Back Taxes--What to do About Periods Where You Didnt Collect the Taxes

If you have owned your vacation property for months or years and you’ve just figured out that you were supposed to be collecting and paying sales/lodging taxes, there are solutions to this problem. Many property owners go years without knowing or understanding the sales & lodging tax collection requirements. Most people are fully aware and familiar with the requirement to report rental income on their state and federal income tax returns, but sales and lodging taxes are an additional requirement that a significant number of vacation rentals owner simply are not aware of. If you are in this situation you may be unsure of what to do or worried about the years of past tax that you owe.

The good news is that most state revenue agencies have programs for exactly this issue. States are motivated to get taxpayers complying and collect these taxes, to increase their tax revenues. As a result, state tax agencies have programs called Voluntary Compliance or Voluntary Disclosure, whereby they will agree to waive most penalties in exchange for you voluntarily coming forward and paying these taxes that may have gone uncollected for years.

Penalties for non-compliance vary by jurisdiction and can be significant. Penalties are typically between 10% and 50% of the tax due each year and accumulate to significant amount over a period of several years. Most jurisdictions will impose a minimum penalty on a late return or returns not filed – even if there was no tax due. A minimum penalty can be as high as $50 per late return.

Unfortunately, most taxing authorities do not have the authority to waive the interest in any situation, but the good news is that interest is usually minimal compared to the penalties. Most interest rates float based on the current LIBOR rate and are in the 7% to 10% range.

Keep in mind that it is imperative that you contact the taxing authority first. If an enforcement agent contacts you first, he/she will probably not waive any of the penalties. If tax agencies assess taxes on a property that continue to go unpaid, they may ultimately put a tax lien on the property, and in extreme cases, seize the property and sell it to pay the taxes. Enforcement officials routinely review the vacation listing web sites in search of rental properties that are not collecting and remitting sales and lodging taxes. So don’t procrastinate; the penalties and interest for non-compliance continue to accrue and increase over time.

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HotSpot Tax Services specializes in sales and lodging tax compliance, for vacation homeowners. As part of its services, HotSpot will work with state and local tax authorities and resolve these issues for an affordable $150 per property settlement program or tax jurisdiction. Call HotSpot today at 877-589-0207 for a confidential conversation regarding voluntary compliance in your area.