Commonly asked questions from short-term rental hosts: Filing lodging tax returns when your marketplace collects tax for you

Here at Avalara MyLodgeTax, we hold webinars on a regular basis to help short-term rental hosts better understand lodging tax compliance. During these sessions, we get a lot of questions from webinar participants about all kinds of vacation rental lodging tax situations.

We realized that if one person has a question regarding short-term rental lodging tax, plenty of others out there probably have the same question. So, we’ve put together some of our most asked questions — and provided answers for everyone.

A: This is a great question. Unfortunately, the answer isn’t cut-and-dried.

When it comes to short-term rentals and lodging taxes, everything depends on location, location, location. Tax rules are determined by the taxing jurisdiction, which could be at the state, county, or local city or town level. The rules that apply to your short-term rental property may be different than the rules that apply to a neighboring state or even a nearby city.

Jurisdictions that levy lodging taxes on short-term rentals generally require operators to file lodging tax returns. Short-term rental operators collect the taxes from their guests and use the returns to report their taxable lodging revenues, determine how much tax is owed, and remit those taxes to the tax authority.

In some jurisdictions, short-term rental marketplaces such as Airbnb and Vrbo have agreements with tax authorities to collect lodging tax when the guest pays for the rental. The marketplace then remits that tax on behalf of the host to the jurisdiction.

Many jurisdictions don’t clearly spell out what hosts need to do if their marketplace collects lodging tax on their behalf, especially if lodging tax laws were created before the rise of short-term rental marketplaces. In this case, operators should seek clarification from the jurisdiction about their compliance obligations when their marketplace is collecting taxes for them.

However, in recent years, more jurisdictions have issued specific guidance on this scenario. Some don’t require hosts to file if their marketplace is collecting for them — under the condition the marketplace is collecting tax for all the operator’s transactions.

In New Jersey, for example, short-term rental operators must register with the state for tax purposes and file regular lodging tax returns. But this doesn’t apply if all of an operator’s short-term rental transactions go through an online rental platform.

In that case, the platform is responsible for lodging tax compliance. However, if the host uses a marketplace but has any other transactions that don’t go through the marketplace, the host would be responsible for registering and filing lodging tax with the state.

In Oregon, whoever collects payment for short-term rentals, including hosts or marketplaces, is responsible for collecting and remitting lodging tax. That means an Oregon operator who has all their rental fees collected by a marketplace wouldn’t need to file lodging tax returns.

Other jurisdictions require hosts to continue to file returns even if a marketplace is collecting taxes for them.

In Denver, Colorado, “licensed vendor platforms” including Airbnb and Vrbo, may collect the city’s lodger’s tax from guests and remit it to the city on behalf of operators. That said, operators must still file lodger’s tax returns, but may deduct the sales handled by the vendor platform on the return.

Local laws also determine who has ultimate responsibility for compliance.

In Montana, for example, the state Department of Revenue has issued this guidance: “Owners of lodging facilities who rent out their locations by the night or the week must be registered with the department and must collect and remit the taxes. Your property management firm or online booking service may be collecting and remitting the taxes on your behalf. Please verify they are doing so, because ultimately the responsibility for the taxes remains with the owner of the facility.”

These are examples of various laws, but what matters is the law that applies to your specific jurisdiction. You should also keep in mind that your property may fall under more than one tax jurisdiction and that each may have different rules.

Marketplace lodging tax collection differs from jurisdiction to jurisdiction as well, depending on whether the marketplace has an agreement with (or mandate from) the tax authorities there. Your marketplace may collect taxes for you in all your tax jurisdictions, some of them, or none of them.

MyLodgeTax can help short-term rental operators automate lodging tax to streamline and simplify lodging tax compliance, including filing required lodging tax returns. For more information on lodging tax requirements in each state, see our Lodging Tax Guides. We can also help you answer individual lodging tax questions. Drop us a line and we’ll get back to you with answers.

If you’ve got a burning question about lodging tax, send us an email at MyLodgeTaxMarketing@avalara.com and we’ll try to answer it in an upcoming post.