What vacation rental hosts need to know about local taxes
- Feb 28, 2018 | Jennifer Sokolowsky
Anyone operating a short-term vacation rental knows dealing with lodging taxes is no one’s favorite part of the job. But it is part of the job and it’s important to get lodging taxes right. Failing to do so can lead to a lot of hassles — paperwork, fines, penalties, and more contact with government tax agencies than anyone ever cares to experience.
Lodging taxes are actually paid by the guest, not the host, so short-term rental operators don’t have to pay these taxes themselves. However, hosts are responsible for collecting lodging taxes from guests and passing them on to the tax authorities.
Put simply, the tax rate depends on where your short-term rental is located. Here’s where it gets tricky: The total lodging tax rate you charge guests is often made up of several different taxes from different tax authorities. These tax authorities can include the state, county, or city, as well as special districts, which often appear in heavily touristed areas.
Local short-term rental taxes
When it comes to lodging taxes, local taxes generally refer to any non-state tax, and can include county, city, or special district taxes.
States have different ways of dealing with lodging taxes. Some states have only a state-level lodging tax and local communities in those states do not levy their own lodging taxes. Other states have a state-level lodging tax and also allow local communities to levy their own lodging taxes. And in a few states, there is no state-level lodging tax, but local communities have the option of levying their own lodging taxes.
As if that were not complicated enough, each of those different taxes (state, county, city, or special district) can be administered by a different tax authority. In some states, for example, the state administers all lodging taxes, so you just have to send the lodging tax you collect from guests to one entity, which takes care of distributing the tax revenues to local tax authorities.
However, in some states, each tax authority administers its own lodging taxes, so you may need to register with more than one tax authority and make sure you’re sending the right amount of tax to the right entity.
Airbnb state and local tax collection
In some cases, Airbnb collects taxes automatically from guests upon booking and remits them to tax authorities on behalf of their hosts, so hosts don’t have to deal with lodging taxes themselves. But Airbnb only does this in places where it has an agreement with the taxing authority to do so.
While Airbnb has agreements with various state and local tax authorities, it does not have agreements with all state and local tax authorities. And in many cases, Airbnb may have an agreement to collect taxes with a state, but not with local communities in that state. This means that Airbnb may not collect all the lodging taxes due for a particular rental.
For example, in Colorado, the state collects and administers lodging taxes for some cities, but not for others. Airbnb has an agreement with Colorado to collect lodging taxes on behalf of hosts for all state lodging taxes and local taxes administered by the state. Airbnb also has agreements with some non-state-administered cities to collect city accommodation taxes, so Airbnb collects lodging taxes for hosts in those cities. However, in Colorado cities where lodging taxes are not administered by the state and where there is no agreement with Airbnb, short-term rental operators are responsible for collecting and remitting city lodging taxes themselves.
The upshot of this is that short-term rental hosts need to be aware of all lodging taxes due on rentals of a particular property. If Airbnb collects lodging taxes for that location, hosts need to check to see which taxes Airbnb collects — and hosts need to collect and remit those that Airbnb does not manage. This is worth repeating as it is critical to being a tax compliant host. It is up to the short-term rental host to collect and remit all required state and local lodging taxes not collected and filed by Airbnb on the host’s behalf.
Hosts also need to keep in mind that other short-term rental platforms, such as VRBO and HomeAway, do not collect any lodging taxes on behalf of hosts, so hosts are completely responsible for collecting all state and local lodging taxes themselves for those listings.
If all this sounds complicated — well, it can be. But short-term rental hosts don’t have to do it all on their own. Hosts in any location can get help from MyLodgeTax, a managed tax filing service. MyLodgeTax simplifies vacation rental taxes so you can be sure you’re collecting the right amount of taxes and filing them with the right authorities, no matter how complex your lodging tax situation might be.