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How to manage lodging tax exemptions

  • Sep 12, 2017 | MyLodgeTax

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When you’re a short-term rental owner, charging and filing lodging taxes correctly can be complicated enough. On top of all that, you also need to know when you don’t have to collect tax because your guest is exempt from paying it according to the rules of your tax jurisdiction.

As an owner, you need to know who may qualify for an exemption and what they must do to receive it, as well as the right way to document exemptions. In general, you’ll need to report any exemptions on your lodging tax return and may be required to offer supporting documentation.

Keep in mind that exemptions are unique to each jurisdiction, so it’s crucial to understand the specific rules for the city, county, state, or other local jurisdictions that apply to your property. However, there are a few common lodging tax exemption scenarios to watch out for.

Perhaps the most common exemption is for federal employees. Federal employees can be exempt from local taxes on accommodations when they’re traveling on official government business. But there are conditions that must be met in order for them to qualify for the exemption:

  • They must be traveling on official government business.
  • Payment must come directly from the government, not from the individual.

In the vast majority of states, when these conditions are met, you must offer the exemption to guests who qualify. Yet some states and localities also allow exemptions for government employees even if the payment does not come directly from the government (for example, it’s paid for with a government credit card issued in the employee’s name).

Different jurisdictions have various requirements for proving a traveler qualifies for a federal employee exemption. Travelers may need to show official government identification, offer written proof that they’re on official business, and/or prepare an exemption form.

Other exempt guests can include religious organizations, nonprofit groups, and schools. In Texas, for example, religious, charitable, or educational organizations and their employees are exempt, but only from state taxes, not local taxes. Educational organizations are defined as “school districts, private or public elementary and secondary schools, and Texas institutions of higher education.”

Many jurisdictions require such organizations to produce an exemption certificate and to pay directly from organization funds. This means that a school group, for instance, would only be able to claim the exemption if the lodging is paid for with an official school check, but not if it’s paid for with a teacher’s credit card.

This is spelled out explicitly in Denver, where “governmental, religious, and charitable organizations” are exempt from lodging taxes, as long as sales are “made directly to the exempt entity” and payment is “received directly from the exempt entity … The transaction WILL NOT be considered exempt if an employee or member pays with a personal credit card, cash, or personal check.”

There can be other special exemptions. In Portland, OR, if someone is placed in short-term rental accommodations through an emergency shelter or disaster program where the rent is paid with government funds, no lodging tax is due.

Again, it pays to know the rules that apply to your property, so if an exemption situation comes up, you’ll know how to deal with it the right way.

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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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.