10 tips for short-term rental hosts: a lodging tax checklist
- Feb 8, 2019 | Jennifer Sokolowsky
It’s probably safe to say that many short-term rental hosts don’t know much about lodging taxes when they start operating their rental. However, it’s becoming increasingly important for hosts to get a handle on lodging taxes. As the industry grows in popularity, more and more communities are levying lodging taxes on short-term rentals, and getting more serious about enforcing short-term rental regulations.
Lodging taxes can be complicated and confusing. And because lodging taxes are very local in nature, the details of lodging tax compliance may differ quite a bit from place to place.
However, there are some universal steps short-term rental hosts can take to make sure they’re properly managing their lodging tax obligations — and avoiding the hassle, fines, and penalties that can come with noncompliance. Here’s a checklist every short-term rental host should follow.
1. Understand what lodging tax is.
Lodging tax is a tax on accommodations. Typically, it’s in the form of a percentage of the accommodations cost added to the bill. Guests pay lodging tax out of their own pocket, but the host is responsible for collecting it and remitting it to the state.
It’s important to understand that this is separate from income taxes, which are paid based on the amount of income received annually.
2. Identify which lodging jurisdictions apply to your rental.
Knowing which tax jurisdictions govern your rental property is key to lodging tax compliance, because lodging tax rules, taxes, and rates vary greatly from jurisdiction to jurisdiction.
Keep in mind that your rental may be located in more than one jurisdiction. States, counties, cities, and special jurisdictions may all levy taxes on short-term rentals.
You’re responsible for knowing the law and following the tax regulations for each and every jurisdiction that applies. Each jurisdiction may have different registration requirements, taxes, filing due dates, taxability rules, and more.
Failure to comply with lodging tax laws can bring negative consequences, including fines and penalties.
3. Determine which lodging taxes you’re required to collect.
Once you know your tax jurisdictions, you can find out which lodging taxes apply to your rental. Keep in mind that lodging taxes on short-term rentals go by many different names and that more than one tax may apply. These may be called sales taxes, lodging taxes, transient occupancy taxes, hotel taxes, bed taxes, tourist taxes, and more. You need to be aware of any tax that applies to short-term rentals.
4. Register with your tax jurisdictions.
Before you can begin collecting lodging taxes, the vast majority of tax jurisdictions require you to register and/or apply for a tax permit or license. Again, the registration process for each jurisdiction may be different, but in most cases, you’ll be able to find instructions and register online. Once you register, the jurisdiction should send you further information on filing your lodging tax returns.
5. Distinguish which charges are taxable.
When you’re ready to collect taxes, make sure you’re aware of which charges are subject to taxes. In most jurisdictions, all charges that are required as part of the rent are taxable, including cleaning fees, pet fees, and other fees. However, rules vary among different jurisdictions and it’s up to you to be certain you have the right information.
6. Know which taxes your online rental platform is collecting for you.
Some online short-term rental platforms, including Airbnb, VRBO, and HomeAway, collect taxes from guests when they book and remit them to tax authorities on behalf of their hosts.
However, it’s important to know that tax collection by online platforms isn’t universal. Generally, platforms only collect taxes in places where they have an agreement to do so or where they’re required to by law. And they may collect some taxes that are due on your rental, but not other taxes. Any taxes not collected by your platform are your responsibility.
It’s also important to know that even if your platform is collecting taxes from your guests for you, platforms generally submit all taxes they collect in a lump sum to the tax authority, with no notification of which amounts are being paid on behalf of which host. So even if your platform is collecting taxes for you, you may still be required to register with the tax authority and report your short-term rental revenues and the amount of tax collected and paid on your behalf.
7. Collect lodging tax from your guests.
Once you’re registered with the tax jurisdiction, you can begin collecting lodging taxes from your guests. Normally, you’ll combine all the different taxes that apply into a single rate. You’ll use this rate to calculate the amount of tax due, based on the amount charged for the accommodations. You’ll add this amount to your guest’s bill, and save the collected tax amount to pay to the tax jurisdiction when you file your lodging tax returns.
8. Make sure you’re charging the right tax rates.
It’s important to ensure that you use the correct rates for each tax in order to get tax compliance right. Use our tax lookup tool to find the tax rates that apply to your rental’s specific location.
9. File your lodging tax returns on time.
When you register with the tax authority, you should receive information about filing lodging tax returns. When you file, you’ll report the amount you charged for your rental and pay the tax due. In most places, you can do this online.
How often you need to file and the due dates will depend on the jurisdiction. It’s common for lodging tax returns to be filed monthly, but they also may be due quarterly or annually. Due dates and filing frequencies may be different for each jurisdiction where you’re registered.
10. Know your options for getting help.
If lodging tax compliance seems overwhelming or too time-consuming, you don’t have to do it all yourself. Handling lodging tax is one task many property managers will take on for you, for example. Software solutions, such as MyLodgeTax, can also streamline the process and increase accuracy by automating lodging tax compliance.