California vacation rental tax guide
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NOTE: The outbreak of COVID-19 (caused by the coronavirus) may have impacted vacation rental tax filing due dates in California. Please consult your local tax authority for specific details. For more information, visit our ongoing coverage of the virus and its impact on sales tax compliance.
Airbnb and HomeAway/Vrbo have changed the way vacationers travel. More and more guests are choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Disneyland, Yosemite National Park, and Napa Valley, the Golden State offers prospective short-term rental hosts the opportunity to bring in extra income and meet new people.
But new income opportunities bring new tax implications. Like hotel and B&B stays, California short-term rentals may be subject to tax, depending on where they’re located. Tax authorities require short-term vacation rental hosts to collect applicable short-term rental taxes from their guests and remit them to the proper authorities.
Failure to comply with lodging tax laws can result in fines and interest penalties. These may not catch up with vacation rental operators in the short term, but the sharing economy is under increased scrutiny so it’s important to address compliance before tax authorities address it for you.
Avalara MyLodgeTax has put together this guide to help you comply with California short-term rental tax laws. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.
No short-term vacation rental tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with California tax laws.
Short-term rental tax basics
When you start operating a short-term rental, while you might not have experience with lodging taxes, you’re probably familiar with income tax. It’s important to understand the difference between the two.
Income taxes are reported and paid annually to the federal government and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.
Lodging taxes on a short-term rental are a percentage of the cost of your guest’s stay that is added to the price of the bill. The guest pays the tax, but you’re responsible for collecting the tax and paying it to the proper tax authority.
What’s the definition of “short-term rental” in California?
For tax purposes, short-term rentals in California are defined as reservations of 30 days or less.
Who’s required to collect and file taxes on short-term rentals in California?
If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling in a California jurisdiction that imposes taxes on short-term rentals, you’re likely responsible for collecting, filing, and remitting these taxes to the appropriate tax authorities.
Location is key to compliance
The location of your rental is a crucial piece of information for short-term rental tax compliance. Your address will determine which tax jurisdictions you’re required to report to, which taxes you need to collect, and your tax rates.
Use our lodging tax lookup tool to get a rate report specific to your California address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.
It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.
Registering with state tax authorities
Before you can begin collecting taxes on your short-term rental in California, you’re legally required to register with your local tax authority. You can typically register online, depending on the jurisdiction.
Do I need to form an LLC?
In California, you don’t need to form an LLC to register with tax authorities.
State short-term rental regulations
California law allows cities and counties to levy transient occupancy tax on accommodations that are rented out for 30 days or less.
Local short-term rental regulations
Short-term rental operators in California should be aware of local regulations that apply to them, including rules covering:
- Permits, licenses, and registration
- Neighborhood notification
- Building and housing standards
Homeowner Associations (HOA) located in California may also have specific rules regarding vacation rentals. As a member, it’s your responsibility to be aware of the association’s policy. It’s important to review this information to understand any restrictions or limitations on short-term vacation rentals.
Other regulations associated with leases/subletting or condo/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.
Collecting short-term rental tax
Once you’re registered with tax authorities, you’re ready to start collecting short-term rental tax, which you’ll add to your guest’s bill when they pay for their stay.
Which taxes apply to California short-term rentals?
In California, short-term rentals may be subject to transient occupancy tax, depending on the jurisdiction.
|Tax name||File and remit to|
|Transient occupancy tax||City or county tax authority|
Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s critical to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues.
Our lodging tax lookup tool can give you a rate report specific to your California address. The report includes the estimated total tax rate to collect from guests, required registrations, frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.
What charges are taxable?
In California, each local tax authority determines which short-term rental charges are taxable, so the rules will depend on your jurisdiction.
What happens when my short-term rental marketplace (such as Airbnb or HomeAway/Vrbo) collects taxes for me?
Before collecting any short-term rental taxes from your guests, you need to be aware of whether any taxes have already been collected for you. Some vacation rental marketplaces collect California short-term rental taxes for you when the listing is booked, but not all do. If taxes aren’t being collected for you, you’re responsible for collecting and remitting them to tax authorities.
Platforms regularly add new jurisdictions to the list of locations where they collect lodging taxes on hosts’ behalf. Check with your platform for the latest information on which taxes they collect in your jurisdiction.
Are guests ever exempt from taxes?
There are situations in which you aren’t required to collect transient occupancy taxes in California. For example, a guest who rents for more than 30 days will be exempt from short-term lodging taxes. Other exemptions depend on the jurisdiction.
Filing short-term rental tax returns
After you’ve collected taxes from your guests, it’s time to file your tax returns with your local tax jurisdiction. In order to file, you’ll need to enter information on how much you charged for your rentals and pay the tax due. Transient occupancy tax return due dates will depend on your jurisdiction.
Take the time to double-check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.
I didn’t rent my property during this filing period. Am I still required to file a tax return for my short-term rental with my local tax authority?
In some California jurisdictions, you’re required to file returns each assigned filing period, regardless of whether you had any short-term rental income or any short-term rental taxes were collected. Such returns are commonly known as “zero dollar returns.” Each local tax authority has its own rules regarding zero-dollar returns.
Are there penalties for filing taxes late?
Whether you choose to offer short-term rentals through a marketplace like Airbnb or directly to the consumer, you open the door to tax liability. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with local tax laws. Failure to register with tax authorities and file short-term rental tax returns in California on time may result in late fees, interest payments, and in extreme cases, legal action.
I’ve been offering short-term rentals without collecting lodging tax. What options do I have?
If you’re already operating a short-term rental but you’re not collecting short-term rental taxes, you may be in violation of 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 tax.
Short-term rental hosts in California may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the local tax authority. VDAs are offered to encourage cooperation with tax laws and may result in some or all penalty and interest payments being waived.
Are there options for outsourcing lodging tax filing?
Yes. Numerous short-term rental hosts in California file several local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.
CITY TAX RATE LOOKUP
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