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Licensing Your Vacation Rental PropertyWhen you charge money for the rental of your vacation home, you’ve actually turned your second home into a business. In most locations, you’re required to obtain a license from the city, county and/or state in which your property resides -- even if you haven’t formed a partnership, LLC or corporation. These tax and regulatory requirements are typically identical or very similar to those faced by hotels. In order to determine if you need a license from a city/town, first check to see if your property is within any city limits. You can contact each nearby city to determine if your property is within its city limits, or you can call the county appraiser’s office who will most likely know if your property is within any city limits within that county. Keep in mind that just because your address indicates a certain city, it doesn’t mean that your property is actually within its city limits. The city license is usually called a business license, occupational license or vacation (or nightly) rental permit. In some situations, your application must be approved by the planning and zoning department before the license will be issued. If this is the case and your property is not properly zoned for short term rentals, the jurisdiction will not issue the license. There are a number of locations where renting by the night or week, particularly in residential areas, is limited or prohibited. If you intend to utilize a property as a vacation rental, it’s best to find out if it is zoned for short term rentals before you purchase the property. You can determine the permitted uses of a particular property by contacting the city’s planning and zoning office. If you’re not within any city limits, then your property is in an unincorporated part of the county and is governed by the county’s zoning and tax laws and must be licensed accordingly. Even if you are within city/town limits, you still may be required to obtain a county license in addition to the city license. County licenses are also referred to as business licenses, occupational licenses, or vacation (or nightly) rental permits. Most states require vacation rental homeowners to obtain a state business license. If you have formed a partnership, LLC or corporation for your vacation rental business, then that entity must first be registered with the Secretary of State in which your property resides before you can obtain a business license. For example, a homeowner formed an LLC in Tennessee because his primary residence is in Tennessee. Because his vacation home is in Florida, he must also register his LLC with the Florida Secretary of State before he can obtain a business license from the Florida Department of Revenue. To eliminate a step, he could have formed his LLC in Florida (instead of Tennessee). Some jurisdictions charge an application fee for each license. This fee may be anywhere from $5 to several hundred dollars. You also may be required to renew your business license(s) periodically and pay a renewal fee. The renewal fee may be a flat fee or a percentage of your annual revenue, depending on the jurisdiction. Keep in mind that many jurisdictions do not have a calendar year end (i.e. December 31st), and therefore, licenses may expire mid-year, instead of in December. In addition to obtaining the appropriate licenses, vacation rental homeowners are required to collect and remit sales and/or lodging taxes in most locations. Typically, by obtaining a license, you will also be registered to collect and remit sales and lodging taxes in that jurisdiction. In some situations, however, you must submit a separate application to the tax office in order to register to collect the tax. Sales and/or lodging taxes are intended to be charged to your renters in addition to your rental rate and are typically a percentage of the rent charged. Sales and lodging taxes are remitted to the city, county and/or state at the end of each month or quarter. These taxes are not remitted with your income tax return each April. These taxes are also known as tourist development tax, transient occupancy tax, hotel/motel tax, accommodations tax, lodging tax, bed tax, rental tax, room tax, etc. Because determining which licenses are necessary can be challenging, HomeAway.com recommends that you utilize the expertise of HotSpot Tax Services (www.hotspottax.com). HotSpot Tax Services offers a low cost, effective, guaranteed solution for sales and lodging tax compliance specifically for vacation rental homeowners throughout the U.S. If you register for HotSpot’s sales and lodging tax service, HotSpot will help you determine which licenses you need in your area and, in most cases, obtain those licenses for you for a one-time service fee of $49.95 (this fee is in addition to taxes and fees charged by the jurisdictions). Call HotSpot at 877-589-0207 or visit www.hotspottax.com to learn more about sales and lodging tax requirements, as well as licensing in your area. Article written by Kim Stephens. Kim is a Certified Public Accountant (CPA) with over 17 years of experience in accounting and finance. Kim is also the co-founder of HotSpot Tax Services, a company solely dedicated to helping vacation property owners with sales and lodging tax compliance. Kim can be reached at 877-589-0207 or www.hotspottax.com. ©2003 HotSpot Tax Services, LLC. All Rights Reserved. |
