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Common Sales & Lodging Tax QuestionsWe launched HotSpot Tax Service in the fall of 2003 in an effort to provide a simple and affordable solution to the various different state and local sales tax requirements that apply to vacation rentals. We currently handle thousands of monthly and quarterly sales and lodging tax filings for our customers with vacation rental homes all over the United States. There are some common misconceptions or questions that we frequently hear, and the following are a few of them. Are cleaning fees taxable? The taxability of cleaning fees is one of the most frequent questions we hear from customers. The answer in every case, in every tax jurisdiction: cleaning fees are taxable. Sales tax statutes and ordinances are written and designed such that any consideration received for rent is subject to the taxes. This is such a common question that several counties in Florida, which have a high level of vacation rental activity, include cleaning fees as a separate line item on their tax return, to make sure taxpayers are properly including those fees collected. My accountant says I don't have to collect sales tax? We were initially very surprised to hear this question from people, but we do hear it quite frequently. It is difficult to explain to people that their trusted advisor is not correct. Virtually all locations in the United States require short-term vacation rentals to collect and remit sales tax. Tax laws are very detailed and specific. Many individuals work with an accountant specializing in income tax preparation, which is completely different from the sales tax laws and they may not be as well versed in the unique and specific requirements of sales and lodging taxes. My vacation rental doesn't make a profit so I don't have to pay the tax? We commonly hear a prospective customer inform us that they are not really concerned about the tax because their vacation rental, after mortgage interest, utilities and other expenses, will likely not be profitable. Sales taxes, however, are applied on gross rent, the amount you collect, not a net amount after expenses. It most cases it's the same tax or similar tax you pay on goods purchased in a retail store. The above scenario describes an income tax scenario or a tax on profits that we are all accustomed to filing with the state and Federal government at the end of each year. I have collected the tax, now how do I file my return? We occasionally have customers that have been collecting the sales tax, but are unsure on how and when to file and remit the tax to the tax jurisdictions. Sometimes vacation rental owners believe they report their sales tax at the end of each year, along with the income tax return. Unfortunately, in the majority of locations the taxes are due monthly, and if not monthly then quarterly. Generally, how frequently you pay the tax is determined by how much total rent you collect on your property. Why do I need a license? Licensing requirements vary by tax jurisdiction, but at a minimum, the tax jurisdiction is going to open an account for you so that they can apply your tax payments appropriately. Most jurisdictions will view a vacation rental home as a business and will require a business license in addition to opening a sales and lodging tax account. I already pay the city tax, why do I have to pay the state? Most locations have multiple levels of taxation, the state, county and city level. Resort destinations in particular rely heavily on sales taxes on accommodations and typically have a local city or county tax in addition to sales taxes collected at the state level. Most states have taxation at the state and local (city or county) levels, but a few, such as Maine and New Hampshire, only collect the tax at the state level. California is the opposite, there is no state taxation of vacation rentals, it is always taxed at the county or city level. It is important to research the requirements at the state, county and city level where your vacation rental home is located. Article written by Robert Stephens. Rob has 17 years of management experience in operations, accounting and finance. He has served as CFO of several companies ranging from early stage enterprises to public companies and has experience in all types of financing and mergers & acquisitions transactions. Rob is a co-founder of HotSpot Tax Services, a company solely dedicated to helping vacation property owners with sales and lodging tax compliance. |
