Why is Vacation Rental Tax Compliance Important?Thoughts from the HotSpot management team (and Vacation Rental Owners)
First, let us say that state and local tax compliance is a legal requirement in the particular state, county or municipality where your vacation home is located, but other than strict adherence to laws, we would outline additional business related reasons to comply with these regulations.
Financial Consequences of Not Paying the TaxThe ever increasing amount of penalties and interest that apply to unpaid sales taxes can be significant. It is not uncommon to see back tax assessments totaling tens of thousands of dollars as a result of years of non-compliance. The renter pays the tax and you as the property owner simply collect and remit the tax. Therefore we see no benefit to not complying with the rules. We frequently hear from property owners with concerns that charging the tax makes their rates higher and they may lose business. We do not believe having a marginally less expensive nightly rate justifies the risk of incurring thousands and thousands of dollars of tax liability, in the event you are caught not collecting and paying the required tax.
Tax Revenue Legitimizes the Vacation Rental IndustryCollecting and paying these taxes creates an valuable revenue stream that governments will come to depend on. If vacation rentals are a valuable tax revenues source, this will make it more difficult for activist neighbors, local hotels or property management firms to restrict or ban vacation rentals in their area. These types of fights are occurring all over the country and paying the tax is the best way to fight it. The state and local governments will see vacation rentals as a valuable revenue source and stop accusing vacation rentals as begin a 'black market' or illegal activity.
The Tax Proceeds Fund Important Local ProgramsDepending on the location of your property, these taxes may fund programs that are important to maintain the quality of the local area, which include roads, parks, bridges, beach improvements, etc. Additionally, these taxes may fund marketing efforts by the county or municipality to attract more tourists. Both of these things are good for maintaining the value of your vacation home and maintaining and increasing visitation levels.
It’s More Important Now Than EverWhen I purchased my first vacation home in 1999, in Vail, I was VRBO number 3188. The vacation home I purchased last year, 2007, is VRBO 159,000 and something. The ‘by owner’ vacation rental industry has exploded and continues to grow rapidly. In the ‘old’ days, I was the seventh property in Vail, I don’t think the local tax collectors had even heard of VRBO. Today, the industry is significant and many state and local tax agencies monitor vacation rental website because there are so many properties on them and so much potential tax revenue. We think compliance is important, that is why HotSpot was founded to deliver a simply and affordable way to comply with all the tax collection and reporting requirements.