Alabama Vacation Rental Tax Guide
Avalara Tax Guides

Airbnb, Homeaway, and VRBO have changed the way vacationers travel. More and more guests are choosing to rent private homes rather than book hotels. The opportunity for residents of Alabama to take advantage of this and operate their own short-term rental has never been greater. With a bounty of glorious destinations including Montgomery, Gulf Shores, and Dauphin Island, The Yellowhammer State offers prospective vacation rental hosts the opportunity to pad their income, offset their mortgage, and meet new people.

But new income opportunities bring new tax implications. State and local tax authorities in Alabama expect those operating short-term vacation rental homes to properly collect and file lodging taxes commonly referred to as sales tax, hotel tax, or bed tax.

What can I expect to learn from this guide?

Operating a short-term vacation rental in Alabama brings with it the need to understand and manage taxes. There are a few basic questions you’ll want to answer to get started. These include:

The remainder of this guide will focus on each of these steps to provide you with a more detailed view of the actions you should take to be more confident that you are setting yourself up to be tax compliant.

Who is this guide written for?

This guide is written for anyone who is operating a short-term vacation rental in Alabama. The type of home is irrelevant as apartments, condos, and single family homes are all taxed in the same manner.

This may include those who are renting on marketplaces such as Airbnb, HomeAway, or VRBO, those who are renting through their own website, or those who are utilizing a property management service like the Evolve Vacation Rental Network.

Disclaimer: No vacation rental tax guide is a substitute for professional tax advice. Consider this document as an asset to help you understand and prioritize your questions pertaining to Alabama short-term vacation rental taxes. (Last Updated: June, 2018)

 

Table of Contents


  1. Determining the tax rate specific to your Alabama rental address

  2. Understanding Alabama lodging tax compliance

  3. State and local tax registration and licensing

  4. Collecting lodging taxes from guests

  5. Filing due dates and penalties

  6. Preparing and filing Alabama lodging tax returns

  7. Other rules and regulations to consider

 

 

1. Determining the tax rate specific to your Alabama address


We know many of our readers are anxious to get to the details pertaining to their taxes. For many short-term rental operators, this guide will make more sense and be more meaningful after you have a better understanding of what your the tax rate is for your rental property.

For specific tax rate details and general licensing requirements, visit our tax rate lookup tool and enter your rental address. We’ll send the report to your email address as quickly as our tax experts are able to complete it.

Some locations in Alabama require more extensive research and may take up to 48-hours to complete. Our tax experts will determine your specific tax details and send them to you. Please note, tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than definitive.

Takeaway

The tax rate operators of short-term vacation rentals in Alabama are expected to collect from guests is rarely a single value. Rather, it is a combination of city and county lodging taxes, sales tax, and room taxes for a few locations.

Action

Request a free lodging tax rate report from Avalara for my Alabama vacation rental property.

 

2. What does it mean for my short-term rental to be tax compliant?


You might wonder why you have to consider sales tax, use tax, and other lodging taxes when renting out your Alabama home (or other dwelling). For state and local governments, tax revenue represents a sizable portion of funding. The lodging industry’s movement toward more nontraditional rental options shifts revenue away from hotels, motels, and B&Bs and toward homeowners. Like hotels and motels, homeowners operating a short-term rental are required by law to collect, file, and remit taxes.

Whether you choose to rent your home through a marketplace like Airbnb or direct to the consumer, you open the door to tax liability at the state and local level.

Failure to comply with Alabama tax laws may not catch up with short-term rental operators immediately. As previously mentioned, however, the rapidly growing sharing economy is under the proverbial microscope. It’s recommended you address tax compliance before tax authorities address it for you.

Take the time to understand when, where, and how you’re expected to collect, file, and remit sales tax, use tax, and other lodging taxes to the Alabama Department of Revenue. The better you understand your tax responsibilities, the better you can avoid potential late payment fines and interest penalties.

Takeaway

Alabama state and local tax officials are increasingly paying attention to short-term rental operators not complying with tax laws and regulations. If you have been operating your rental and ignoring tax responsibilities, the time to act is now. Ignoring tax compliance only makes the problem bigger.

