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Beware of Men In Black!

  • Oct 12, 2016 | MyLodgeTax

Lodging Tax Compliance

This is a blog post I wish I didn't have to write.  I don't like to talk about things that are unpleasant.  However, the harsh reality is that there is a day of reckoning coming for many unwitting vacation rental property owners that could have dire consequences.

I have been reading with increasing frequency about tax jurisdictions cracking down on short-term rentals — and I'm not even talking about the ongoing contentious debate around whether short-term rentals should be allowed at all in certain areas.  While that certainly is a critical issue as well, I'm talking about tax authorities ramping up their efforts to make sure that they're getting all of the lodging tax revenue they should from the exploding sharing economy.  And they're getting very crafty.

In several jurisdictions around the country, they'll simply search the Airbnb, VRBO, or HomeAway websites for properties in their town or city.  Then, they'll go to their records to see if there's a license or permit for that property and if they've been receiving attendant lodging tax returns and payments.  If there's no permit, no tax payments, or neither, the Men In Black come calling in an unmarked sedan.  Ok, maybe not in person, but you can be sure that at least a threatening and demanding letter is on its way in the mail.

We're hearing more and more stories from tax jurisdictions — told with great gusto and pride — about how they're tracking down these property owners and recouping large amounts of back taxes as well as penalties and interest, much to the great surprise and dismay to the property owner.

In the vast majority of these cases, there was no criminal activity intended on the part of the owner — they simply didn't know their lodging tax obligations or were misinformed.

         "I rent my property less than two week a year so I'm exempt."

         "I don't operate a hotel so lodging taxes don't apply to me."

         "I report my rental earnings on my income tax so I take care of them that way."

These are just a few of the common excuses we hear that are completely wrong.

The most frustrating thing for us is that the difficult time that these property owners now face is completely and easily preventable.  Property owners aren't even the ones technically paying lodging tax — their guests are.  The property owner is just a pass-through entity collecting the tax from the renter and then remitting the tax to the appropriate tax authorities.  There is no lodging tax out of pocket for the property owner!

That is the primary difference between lodging tax and personal income tax.  Lodging tax is a tax on the transaction regardless of how many nights you rent per year.  And yes, for all intents and purposes, you actually are operating a hotel in the eyes of the tax authorities.

Here at MyLodgeTax, we are dedicated to preventing these surprises and "gotchas."  Don't be a victim of these intensifying crack-downs.  With our simple solution, you can rest as comfortably as your guests knowing that you're 100% tax compliant with your vacation rental property.

Lodging tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
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Avalara Author MyLodgeTax
At Avalara MyLodgeTax, we provide the fastest and easiest way for short-term and vacation rental property owners to comply with their lodging or occupancy tax requirements. We manage your lodging taxes so you don't have to and guarantee your compliance — period. If we make a mistake, we'll fix it at no cost to you. No contracts, no obligation, no worries. Never worry about lodging taxes again. Contact us at MyLodgeTax@Avalara.com.