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Lodging Taxes 101: Registering to collect taxes on your short-term rental

  • Jun 12, 2018 | Jennifer Sokolowsky

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Starting your own short-term rental business can bring plenty of rewards, but it can also present a steep learning curve when you’re just starting out. You’ll have a lot to figure out, including how to prepare your property, how to market it, and how to best take care of your guests — as well as how to deal with local regulations and taxes.

While you may need to pay income taxes on the money you earn from your short-term rental, there’s also another type of tax you’ll need to learn about: lodging tax. Like many hosts who start up a new short-term rental business, this kind of tax may be completely new to you.

Lodging taxes — which can go by many different names, including transient occupancy taxes, bed taxes, hotel taxes, and more — are taxes guests pay on top of the cost of accommodations, which includes short-term rentals. Sometimes these taxes are not specifically lodging taxes, but actually sales taxes due on short-term rentals.

For example, in Tennessee, short-term rental guests are required to pay state sales tax and local sales tax on the cost of their rentals, plus an additional hotel tax in certain cities and/or counties.

Whatever the taxes are called, the end result is the same: Your guest is required to pay a tax on the cost of renting your property for a short term. While it’s the guest who actually pays the tax, you, as the host, are responsible for collecting all taxes due and passing them on to the appropriate tax authority.

Do you need to collect lodging taxes?

The first step in getting lodging taxes right is figuring out whether you’re required to collect them. Lodging tax laws are extremely local in nature, so the lodging tax rules that you need to follow as a short-term rental operator will depend entirely on where you live.

As more local governments recognize the tax-generating potential of the short-term rental industry, more of them are regulating and taxing the industry. Chances are, there’s some kind of lodging tax requirement where you live.

So you’ll need to research the requirements for your location. Keep in mind that different levels of government jurisdictions may have their own lodging tax/sales tax regulations. States, counties, cities, and sometimes special districts may all have different tax rules that apply to your rental.

At the state level, you can often get information about tax requirements through the Department of Revenue, and local levels of government may have a treasury or taxation department where you can find out what you need to know. If you use an online listing platform, such as Airbnb, HomeAway, or VRBO, it may have information that can help you as well.

Registration requirements

Found out you need to collect lodging taxes? Before you can do your lodging tax duty, the tax jurisdiction where you’re going to collect needs a record of you, and so you’ll need to register to receive a tax-collection license or permit. This may be a sales tax permit or a permit specifically for lodging taxes. Again, you may have to apply for a permit in more than one jurisdiction, depending on the local rules that apply to you.

In many jurisdictions, you should be able to apply for your tax permit online. You may have to pay a fee for the permit, which will vary depending on the jurisdiction.

Keep in mind that you may also be required to get a business license and/or short-term rental business permit in certain locations. These are permits to engage in business and are separate from a lodging tax permit. You may not be required to get a business permit everywhere, but wherever you have an obligation to collect lodging taxes, some sort of tax registration or permit will be required.

Your completed lodging tax permit should offer information on filing lodging tax returns, including frequency (which can be monthly, quarterly, or annually) and deadlines for filing. 

Once you’ve received your lodging tax permit, you’ll be ready to collect lodging taxes from your short-term rental guests and file your lodging tax returns.

You can also get help with the lodging tax registration process from MyLodgeTax, which can take care of all your lodging tax obligations for you, from registration to preparing and filing your lodging tax returns.

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.
Avalara Author
Jennifer Sokolowsky
Avalara Author Jennifer Sokolowsky
Jennifer Sokolowsky writes about tax, legal, and tech topics. She has an extensive international background in journalism and marketing, including work with The Seattle Times, The Prague Post, Avvo, and Marriott.