Common Sales & Lodging Tax Questions
We launched HotSpot Tax Service in the fall of 2003 in an effort
to provide a simple and affordable solution to the various different state and
local sales tax requirements that apply to vacation rentals. We currently
handle thousands of monthly and quarterly sales and lodging tax filings for our
customers with vacation rental homes all over the United States. There are some
common misconceptions or questions that we frequently hear, and the following
are a few of them.
Research Zoning BEFORE You Buy a Vacation Rental Home
There are many things to consider when purchasing a vacation
rental home; one very important issue to consider is if the property is zoned
for short term rentals. If the property is not zoned for short term rentals,
you will not be able to rent it on a weekly basis and your vacation rental home
will become a long term rental property.
A Tax by Any Other Name is Still a Tax
In nearly every state, county and municipality in the U.S.,
transient income, or rent collected on your vacation rental, is subject to
sales tax as well as other taxes that are unique to lodging. We are all
familiar with sales taxes that we pay everyday on the goods we purchase, such
as TV's, cars, tennis shoes, office supplies, furniture, etc. Just like these
items, rent collected from guests of vacation rentals are subject to sales tax,
but there are numerous other taxes that apply to vacation rental activity as
well. The names of these taxes are more obscure. The following is a partial
listing of commonly used tax names along with some of the tax jurisdictions
that use this name:
Licensing Your Vacation Rental Property
When you charge money for the rental of your vacation home, youíve actually
turned your second home into a business. In most locations, youíre required to
obtain a license from the city, county and/or state in which your property
resides -- even if you havenít formed a partnership, LLC or corporation. These
tax and regulatory requirements are typically identical or very similar to
those faced by hotels.
Recent Sales and Lodging Tax Rate Changes
If you rent your vacation home on a short term basis, you are
most likely required to charge your renters sales and lodging taxes. These
taxes are set by city, county and/or state governments and may be increased or
decreased by the city, county and/or state governments at any time. In most
cases, these taxes are an important source of tax revenues in resort
communities and are generally reinvested in the community.
Sales and Lodging Tax Basics
Nearly all jurisdictions throughout the United States require
vacation rental homeowners to charge and remit sales and lodging taxes on
revenue earned from the short term rental of their property. Sales and lodging
tax is computed as a percentage of the total rent that you charge your
customers and is intended to be passed through to the renter.
Tax Answers from the Guys who Enforce the Rules
Mr. Charles Pate has been an enforcement
official with the Florida Department of Revenue for the past twelve years. His
job is to identify areas of non-compliance within the FL tax laws and remedy
the situation. We recently asked Mr. Pate the following questions about
taxation in the vacation rental industry.
How To Get Lodging Tax Penalties Waived
You've owned your vacation property for
months or years and you've just realized that you should have been paying sales
and lodging tax on all of the rent that you've been collecting. You've reported
all of your rental income on your state and federal income tax returns and
thought that this was your only tax obligation. Now you know that it wasn't
your only obligation and you fear that the taxes, penalties and interest you
owe may be substantial.
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.