Airbnb, Homeaway, and VRBO have changed the way vacationers travel. More and more guests are choosing to rent private homes over booking hotels. The opportunity for residents of California to take advantage of this has never been greater.
With a bounty of glorious destinations including Disneyland, Yosemite National Park, and Napa Valley, the Golden State offers prospective vacation rental hosts the opportunity to pad their income and meet new people.
But new income opportunities bring new tax implications. Local tax authorities in California expect most vacation rental home hosts to properly collect and file sales tax on short-term rentals (also commonly referred to as lodging tax, sales tax, bed tax, or tourist tax).
To help you get compliant with California tax laws, Avalara has put together this guide covering the following key points:
- Understanding Tax Compliance
- Getting Started
- Due Dates and Penalties
- Local Laws and Regulations to Consider
- Commonly Asked Questions
Disclaimer: No vacation rental tax guide is a substitute for professional tax advice. Consider it an asset to help you understand and prioritize your vacation rental questions and concerns.
Understanding Tax Compliance
You might wonder why you have to consider transient occupancy tax when renting out your 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 doesn’t excuse hosts from their tax obligations.
Failure to comply with state and local tax laws may not catch up with homeowners in the short term. Increasingly, however, the sharing economy is being placed under the proverbial microscope. It’s recommended that you address 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 transient occupancy tax to the California Board of Equalization. The sooner you understand your transient occupancy tax responsibilities, the better you can avoid potential late payment fines and interest penalties.
In its simplest form, transient occupancy tax management for your California rental home can be summarized in three key steps: Registration, Collection, and Filing.
We’ve described each step below to help you better understand what’s required. That being said, taxes can be complicated. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with California tax laws.
Step 1: Register with the appropriate government agencies
Prior to renting out a California home, short-term rental hosts may be required to register with state and local tax authorities. Exact requirements are specific to the location of your rental. For specific tax rate and licensing requirements, visit our California transient occupancy tax lookup tool. It should be noted that collecting local transient occupancy tax in California prior to completing all necessary registrations is against the law.
For each completed registration you’ll be assigned a filing frequency. At the local level it’s typically monthly, quarterly, annually or a combination depending on location.
Step 2: Collect transient occupancy tax from short-term renters
Before collecting any transient occupancy tax from your guest, it’s important to understand whether local transient occupancy tax has already been collected on your behalf. Some vacation rental marketplaces collect local California transient occupancy tax for you. In such a situation, be sure to identify whether your location qualifies for tax being collected on your behalf to avoid mistakenly collecting tax twice or failing to collect. Never assume all taxes are collected on your behalf.
At the time of this guide’s publication, Airbnb is collecting California transient occupancy tax on behalf of the host.
If it turns out you have to collect local transient occupancy tax from your guest, you’ll need to determine the appropriate tax rate to charge. This rate depends on the address of the vacation rental property. Avalara offers a California rate lookup tool you can use to determine the appropriate taxes to collect and the correct rates to charge for your vacation rental home address.
Step 3: File transient occupancy tax returns
Now, it’s time to file your tax return with your local tax jurisdictions. If you have more than one return to file, it’s important to remember their due dates may not be the same. Also, in California, registered vacation homeowners may be required to file local returns regardless of whether any transient occupancy tax has been collected. Such returns are commonly known as “zero dollar returns.”
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. It’s not uncommon for well-meaning taxpayers to overlook basic details that may result in filings being rejected.
Due Dates and Penalties
Failure to file local transient occupancy tax returns in California on time may result in late fees, interest payments, and in extreme cases, legal action. This holds true regardless of whether any transient occupancy tax was collected during the filing period. Once you’re registered with local tax jurisdictions in California, it’s important to stay on top of your filing deadlines.
Local filing deadlines may vary by location. Please contact your local tax authority for further details.
If you’re already renting your home but not collecting transient occupancy tax, understand you may be in violation of California 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.
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.
Local Laws and Regulations to Consider
Business Licenses: Historically, business license requirements for short-term rental hosts in California were minimal, but requirements have increased recently. Be sure to check with your state and local tax authorities for details.
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.
Special Permits: Check to see if your city or county requires any special permits in order to rent out your dwelling.
Homeowner Associations: Homeowner Associations (HOA) located in California 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.
Commonly Asked Questions
Let’s face it, managing vacation rental taxes in California can be complicated. As a vacation rental homeowner, you may encounter scenarios that leave you scratching your head. For example, who’s responsible for collecting transient occupancy tax if your long-term tenant subleases the room to a short-term guest?
