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The basics of lodging taxes for property managers of short-term rentals

  • Jan 29, 2019 | Jennifer Sokolowsky

Vacation rental at dusk

Managing short-term rentals is a lot of work — which is why short-term rental operators seek out property managers to take care of it for them in the first place.

Among all the other tasks that property managers provide, handling taxes for their clients has become even more important in recent years. Not only are more state and local governments taxing short-term rentals, but they’re becoming more aggressive in enforcing tax regulations in order to verify that they’re receiving those tax revenues.

Short-term rental operators are becoming increasingly aware that they’re required to do something about lodging taxes, but they often have no idea exactly what’s involved. Figuring out lodging tax compliance can be confusing, complicated, and time-consuming for hosts, and property managers who can confidently accomplish this task offer a valuable service to their clients.

While the details of lodging taxes will be different in every jurisdiction, there are some general principles about short-term rental lodging taxes that you need to know as a property manager. Here are some basics to help you get started on building your expertise.

What are lodging taxes?

Lodging taxes are a tax on accommodations that are paid by the guest. These are usually calculated as a percentage that’s added to the guest’s bill. While guests pay the tax out of their own pocket, the host is responsible for collecting the tax and paying it to the tax jurisdiction.

Lodging taxes are similar to sales taxes and shouldn’t be confused with income taxes, which are usually paid annually to federal and state governments based on the host’s income.

Lodging taxes aren’t always called lodging taxes.

Short-term rentals can be subject to a variety of taxes. Some of these are sales taxes that are also charged on other goods and services within a certain jurisdiction. Others are specifically levied on businesses that provide accommodations. These can have many different names, including lodging tax, hotel tax, bed tax, transient occupancy tax, tourist tax, and accommodations tax.

In many locations, the total lodging tax rate is comprised of several different taxes from various jurisdictions that are combined to calculate the final tax rate that’s charged to the guest. While the guest pays a lump sum, it’s up to the collector to know how the total breaks down into the different taxes.

Location is crucial to getting lodging taxes right.

Lodging taxes are extremely local in nature. There are no national short-term rental taxes; instead, lodging taxes are determined by individual tax jurisdictions that can range from cities and towns to counties and states. Rules and rates may be different in each jurisdiction.

Short-term rental properties may be subject to more than one lodging tax. For example, the operator of a short-term rental property in Colorado Springs, Colorado, is required to collect county and state sales taxes that are remitted to the state, along with city lodging and sales taxes that are remitted to the city.

As a property manager, you need to make sure that you’re following all the lodging tax rules for all the tax jurisdictions where your clients’ short-term rentals are located.

Before you collect lodging taxes, you usually have to register with the tax authority.

In the vast majority of tax jurisdictions, hosts are required to register with the tax authority before they can start collecting and paying lodging taxes. This can usually be done online. Once registration is approved, you should receive more information about filing and paying taxes, such as due dates and which forms you need to file.

Depending on the jurisdiction, your client may be required to register in their name, or you may be able to register as a property manager collecting lodging taxes for one or more short-term rental properties.

You may need to register in more than one tax jurisdiction for any given property. For example, it’s common that one short-term rental property will owe lodging taxes to both the city and the state, requiring two separate registrations.

After you register, you’ll need to file lodging tax returns with the tax authority.

Once you register with the tax authority, you’ll be required to file lodging tax returns according to the due dates given to you by the tax authority. When you file, you’ll report the amount of rent that was charged by the short-term rental and pay the lodging tax due.

Lodging taxes are usually paid several times a year.

Unlike income taxes, which are normally paid once a year, lodging taxes are usually paid several times a year. The frequency will be determined by the tax jurisdiction and the amount of rental income that the short-term rental makes.

It’s very common for lodging tax returns to be filed monthly, although returns may be due quarterly or even annually. When you register, you should be notified of your due dates for filing and paying lodging tax. If you’re registered with more than one tax authority, the filing frequency and due dates may be different for each.

Sometimes online platforms such as Airbnb collect lodging taxes — and sometimes they don’t.

If you’re managing short-term rentals that are listed on Airbnb or other platforms such as VRBO or HomeAway, those platforms may collect lodging taxes when the rental is paid for and pay those taxes to the tax jurisdiction on the host’s behalf.

However, don’t assume that the platform is taking care of all lodging tax obligations. For example, while Airbnb collects taxes for hosts in more jurisdictions than any other platform, it only collects taxes in jurisdictions where it has made an agreement to do so. That means there are plenty of jurisdictions where Airbnb and other platforms do not collect taxes.

Platforms may also collect some of the taxes due for a specific rental, but not all of them. For example, they may collect taxes due to the state but not city taxes.

Also, platforms most often remit taxes in a lump sum to tax authorities, meaning they do not register for or file on behalf of individual operators. So even if a platform is collecting taxes on behalf of a short-term rental operator, the operator may still be required to register with tax authorities and file lodging tax returns reporting rental revenues and the amount of tax paid on their behalf.

In order to be certain your client is in complete compliance, you need to know the requirements for your client’s tax jurisdictions and what short-term rental platforms are or are not doing in terms of lodging tax collection for your client.

You don’t have to do it all yourself.

Managing lodging taxes often requires a steep learning curve — and the rules are changing all the time as many communities pass new regulations. If you’re a manager responsible for several properties, compliance only becomes more complex. Automation, like that provided by MyLodgeTax, can help property managers get a handle on lodging taxes by simplifying and streamlining every step in the compliance process.

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.