keeps the entire $135 including the $20 lodging tax.

[Michelle53]

@Brenda328   What's your source of that information ?   

In the real world of accounting, any merchant credit in place of an actual item is held on the Balance Sheet as a Liability,

until such time as the transaction takes place or the credit expires.

Here's another example.

You go to a store and buy an item. You then return the item, but they give you a store credit instead of a refund.

The item goes back to inventory i.e. no sale is recorded, and you get x number of days to use the store credit.

The sale is recorded when that item is sold to someone else. 

[Brenda328]

@Michelle53   And if that credit isn't used or expires, what happens to the money?  It is recorded as Revenue and the merchant retains it.  I won't get into a lengthy discussion of how in some jurisdictions unused credits are to be remanded to the state as unclaimed property.  That is far outside of this discussion, especially since those funds are no longer attached to a specific jurisdiction.

What happens on the Balance Sheet doesn't necessarily correlate to how funds are actually used by a business.  For example, there is no huge Airbnb escrow account holding all the funds for those vouchers; that money is being used for operating expenses.  Just like when Airbnb collects the rental amount for a booking that is 3 months in the future.  Airbnb doesn't hold the host's portion of that money in an escrow account until it is due to the host - unless required by the local jurisdiction and possibly not even then.   Many jurisdictions also do not require that lodging taxes be placed into an escrow account pending submission to the taxing authority.

Similarly when a merchant sells a gift card it is recorded as a Liability on their Balance Sheet, but the gift card funds aren't placed into an escrow account; the merchant utilizes those funds for their operating expenses. 

A common example for many hosts would be a loan obtained from a bank to purchase their Airbnb property.  That loan is a Liability on the host's Balance Sheet, but the loan funds are not placed in an escrow account.  The host uses the loan funds to purchase the property and then makes monthly loan payments from operating funds/income received from rental of the property.  And the amount of the liability decreases by the amount of the principal portion of each loan payment.

Based on the issues Airbnb has in calculating even simple booking changes, I would suspect that their computer systems are not efficiently and accurately transferring funds back and forth between escrow and operating accounts for this huge number of transactions.  

I'll leave you with one final example.  A guest books for 31 days and receives a monthly discount (and is in a jurisdiction that does not require lodging taxes for stays of 31 days or greater).  The guest then cancels two weeks into the reservation and receives a refund for unused nights.  The monthly discount should be removed from the booking and the prorated amount calculated (which in my personal experience is often calculated incorrectly even when there is no monthly discount). 

Then in many jurisdictions, because the actual stay is less than 31 days, lodging tax should be triggered and Airbnb should be calculating the amount of lodging tax that is now due, subtracting it from any guest refund, and remitting it to the appropriate taxing authority.  That also doesn't happen in my personal experience.  The Airbnb computer systems appear to be incapable of calculating even these basic transactions correctly so I have little hope that advanced transactions are being handled appropriately.

And I'll apologize in advance to all the community members who found this post extremely boring.  🙂   It is just one more example of how Airbnb retains funds that are not necessarily due to them, but is eager for hosts to refund based on 'the spirit of Airbnb'.

[Michelle53]

@Brenda328  With respect to anyone thoroughly bored with the conversation,  I think most of this is supposition and guesswork based on a small data set.  

I don't think one can use examples from personal finance to indicate how a public corporation might handle financial transactions under GAAP. 

What I observe is that the financial statements have a line item for  "Funds receivable and amounts held on behalf of customers" the value of which happens to coincide exactly with the  "Funds payable and amounts payable to customers".     Of course, it's hard to make a judgement about any of the condensed categories without seeing the detail behind each one. 

With respect to vouchers, although there was a period of time early in Covid where vouchers were issued by default,  under the EC policy, one has the ability  to decide whether to take a voucher or a refund.  It's not surprising to me that a corporation would want to issue vouchers by default, if the cash balance on hand wasn't enough to support paying out that whole enchilada at one time. 

It doesn't indicate anything nefarious to me. 

Also, with respect to vouchers, I think most people would rather use the amount of the voucher plus some, rather than not use all of it.   Psychology 101.     

I also think (my supposition) that guests who found themselves with vouchers they were unable to use very likely found ways to get refunded, whether directly, or by booking and cancelling other stays, or appealing to CS reps.

Anecdotally, I had a flight booked for last April, which was cancelled due to  Covid, and for which, at the time, only a credit for future travel was issued. Later on, I was fully refunded. 

I think the whole Covid voucher policy was as a result of the explosion of cancelled trips at that time.  It was pretty quickly superseded.   I don't see it as any kind of entrenched and ongoing situation, and nothing in the financial statements jumps out to me as a particularly troubling indicator of host money being misappropriated. 

[Debra300]

@Inna22,

Sigh, I am just so tired of grown people not being responsible and taking mitigation steps just in case things don't work out as planned.  Almost every conversation on this blog regarding refunds and reimbursements wouldn't even be posted if people would just buy the appropriate insurance.

Every time I get a sob story requesting a discount (the most recent was someone referencing Hurricane Ida) or a refund, I say the same shi..stuff that I always say, "It's really heartbreaking to see when people find themselves (displaced, unable to travel, etc.) and not having support systems like (travel, rental, home owner's) insurance."

The notion that hosts should take the lose is also reinforced by the media.  Yesterday, I read articles regarding the removal of COVID-19 incidents from the extenuating circumstances policy, because now they are considered as foreseeable events.  The authors said that when Airbnb won't give refunds due to sudden lockdowns, the guests are left to the "mercy of their hosts".  Nothing was mentioned that people should purchase travel insurance to protect their travel investment.  

https://www.theguardian.com/business/2021/may/30/airbnb-changes-refund-policy-as-it-no-longer-consid...

[Inna22]

@Debra300  they are not at the mercy of their host, they are at the mercy of their own reading skills. Book something with a cancellation policy that works for you and you have nothing to worry about (or get insurance)