Action

If you’ve been operating your vacation rental without collecting and filing taxes, consider contacting the tax experts at Avalara to determine your best path forward. Typically, any outstanding Alabama taxes can be dealt with by executing a “back filing”. In more egregious cases, a voluntary disclosure agreement may be your best path forward.

 

3. Registering with the Alabama Department of Revenue


Prior to operating a short-term vacation rental in Alabama, you will need to apply for and receive a Sales and Use Tax License by completing the Alabama State Business and Tax Registration form. Most cities and counties in Alabama also require some form of rental or business license. These registrations are completed at the local level.

After your licensing and registration is completed, you’ll be expected to file returns monthly. More about this later in the guide. It should be noted that collecting sales tax, lodging tax, room tax, or any other lodging related tax in Alabama prior to completing all necessary registrations is against the law.

Takeaway

Before you can collect any lodging taxes from your guests, you are required to register with the Alabama Department of Revenue. Licenses often have associated fees and frequently must be renewed annually.

Action

Based on the address of your short-term vacation rental, apply for the appropriate licenses and pay the necessary fees to ensure you are collecting taxes legally. If you are unsure of which licenses and registration you need, contact the tax experts at Avalara MyLodgeTax for assistance.

 

4. Collecting lodging taxes from rental guests


Before collecting any taxes from your guests, find out whether any taxes are being collected on your behalf. If your guests booked their rental through a vacation rental marketplace such as Airbnb, HomeAway, or VRBO, it’s possible some taxes (typically not all) were collected at the time the property was booked. This rarely happens at both the state and local level. However, assuming lodging taxes pertaining to your Alabama rental are managed on your behalf is not recommended.

At the time this guide was written, Airbnb is collecting and filing the following taxes on behalf of the host.

  • Alabama State Lodging Tax

  • County Lodging and Rental Tax (collected by the State)

  • Municipality Local Lodging Tax (collected by the State)

Airbnb also manages taxes on behalf of the owner or operator for rentals in Auburn, Orange Beach and Tuscaloosa.

Never assume all your taxes are being managed by Airbnb or any other marketplace. There may be other taxes Airbnb is not collecting. Moreover, other marketplaces such as HomeAway or VRBO do not manage lodging taxes as aggresively as Airbnb.

Consider the table below which lists a sampling of the taxes short-term rental operators in Alabama may have to collect depending on their rental location.

 

Tax Name

Tax Jurisdiction

Sales Tax

State, City, County

Use Tax

State, County, City

Lodging Tax

City, County

Room Fee

City, County

 

Takeaway

Collecting the correct taxes from guests is the responsibility of the short-term rental operator. In Alabama, those taxes exists at the state, county, and city levels. Never assume marketplaces such as Airbnb, HomeAway, or VRBO are managing all these taxes for you.

Action

Identify the taxes you are required to collect for each of your vacation rental locations. If you are using a marketplace, determine which taxes (if any) are being collected and filed on your behalf. Need assistance? Call the tax experts at Avalara MyLodgeTax at (877) 589-0207 to review your tax profile.

 

5. Tax filing due dates and late penalties


Lodging taxes are due by the 20th of the month  following the filing period in question. As an example, all taxes collected in June are due prior to the 20th of July.

Failure to file your tax returns on time may result in late fees, interest payments, and in extreme cases, legal action. This holds true regardless of whether any tax was collected during the filing period. Once you’re registered with the state of Alabama, you will need to stay on top of your filing deadlines. These are typically monthly or quarterly.

In the event that a due date falls on a weekend or a federal holiday, the return is considered on time if filed on or before the next business day.

If you’re already renting your home but not collecting lodging taxes from guests, understand you may be in violation of Alabama tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect the required taxes.

As tax revenue is a major source of state and local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with lodging tax laws. This is particularly true for short-term vacation rentals where misinformation about tax compliance is common and many hosts are not tax compliant.

Takeaway

The Alabama Department of Revenue requires sales tax and lodging tax returns to be filed by the 20th of the month following the close of the filing period. Failure to file or remit taxes by this date may result in monetary penalties. Due dates falling on weekends or federal holidays are moved to the next business day.

Action

Determine your state and local filing due dates. Set repeating monthly or quarter reminders to assist with remembering due dates. Not interested in filing returns? For just $20 / month, Avalara MyLodgeTax will prepare, file, and remit all your taxes.

