Tax Confusion - Income Taxes vs. Sales Taxes

Renting a vacation home is a great way to generate extra income and help offset the cost of ownership.  Also, most vacation rentals have a taxable loss after mortgage interest, cleaning, utilities, maintenance and depreciation deductions, so rarely is any income tax due.   However, there are additional tax requirements that you need to closely manage.  These additional taxes fall into a broad category called sales and lodging taxes. It may surprise many owners, but renting a vacation home or condo, in nearly every state, is subject to state and local sales and lodging taxes on the rent collected. 

These taxes are also referred to as accommodations, occupancy, hotel, bed, room, tourist and rentals tax, just to name a few. These taxes are charged on the rent collected from guests. State and local laws treat virtually all vacation homes in the same manner as a hotel or motel. Vacation rentals are considered businesses by tax authorities, and therefore, are required to collect and remit sales taxes.

These are entirely different requirements then reporting vacation rental activity as part of an income tax return on April 15th every year.  Many owners are confused about these sales/hotel taxes and how they relate to income taxes.  We routinely hear from homeowners that they thought the sales taxes were paid once a year with their income taxes or they thought their income tax accountant was taking care of these taxes.    

The following lists a few key differences between income taxes and sales taxes:

·  Federal income tax returns are reported annually. Sales tax returns and payments are usually required to be filed monthly or quarterly.

·  Federal income taxes are filed with the Internal Revenue Service. Sales tax returns and payments are made to the state, county and/or city where the vacation home is located

·  Federal income tax is a tax charged on income or profits (revenues less expenses), whereas sales tax is a tax on gross revenues (the amount you charge your renters)

·  Even if you have no rental activity you are required to file the monthly or quarterly sales tax returns.

To learn more about these requirements, you may contact the state, county and city tax authorities where your vacation home is located. Or, you can simply call HotSpot Tax Services for more information on the sales and lodging tax requirements in your area. HotSpot Tax Services files sales and lodging tax returns for thousands of vacation rentals.  HotSpot provides a simple solution to these sales tax requirements by handling all the forms, filings and tax payments on your behalf. Call HotSpot at 877-589-0207 to speak with a tax specialist today, or visit www.hotspottax.com.