Minnesota bill would create new property tax classification for short-term rentals

Legislation introduced in both the Minnesota House of Representatives and Senate  would create a new property tax classification for short-term rental properties. The rate would be 1.25% higher than the current residential rate.

The measures were created in response to rising property tax bills for short-term rentals in some counties. Last May, the Minnesota Department of Revenue directed county assessors to determine the “primary use” of residential properties that are rented out on a short-term basis. For those whose primary use was determined to be short-term rental, the Department of Revenue directed assessors to charge a commercial property tax rate.

However, the Department of Revenue stated it could not direct county officials on how to determine “primary use,” and counties have been using different criteria to make these assessments. Some are taking a “wait-and-see” approach, such as Rice County, where the assessor said the issue is complicated by a lack of regulations on short-term rentals.

Still, at the beginning of this year, when property owners received their property tax assessments, some of them owed far more property tax than they had the year before.

Officials in Cook County were instrumental in getting the bills introduced into the Legislature in an effort to eliminate confusion and institute fair property tax assessments across the board for short-term rentals. Both the Senate and House bills have bipartisan support and will have their first hearing this month.

Minnesota isn’t alone in debating property tax issues related to short-term rentals. In Newport, Rhode Island, the City Council will consider a proposal to create a separate property tax classification for short-term rental properties not occupied by their owners. 

In Colorado, a bill that would have raised property taxes on short-term rentals from 7.96% to 29% was killed in the Senate finance committee on request of its sponsor. Meanwhile, an Arizona bill that would require residential property that is used for short-term rentals for at least 90 days a year to be classified as commercial property has been introduced in the state Senate.

Property taxes aren’t the only kind of tax for short-term rentals in Minnesota. Short-term rental hosts are responsible for collecting state sales tax and any applicable local and lodging taxes, depending on their location. Hosts must register with tax authorities, collect lodging taxes from guests, and remit taxes to authorities.

Currently, Airbnb and Vrbo collect state sales taxes and state-administered local sales taxes for all Minnesota hosts, as well as city lodging excise tax for hosts in Duluth.

Hosts are responsible for all taxes that are not collected for them. MyLodgeTax can help automate tax compliance for Minnesota hosts, including state and local registration and filing. For more on occupancy taxes in Minnesota, see our state Vacation Rental Tax Guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.