 

6. Preparing and filing lodging tax returns


After you’ve collected the proper taxes from your guests, it’s time to file your tax returns with the Alabama Department of Revenue. In Alabama, once you have registered with the state, you are required to file these returns each month regardless of whether any tax has been collected. Such returns are commonly known as “zero dollar returns.”

If you are filing returns yourself, be sure to thoroughly review your returns prior to submission. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays. It’s not uncommon for well-meaning taxpayers to overlook basic details that may result in filings being rejected.

Takeaway

Preparing and filing tax returns is the responsibility of the person operating a short-term vacation rental and are required regardless of whether any tax revenue has been collected during the filing period. Beware of simple errors as they can result in returns being rejected by the Alabama Department of Revenue.

Action

Determine which Alabama tax forms you need to file. Prepare and file these returns prior to the assigned due date. If you are unsure of which tax return forms you need to file, contact the tax experts at Avalara MyLodgeTax for assistance.

 

7. Other rules and regulations to consider


Homeowners and property managers in Alabama should be careful to consider local tax laws when renting their home to short-term guests. Every city and county may have their own rules regarding legality of short-term rentals, which vacation rental taxes to collect, and which licenses to obtain.

Zoning Rules: Not all buildings are available for business, rental, or living usage. Most local governments have laws specifying how a home can be used. Before renting out your home, be sure to review city zoning and planning codes.

Building and Housing Standards: In most cities throughout the United States, minimal construction, design, and maintenance standards exist. Dwellings may need to meet stated criteria in order to operate legally. Contact your state and local governments for more details.

Homeowner Associations: Homeowner Associations (HOA) located in Alabama may have specific rules regarding vacation rentals as dictated in Declaration of Covenants, Conditions, and Restrictions (CC&Rs). Additionally, the CC&Rs may include a provision allowing for amendments to add further restrictions on the property in the future. It's important to review this information to understand any vacation rental limitations inherent to your HOA. As a member, it’s your responsibility to understand the association’s covenants and rules.

Other Rules to Consider: This list should not be considered exhaustive. Other rules and regulations associated with leases/subletting, and condo or co-op rules may apply to your situation. A good place to start is by reviewing your signed lease and speaking with your landlord or property manager.

 

Frequently asked questions


Are short-term rentals legal in Alabama

In 2018, the city council of Orange Beach, Alabama, passed a new law prohibiting short-term vacation rentals of less than two weeks in single-family residential properties. The city plans for a new vacation rental license intended for homeowners who want to rent their properties out for 14 days or more at a time.

What is the definition of “short-term rental” in Alabama?

Short-term rentals are defined by the Alabama Department of Revenue as rental periods of less than 180 days of continuous occupation. Residents with a signed lease for continuous residence longer than this should not be charged lodging taxes.

Does the Alabama Department of Revenue require vacation rental owners to register with the state?

Yes. For the purpose of collecting lodging taxes, the Alabama Department of Revenue requires short-term vacation rental operators to register with the state prior to hosting guests and collecting taxes on vacation rental revenue.

What is the current sales tax rate in Alabama?

At the state level, the Alabama sales tax rate is currently 4 percent. Have questions? We recommend you generate a free lodging tax rate report or call our tax experts at (877) 589-0207 for more information.

Should taxes be charged on cleaning fees?

Yes. Lodging taxes are applied to all mandatory fees charged to your guest. Cleaning fees are generally mandatory and charged as separate fees and are therefore considered part of the taxable revenue.

Do local jurisdictions in Alabama have vacation rental requirements?

Yes. As shown earlier in this guide, there are a number of taxes applied to short-term rentals at the county and city levels. These include, but are not limited to, lodging tax, sales tax, and room fees. Whether you are required to collect these tax depends on the address of your rental. Use our free tax rate lookup tool to get a better sense of your lodging tax requirements.

Are there local registration requirements in Alabama?

Yes. Most cities and counties in Alabama require short-term rental operators to register for some form of rental or business license.

What happens if I forget to collect tax from my guests?

