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Governments target online travel companies for lodging tax collection

  • Oct 26, 2017 | MyLodgeTax

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Many states, counties, and cities have had lodging tax laws on their books for a long time, but as the economy for accommodations grows and evolves, governments are looking for ways to better enforce these laws.

Tax entities are missing out on millions of dollars in lodging tax revenue that isn’t being collected, particularly from the expanding vacation rental market and boom in the sharing economy. To help recoup this revenue, governments are increasingly targeting companies that help hotels and vacation rental owners with bookings, such as Airbnb and Expedia. Requiring these large companies to take responsibility for lodging taxes can be much more attractive to tax officials than attempting to track down millions of individual operators.

Of these travel companies, Airbnb is the most active in collecting lodging taxes for governments on behalf of its hosts. While some governments have made moves to require companies to collect, Airbnb has been proactive in working out agreements with tax officials to file these taxes.

In Cannon Beach, Oregon, for instance, city officials are considering a proposal that would require travel booking intermediaries to file lodging taxes directly with the city. Officials say that currently, it’s difficult to figure out who is responsible for paying lodging taxes and how much is owed.

Meanwhile, in nearby Seaside, Airbnb made a deal this summer with the city to collect and file lodging taxes for Airbnb rentals.

Airbnb also recently made deals with Iowa and Mississippi, and is negotiating a similar deal with the city of Louisville, Kentucky, to collect local lodging taxes there.

Airbnb is the only major rental listing platform voluntarily making deals with governments. VRBO and HomeAway largely do not collect lodging taxes on behalf of their hosts, although HomeAway is now collecting them in Washington, D.C., and in Paris.

For Airbnb, brokering a deal in which it gets a say in the terms versus being required to abide by requirements created solely by the government is good for the company — as well as its hosts/vacation-rental owner customers. In Airbnb’s deal with the state of Texas, for example, the Texas Comptroller’s office agreed to waive any back taxes in exchange for Airbnb collecting and paying taxes going forward.

For vacation rental owners, these developments are often viewed positively. After all, if the platform is handling your taxes for you, that’s one less thing to worry about. But in many cases, this can actually add confusion. For example, if Airbnb is handling taxes in an area, it’s likely only handling a portion of the taxes — the state component, for example — leaving the property owner or host responsible for any county or local taxes.

Additionally, property owners frequently rent on multiple platforms, not just on Airbnb. So the host/owner must remember that for all bookings through Airbnb, the company may be collecting and remitting a portion of the lodging taxes, but the host is responsible for collecting and remitting all taxes for bookings made through other platforms that may not be filing these taxes on their behalf.

Meanwhile, governments’ attempts to make online travel agencies such as Expedia responsible for collecting lodging taxes have largely been blocked by the courts. Last year, for example, the California Supreme Court ruled that such companies are exempt from paying lodging taxes. The rulings say that hotels offering rooms through agencies such as Priceline or Hotwire are responsible for paying lodging taxes on the revenues they receive from such companies, while the agencies are not responsible for lodging taxes on the higher amount they charge customers for those rooms. Similar cases across the country have been decided in online agencies’ favor.

One thing is certain: Governments are more closely scrutinizing vacation rentals and home shares as a potentially lucrative source of lodging tax revenue. Whether rental owners are collecting lodging taxes themselves, or a listing platform or management company is collecting taxes for them, it’s becoming increasingly important for owners to be aware of their lodging tax obligations and make sure they are in compliance.

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.