This post was originally published November 2014 and has been updated to reflect the latest in vacation rental tax laws.
Just like hotels, vacation rentals are required to collect and remit sales and occupancy taxes.
Understanding what these taxes are, how to collect them, and who to pay them to, is a normal (and very important) part of using your vacation home as a short-term rental. But if you don’t understand how vacation rental taxes work, you will run into serious problems.
As vacation rentals become more popular in the United States, government agencies are getting more proactive about enforcing short-term rental tax codes. To help everyone make sure that they’re complying with their local tax codes, we asked our friends at MyLodgeTax to answer the top 5 questions vacation rental owners ask about sales and occupancy taxes.
1. Do I really have to collect and pay sales and occupancy taxes?
Usually, the answer is yes. There are only a handful of states that exempt vacation rentals from tax.
In fact, vacation rentals pay the same taxes as a hotel. These taxes (known by many names: sales tax, occupancy tax, lodging tax, room tax, accommodations tax, bed tax, hotel tax, etc.) are different from income tax, which is filed once annually. The requirement to collect and remit these taxes is triggered when you use your vacation property as a short-term rental. These sales and lodging taxes are paid to city, county, and state tax agencies monthly and quarterly.
2. How do these taxes work and how do I comply?
Sales and occupancy taxes on short-term rentals are determined by the city, county, and state where your rental is located, so there are multiple levels of requirements. It’s important to understand and check the requirements with each level of tax agency. However, states, counties, and cities often combine their tax collection efforts, so it’s likely that you will not need to deal with all three tax agencies – only one or two.
Most vacation rentals will be required to register or obtain licenses with two different agencies (i.e. city and state). If you are outside city limits in your area, you do not need to worry about city taxes – only those for county and state.
The basic steps to be tax compliant are as follows:
- Determine your tax rate (usually between 10% and 15%)
- Register/apply for any required licenses and tax accounts
- Collect the tax from your guest on each booking
- File and pay the tax to appropriate agency each month or quarter (sales & lodging taxes require monthly and quarterly filing of taxes, which is very different from income taxes, those are due annually.)
- Renew your licenses, when required
- Keep records of your activity and track any tax rate changes
3. What happens if I don’t collect and pay these taxes?
The guest pays these lodging taxes, but the owner is liable for them. If you did not collect the tax from your guest, you are still responsible for the taxes.
A tax collector can pursue current and back taxes from anyone who hasn’t been collecting and remitting required taxes on a vacation rental. The average vacation rental owes several thousand dollars of taxes each year, so the unpaid liabilities can accumulate and become a substantial cost in just a few years.
In addition to the unpaid tax due, tax agencies may also levy penalties and interest, which can be serious. Penalties are often 25% to 50% of the tax due.
Failing to collect and pay these taxes can result in significant tax liabilities owed to state and local tax agencies, which can easily be avoided by complying with the rules.
4. What charges and fees are taxable?
All mandatory fees charged to the renter are considered part of the amount paid for occupancy and are therefore taxable. Sales and occupancy taxes are charged on total consideration (money or value) received from the renter.
5. Are there any deductions or exemptions for these taxes?
Sales and occupancy taxes are a charge on gross receipts, the total amount paid by the guest. There are no expense deductions for sales and occupancy tax.
This is another example of how these taxes differ from income tax, which allows deductions for many operating expenses. Certain non-profit groups, church/religious organizations, government officials and universities are common groups that may be exempt from these taxes, but not always.
Exemptions may vary by city, county, or state. Additionally, most states require the exempt organization to have an exemption certificate and pay with organization funds.
It’s important to note that long-term rentals are exempt from sales and occupancy taxes, which are continuous rentals of 30-days or longer in most states. However, these rules also vary from state to state. In some, such as Florida and Hawaii, the rental must be greater than six months to be considered exempt.
MyLodgeTax provides a simple and comprehensive tax compliance solution for vacation rental owners and managers. MyLodgeTax obtains all licenses, files and pays any taxes when due, and guarantees everything is completed correctly and on time. For more information or questions about MyLodgeTax visit MyLodgeTax or call 877.589.0207. Evolve owners qualify for a discount!
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