Sales Tax FAQ's
Does an individual property owner need to collect and remit sales tax on a vacation rental property?
In almost every location sales, hotel and occupancy taxes apply to short- term rental of a vacation home. Renting a property on a short term basis triggers these sales tax requirements. In only a handful of state there are exemptions for individual property owners.
What taxes apply to rental income?
Vacation rentals are subject to a broad category of sales taxes, also call hotel, occupancy, room, lodging, and accommodations to name a few. Many tax jurisdictions charge sales tax plus additional lodging or occupancy taxes on short-term rentals. Other locations, such as Texas and California, do not charge sales on short term rentals but instead charge a lodging specific tax called hotel tax or occupancy tax.
What are these taxes charged on?
These taxes are charged on total consideration (money) received from the renter including rent, cleaning fees and any other mandatory fees such as a booking fee, extra person charge, pet fee, etc. Refundable deposits are not taxable.
What is considered a short-term rental?
The definition of a short term rental (and therefore taxable) varies by location. In some states short-term rentals are defined as less than 28 days in other states less than 185 days. You need to research each tax jurisdiction for specific rules. In a majority of states a 30 day or monthly rental will be exempt from these taxes.
Are there any deductions to the taxes?
Generally not. These taxes are charged on gross revenue or gross receipts and there are no deductions for any expenses.
Are there any exemptions to the taxes?
Non-profit groups, certain government officials and universities are common groups that may be exempt from these taxes. The rules vary by state and these exempt groups should have an exemption certificate to verify their exempt status.
What if I don't pay these taxes?
We strongly encourage all property owners to comply with these tax requirements. You donít pay these taxes, the renter pays them. You, the property owner or manager, collect and remit them to the tax authorities.
If you do not collect these taxes you are exposed to back taxes, plus potentially significant penalties and interest. Many tax jurisdictions routinely search through vacation rental advertising websites looking for owners not collecting the tax. Just because you didnít collect the tax, you still are responsible for it. There is no leniency because you were not aware of the rules. Penalties are typically 25-50% of the past due amounts, plus interest. Audits and enforcement actions cover several years, which can result in significant back taxes and sizable penalties.
These requirements can be confusing and there are potentially severe financial consequences for not complying. That is why we have created HotSpotís low cost filing solution, which guarantees you never have these problems and never have to hassle with regulations forms and paperwork. We do all the work for you.
Are there any benefits for collecting these taxes?
Yes. Many tax jurisdictions provide a discount or rebate of 2-3% of the tax collected to offset the cost of collecting and remitting the tax, plus collecting and remitting these taxes will avoid potentially significant tax liabilities. These discounts are only available to timely filersÖÖanother reason to use HotSpotís tax service.
How do I determine the requirements for my location?
Contact the state, county and city government where your property is located or visit the websites of the applicable state and local government agencies. Ask or search for the finance or tax collectors office. Each jurisdiction may have licensing requirements, so in many cases you will first need to apply for a license to collect the taxes.
Alternatively you may let HotSpot handle all of these issues for you. We charge a one-time fee of $49.95 to obtain all required licenses and then charge filing fees for each return. The total cost usually works out to about $10 a month once all the accounts are set-up.
How often do I have to file these returns?
It depends on the jurisdiction. Most returns are due monthly or quarterly. In many cases, the frequency of the filing depends on how much rental income your property generates each month.
Where do I remit/send the collected taxes?
In some locations, the state collects all the taxes for the state, county and city. In other locations, the state collects the state tax and the county or the city collects their own taxes. These requirements usually result in the vacation rental owner being required to file returns with two different tax jurisdictions (state, county or city).
How much does HotSpotís Tax Filing Service cost?
Our fees are primarily based on how many returns we file. We charge a $6 to file monthly returns and $11 to file quarterly returns, plus an annual $19.95 service fee. In most jurisdictions, we can file all your returns for about $90 to $160 per year, 90% of our customers are within this range. That is about $10 or so per month to ensure full compliance with these requirements. The cost is nominal relative to potential penalties for late filing or non-compliance.
How does it work?
Once you sign-up for our service we do everything else. We obtain all required licenses, determine the applicable taxes, tax rates, filing frequency and complete all the forms. Each period we calculate the tax due, file the returns and submit payment on your behalf, which we electronically withdrawn from the bank account you designate. Once you are registered with HotSpot, all we need from you is the revenue for your property for each tax period. We send you an email reminder at the end of each period for you to login to our website and input the revenue at your convenience.
Get compliant today! Register for HotSpot at www.hotspottax.com