The 6 most common lodging tax mistakes Airbnb hosts make
- Sep 26, 2018 | Jennifer Sokolowsky
Nobody ever complained about taxes being too simple and easy. Unfortunately, the same is true for short-term rental lodging taxes.
Unlike income taxes, which are levied by the federal government and paid by the short-term rental host, lodging taxes are levied by states, counties, cities, or special districts on short-term rentals and are paid by the guest. However, it’s up to you as the short-term rental operator to add these taxes to your guest’s bill, collect them, and pay the taxes to the right jurisdiction.
Lodging taxes can be tricky for a number of reasons. For one thing, the rules and rates that apply to a short-term rental are entirely dependent on the rental’s exact location. That means that, even within the same state, lodging tax laws can differ dramatically from one city or county to the next. And for any given rental location, the lodging tax laws and rates of more than one jurisdiction can apply.
For another thing, as short-term vacation rentals become more popular for both hosts and guests, more and more jurisdictions are creating new laws or updating old ones. The rules that apply today could very well be gone tomorrow.
Here are six common mistakes short-term rental hosts make as they navigate the ins and out of lodging taxes — and how to avoid them.
1. Assuming that paying income tax takes care of all your tax obligations
When you start out as a short-term rental host, chances are you’re already familiar with income taxes, and you may assume that if you’re reporting your short-term rental income and paying income tax on it, you’re fulfilling your tax obligations.
However, most short-term rental hosts are also responsible for collecting and filing lodging taxes. Tax authorities are paying more attention than ever to this growing source of revenue, getting savvier about enforcing the rules, and creating stiffer penalties for noncompliance. Increasingly, short-term rental operators simply cannot afford to ignore their lodging tax responsibilities.
2. Failing to register for lodging tax in the right jurisdictions
The final amount of lodging tax you’ll charge your guests is most often made up of many different taxes from different jurisdictions. These can be a combination of sales taxes and accommodations taxes that may be called hotel tax, transient occupancy tax, accommodations tax, tourist tax, and more.
In order to legally collect lodging taxes, you first need to register with the correct jurisdiction. Often, this means you’ll need to register with more than one. It’s important to know which jurisdictions apply to your rental, which depends on your exact location.
3. Charging the wrong lodging tax rate
The total tax rate you charge your guests is often made up of different taxes. For example, in Breckenridge, Colorado, short-term rental hosts must collect Colorado state sales tax, county lodging tax, local marketing district tax, local sales tax, and a town public accommodation tax.
Given all those different taxes and rates, it can be easy to make a mistake on the final rate. Not only that, but rates can and do change all the time. Charging the wrong rate, however, can get you in trouble not only with the tax authorities, but with your guests. Tax authorities should post the correct rates, and you can also use this lodging tax lookup tool to get the correct tax rates for your exact location.
4. Assuming you don’t have to file a lodging tax return because you didn’t have any bookings
It’s easy to assume that if you don’t have any short-term rental income to report and didn’t collect any tax, you don’t have to file a lodging tax return for that period. However, the truth is that most jurisdictions require you to file every reporting period, even if you didn’t collect anything. Disregarding this requirement could result in penalties.
5. Missing lodging tax due dates
When you register with a jurisdiction to collect lodging tax, you’ll be assigned a filing frequency (monthly, quarterly, annually, or other) and due dates. Although the due date may officially be the same day of the month each reporting period, these can actually move around due to holidays, weekends, etc. So it’s crucial to check what the exact dates are rather than just assume you know them. Keep in mind: If you’re registered in more than one jurisdiction, the due dates may differ between jurisdictions.
6. Assuming your online rental platform is taking care of lodging taxes for you
Airbnb and HomeAway/VRBO collect some lodging taxes for their short-term rental hosts, but neither of them collect taxes in all jurisdictions. And in some places, they may not collect all the taxes that are required in one location. Other platforms generally do not collect lodging taxes for hosts unless required by local law.
In Knoxville, Tennessee, for example, Airbnb collects the city’s 3 percent occupancy tax, the state’s 7 percent sales tax on accommodations, and the local option sales tax of 2.25 percent. However, Airbnb doesn’t collect Knox County’s 5 percent occupancy tax, which Knoxville hosts are responsible for collecting and remitting themselves.
Knoxville short-term rental hosts who use vacation rental platforms other than Airbnb, such as HomeAway and VRBO, are responsible for collecting all state, city, and county taxes on their own, since those platforms don’t collect lodging taxes on behalf of their hosts.
You also shouldn’t assume that a platform that collects lodging taxes for you is also taking care of lodging tax registration and filing. In most cases, Airbnb remits the taxes it collects in a lump sum to the jurisdiction, rather than filing taxes on behalf of each individual host by name. And in most cases, your jurisdiction still requires you to register and file regular lodging tax returns detailing the taxes that were paid for your guests.
Short-term rental hosts can get help in avoiding these kinds of mistakes. MyLodgeTax can assist you with lodging tax registration, getting tax rates right, and filing lodging tax returns on time so you can get back to running your rental without worrying about lodging tax.