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Sales and Lodging Tax Basics
Nearly all jurisdictions throughout the United States require vacation rental homeowners to charge and remit sales and lodging taxes on revenue earned from the short term rental of their property. Sales and lodging tax is computed as a percentage of the total rent that you charge your customers and is intended to be passed through to the renter.
Like any sales tax, these taxes are a charge on revenue, not profit. They are established by state, county and city governments and may be referred to as sales, lodging, hotel, room, occupancy, or transient accommodations taxes. Many of these taxes are specific to lodging and are a significant tax revenue source in resort communities. Most local taxes are used to promote or directly benefit tourism in the area.
Depending on the jurisdiction, rental periods of up to six months may be considered short term and, therefore, subject to sales and lodging taxes. Failure to collect these taxes may result in significant penalties and interest charged by the tax authorities. State and local governments are focusing more on tax compliance within the vacation rental industry than ever before and this trend is expected to continue.
Basic Requirements
In most parts of the United States if you rent even one vacation property, you're required to:
- Register your property
The registration process varies by location. In some states you are only required to register with the state, but in other locations you are required to register with the state, county and city. It is important to check with each governmental authority. - Collect sales and lodging taxes from renters.
The tax you are required to collect is set by state, county and city governments. The tax rate is calculated as a percent of the rent collected and is in addition to rent. In some areas there is one rate for the entire state, in others, the taxes charged varies by the county and city. Generally, these sales and lodging taxes range from 5% to 15% tax on the total rent charged, typically averaging around 10%. - File sales and lodging tax returns monthly and/or quarterly
Once you collect the sales and lodging tax from your renters, you are required to file the appropriate tax returns to the state, county or city (potentially all three based on the location of your property). These returns are typically due monthly or quarterly. - Remit sales and lodging tax payments to city, state, and county tax authorities.
Along with the sales and lodging tax return, payment must be remitted each month or quarter to the appropriate state, county and/or city. Tax return and payment due dates vary by jurisdiction.
Helpful Hints
Here are a few important tips when navigating the sales and lodging tax maze:
- Don't confuse sales and lodging tax returns with your annual income tax returns that are due on April 15th.
Currently, there are no federal sales or lodging taxes, therefore, the IRS does not collect these taxes. Most sales and lodging tax returns are due within 20 days of the end of the month for the period in which you collected the tax, not annually on April 15th. - Sales and lodging taxes are collected by the jurisdictions in which your vacation property resides
Contact the taxing authorities where your property is located to determine your sales and lodging tax requirements. The tax is imposed where the lodging occurs, regardless of where the reservations are taken and the money is collected. - Be persistent and thorough with your research of the sales and lodging tax requirements in your area.
You'll need to contact the state, county and city in which your property resides to find out all of your requirements. In some cases, one taxing authority may collect all of the taxes, but in most situations, you will remit the sales and lodging taxes to more than one jurisdiction. Keep in mind that there may be multiple taxes within the state, county and city levels. For example, states frequently collect sales taxes on behalf of a city or county, but additional lodging taxes are collected separately by the city or county. - It's never too late to start complying.
Tax authorities are becoming more aggressive each year in pursuing tax dollars from vacation rentals. If you have not complied with the tax requirements historically, it is important that, at a minimum, you begin complying. If the tax authorities find that you have not been paying sales and lodging taxes, you will be required to pay the back taxes, penalties and interest. Most states have a voluntary disclosure program where you can voluntarily pay taxes that are past due without paying the corresponding penalties. To qualify, you must contact the tax authorities first, before they contact you.
HomeAway.com Tax Partner
Due to the complexity, importance and administrative burden of these tax requirements, homeaway.com has partnered with HotSpot Tax Services (www.hotspottax.com), a company solely dedicated to helping vacation property owners with sales and lodging tax compliance. HotSpot Tax Services has the answers to your state, county and city sales and lodging tax questions. HotSpot offers a low cost effective, guaranteed solution to handle all of these compliance issues for you.
HotSpot's one-of-a-kind service offers the following benefits:
- An easy, low cost solution to help you comply with sales and lodging tax laws.
- Answers to all of your sales and lodging tax questions in one place
- Complete sales and lodging tax research, registration, return filing and correspondence with tax authorities.
- A simple online service that allows you to report your taxes in seconds and view your tax history by month down to the detail of each tax calculation.
- Guaranteed service - when you join you never worry about compliance again.
- An obligation-free policy that means you can try their service and use it as long as you like - cancel at anytime with no penalties
- An inexpensive solution - they do all this for an average of $10 a month.
Visit www.hotspottax.com or call us at 877-589-0207 to learn more about the requirements 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.
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