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Tax Confusion - Income Taxes vs. Sales TaxesWhen I purchased a condominium in Vail, Colorado six years ago, I was hoping to enjoy a second home in a resort paradise, but was also making a significant investment decision. In addition to the benefits of rental income and appreciation of value, there can be significant tax benefits to owning a vacation home. Every April 15, when I file my federal income tax return, I happily take depreciation deductions from my vacation property that I use to offset ordinary income from other sources. These deductions have saved me thousands and thousands of dollars of income tax. While I have benefited from significant tax savings through owning a vacation home, there are additional tax requirements that I must stay on top of and manage. These additional taxes fall into a broad category that I will call Sales Taxes. Even as a CPA, I was surprised to learn that my little side business of renting my vacation home was subject to state and local sales taxes. I discovered that any rental activity, no matter how small or insignificant, is subject to the sales tax requirements of Vail, Eagle County and Colorado, just like any other business in the area. These taxes are also referred to as accommodations, occupancy, hotel, bed, room, tourist and rentals tax, just to name a few. Sales taxes are charged on the rent collected from guests. State and local statutes 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 obtain a business license and collect and remit sales taxes. These are entirely different requirements than reporting your vacation home activity as part of your income tax return on April 15th every year. A couple important points to note; first, the renter pays the tax as an additional fee to the rent charged, and secondly, I must collect and remit this tax even though I may be reporting a loss for income tax reporting purposes. Virtually every vacation home, particularly in resort areas, is subject to these types of sales taxes. My experience is that vacation homeowners are frequently confused as to how these taxes are applicable, charged, and remitted. The following lists a few of the differences between income taxes and sales taxes:
Rentors.org and its affiliate websites strongly recommend sales tax compliance. They offer a simple solution to these sales tax requirements through HotSpot Tax Services, a company that handles the sales tax compliance issues on behalf of vacation homeowners. 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. Call HotSpot at 877-589-0207 to speak with a tax specialist today, or visit www.hotspottax.com. ©2003 HotSpot Tax Services, LLC. All Rights Reserved. |