Generally speaking, lodging taxes are collected from guests upon payment. However, the Alabama Department of Revenue places the legal responsibility for this tax revenue squarely on the shoulders of the host. Failure to collect tax from guests means the host will need to pay the tax or recoup the tax revenue from the guests.

Furthermore, the state has the authority to levy fines and charge interest on late payments and outstanding tax revenue.

Who is responsible for collecting taxes if I rent my home through a marketplace such as Airbnb, HomeAway, or VRBO?

In nearly all cases, it is the homeowner or property manager who is required to collect, file, and remit lodging taxes to the Alabama Department of Revenue. At the time this guide was written, Airbnb is the only marketplace collecting, filing, and remitting taxes in Alabama on behalf of the homeowner or property manager. It should be noted that Airbnb does not manage taxes in all counties and cities in Alabama.

Are there exemptions from lodging taxes in Alabama?

Yes. It’s important to remember short-term guests have rights and you need to understand and respect those rights. Tax exemptions are a prime example. Although uncommon, there are situations where guests may be exempt from paying lodging taxes in Alabama. Examples include full-time students, active military personnel present in the community under official orders, and rental of accommodations in a migrant labor camp.

In most cases, substantiating documentation must be presented by the guest prior to payment.

My guests are not from Alabama. Do I need to collect lodging taxes?

Yes. Lodging taxes are collected based on the rental location and, with few exceptions, is applied to all short-term renters in Alabama. As mentioned in the prior questions, there are some exemptions to this rule, but they are not predicated on the state or country a person calls home.

Are apartment or condo rentals taxable?

Yes. Apartments and condos in Alabama offered as short-term rentals are taxed in the same manner as single family homes.

What are the due dates for lodging tax returns in Alabama?

The due date for all lodging taxes in Alabama is the 20th of the month following the completion of the filing period.

I didn’t rent my property during this filing period. Am I still required to lodging tax returns with the Alabama Department of Revenue?

Yes. Short-term vacation rental operators registered with the Alabama Department of Revenue are required to file returns each assigned filing period regardless of whether any tax revenue was collected. This is commonly referred to as a “zero tax return.”

What happens if my assigned due date is on a weekend or holiday?

If your lodging tax return due date falls on a Saturday, Sunday, or state/federal holiday, lodging tax returns and payments will be timely if they are postmarked on the first business day following the assigned due date.

Does the Alabama Department of Revenue offer a discount for on-time filing?

Yes. At this time, the Alabama Department of Revenue offers a timely filing discount of 5% on the first $100 of tax due, and 2% of all tax over $100. If you are paying the taxes due via EFT, the payment information must be transmitted by 4:00 pm CST on or before the due date, to be considered timely paid.

Can I be assessed a penalty if my tax returns are filed late?

Yes. Failure to file a your state sales tax or local tax returns on time may result in a penalty being assessed on the outstanding tax revenue at a rate of 10 percent of the outstanding tax.

What should I do if I am unable to file my return on time due to circumstances beyond my control.

Assessed penalties for late filing or paying of tax returns may be waived if short-term vacation rental operators can show circumstances beyond their control prevented them from filing returns or remitting tax on time. Examples include illness, natural disaster, accident, etc.

I have rented my home for years without collecting taxes. What options do I have?

Short-term vacation rental operators in Alabama who have failed to collect lodging taxes in the past may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Alabama Department of Revenue.

VDAs are offered to encourage cooperation with state tax laws and may result in some or all monetary penalty and interest payments being waived.

For more information, please contact Avalara MyLodgeTax at (877) 589-0207.

What is the difference between income tax and sales tax?

Income taxes are reported and paid annually to federal and many state governments on "taxable" income, which is income after allowed expense deductions. Sales tax is levied by the Alabama Department of Revenue and requires short-term vacation rental operators to collect tax on the gross amount collected from your guests renting your vacation property — there are no deductions.

Does the 14-day rule apply to Alabama lodging tax?

No, the 14-day rule applies to income tax and does not affect a vacation rental homeowner's responsibility to collect and file lodging tax returns in Alabama.

 

Legal Details


Disclaimer: This guide to Alabama lodging tax compliance should be considered an asset to help you understand and prioritize your vacation rental tax challenges. It should not be considered a substitute for professional tax advice.