Airbnb Sues Colorado Over $10.5 Million Tax Bill on Guest Fees

Customers booking accommodations through Airbnb pay two charges, a “Nightly Rental Charge,” which is paid to the property owner, and a “Guest Fee,” which is retained by Airbnb.  Airbnb recently sued the Colorado Department of Revenue (the “Department”) alleging that Colorado’s sales tax statutes do not authorize it to collect sales tax on the Guest Fee and that imposing a sales tax on the Guest Fee violates the federal Internet Tax Freedom Act.  This alert provides an overview of Airbnb’s claims and relevant factual, legal, and procedural background.

How Airbnb Works

Airbnb allows property owners (“Hosts”) to rent out their property to users (“Guests”) of the Airbnb website (the “Platform”).  Hosts list their properties on the Platform, unilaterally and without Airbnb’s input, setting the Nightly Rental Charge, which includes the baseline rental rate for the property as well as any add-on fees, such as cleaning and pet fees.  The Nightly Rental Charge, once paid, is initially held in escrow by Airbnb and then transferred to the Host.  When a Guest books an accommodation, in addition to paying the Nightly Rental Charge, he or she also pays a Guest Fee.  The Guest Fee is collected by Airbnb as compensation for its services, such as the Platform itself, payment processing, and customer support services.

Relevant State and Federal Law

Under C.R.S. § 39-26-104(1)(f), the state collects sales tax “on the entire amount charged to any person for rooms or accommodations as designated in Section 39-26-102(11).”  C.R.S. § 39-26-102(11), in turn, defines the term “sale” to include “the transaction of furnishing rooms or accommodations by any person . . . to a person who for a consideration uses, possesses, or has the right to use or possess any room in a hotel, apartment hotel, lodging house, motor hotel, guesthouse, guest ranch, trailer coach, mobile home, auto camp, or trailer court and park . . . .”  Furthermore, local marketing districts may impose a “marketing and promotion tax on the purchase price paid or charged to persons for rooms or accommodations as included in the definition of ‘sale’ in Section 39-26-102(11).”  C.R.S. § 29-25-112(1)(a).  Likewise, a county “may levy a county lodging tax of not more than two percent on the purchase price paid or charged to persons for rooms or accommodations as included in the definition of ‘sale’ in Section 39-26-102(11).”  C.R.S. § 30-11-107.5(1).

At the federal level, the Internet Tax Freedom Act prohibits states and localities from imposing “[m]ultiple or discriminatory taxes on electronic commerce.”  47 U.S.C. § 151 note, SEC. 1101(a)(2).  A “discriminatory tax,” in turn, is defined to mean a tax that “is not generally imposed and legally collectible by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means.”  Id., SEC. 1105(2)(A)(i).

Airbnb’s Allegations

Airbnb alleges that in 2017, it entered into a Voluntary Collection Agreement with the Department pursuant to which Airbnb began voluntarily collecting taxes on the Nightly Rental Charge and remitting the collected taxes to the Department.  Then, in 2023, the Department terminated the agreement, asserting that the Guest Fee was also subject to state sales, county lodging, and local marketing district sales taxes.  The Department then issued a Notice of Deficiency to Airbnb for about $10.5 million for state sales taxes, county lodging taxes, and local marketing taxes dating back to 2018.  In response, the company pursued an administrative appeal with the Department.  However, in August of 2025, the Executive Director of the Department issued a Final Determination denying the appeal and ruling that the Guest Fee was taxable under relevant statutes.  As such, Airbnb would be required to pay back taxes on Guest Fees charged in Colorado as well as taxes on Guest Fees moving forward.

The company argues that its Guest Fee is not part of the purchase price paid for an accommodation and is not included in “the entire amount charged . . . for rooms or accommodations” under section 39-26-104(1)(f) because the Guest Fee is not paid to the Host as compensation for the Host’s furnishing of its property.  Rather, the Guest Fee is compensation paid to Airbnb for its services facilitating that transaction.  As such, the Guest Fee is not part of “the transaction of furnishing rooms or accommodations” and thus cannot be considered to be a part of a “sale” for purposes of Section 39-26-102(11).

Airbnb further maintains that taxation of the Guest Fee violates the Internet Tax Freedom Act.  That law essentially prohibits states from imposing taxes specifically on internet services themselves, rather than the underlying transaction for goods, services, or information that an internet service may facilitate.  As such, Airbnb suggests that taxing the Guest Fee amounts to an illegal tax on its online Platform itself, rather than on the underlying transactions for accommodations that it facilitates.

Airbnb’s Prior Lawsuit

Airbnb’s suit against the state comes just two years after it brought a similar suit against the City of Boulder over municipal taxes on Guest Fees that the city alleged were owed.  The Boulder County District Court ruled against Airbnb in that suit, holding that the Guest Fee was part of the price paid by the Guest for renting a Host’s property and was thus taxable.  Airbnb declined to appeal that ruling and paid its back taxes to the city.

Whether the Denver District Court will rule similarly, and whether Airbnb will choose to appeal any adverse ruling further, is yet to be seen.  While the implications of the Boulder case were limited to that city, the outcome of this case will likely affect prices for short-term accommodations across the state.