To help you better understand your tax obligations, we’ve created a list of questions we frequently hear from vacation rental homeowners. Don’t see an answer to your question? Drop us a line and one of our tax experts will get in touch.
State and Local Taxes
What is the definition of “short-term rental” in California?
Short-term rentals are defined by the California Board of Equalization as periods less than 30 consecutive days. Residents with a signed lease for continuous residence longer than this should not be charged transient occupancy tax.
It is important to note this definition may vary from location to location. Check with your local tax authority for the most up to date definition.
Does the California Board of Equalization require vacation rental owners to register with the state?
No. In California, vacation rental homeowners are not required to register with the state. Be sure to check with your local tax authorities about local registration.
What is the current transient occupancy tax rate in California for short-term rentals?
Transient occupancy tax in California is only collected at the local level. Local tax rates vary by address. To determine the correct rate to charge for your property location, use our California tax rate lookup tool.
Do local jurisdictions in California have vacation rental requirements?
Yes. Counties and some cities in California require vacation rental homeowners to collect transient occupancy tax from transient occupants.
Need to look up a sales tax rate for a specific location? Choose from the list of cities in the right column or use our California tax rate lookup tool to determine the tax rate and licensing requirements for your specific address.
Are there local registration requirements in California?
Yes. Depending on location, vacation rental homeowners in California may be required to register their dwelling with city or county tax authorities.
Are there any other licenses or permits needed for California vacation rental property owners?
There may also be local transient occupancy taxes you’re required to collect so be sure to check with your city or county tax administrator for further information.
Collecting Transient Occupancy Tax
Who is required to collect and file transient occupancy tax in California?
Whether you’re the property owner or not, if you collect payment from short-term guests who are not exempt from transient occupancy tax, you’re likely responsible for collecting, filing, and remitting transient occupancy tax to local tax authorities. You may be the property owner, a renter subleasing a room, a third-party property management firm, or other party.
What happens if I forget to collect transient occupancy tax from my guests?
Generally speaking, transient occupancy tax is collected from guests upon payment. However, the California Board of Equalization 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 California Board of Equalization has the authority to levy fines and charge interest on late payments and outstanding tax revenue.
Are there exemptions from transient occupancy tax in California?
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 several situations where guests may be exempt from paying transient occupancy tax in California. 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. We encourage you to check with the California Board of Equalization for explicit details.
My guests are not from California. Do I need to collect transient occupancy tax?
Yes. transient occupancy tax is collected based on the location where it is applied and, with few exceptions, is applied to all short-term renters in California. 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?
Apartment and condominium short-term rentals in California are treated the same as single-family home short-term rentals and taxed accordingly by local tax authorities.
Transient Occupancy Tax Due Dates and Filing
What are the due dates for transient occupancy tax returns in California?
Transient occupancy tax is only collected at the local level in California. Due dates will be unique to each city or county in which you are registered and assigned upon successful registration.
Are there options for outsourcing transient occupancy tax filing?
Yes. Many vacation rental hosts in California file up to 24 state and local transient occupancy tax returns annually. For many, this time burden is alleviated with filing solutions such as MyLodgeTax.
I didn’t rent my property during this filing period. Am I still required to file a transient occupancy tax return with the California Board of Equalization?
Yes. Vacation rental owners registered with the California Board of Equalization are required to file returns each assigned filing period regardless of whether any transient occupancy tax revenue was collected.
What happens if my assigned due date is on a weekend or holiday?
If the transient occupancy tax return due date falls on a Saturday, Sunday, or state/federal holiday, returns and payments will be timely if they are postmarked on the first business day following the assigned due date.
Does the California Board of Equalization offer a discount for on-time filing?
No. At this time, there are no discounts for timely filing in California.
Penalties and Interest Payments
Will I be assessed a penalty if my transient occupancy tax return is filed late?
For details on local sales tax late filing penalties in California, please check with specific tax authorities.
Does the California Board of Equalization charge interest on an outstanding transient occupancy tax balance?
For details on interest charges on outstanding sales tax revenue in local California jurisdictions, please check with specific tax authorities.
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 transient occupancy tax may be waived if hosts can show circumstances beyond their control prevented them from filing or paying transient occupancy tax returns on time. Examples include illness, natural disaster, accident, etc. Contact the California Board of Equalization for more information.
I have rented my home for years without collecting transient occupancy tax. What options do I have?
Vacation rental homeowners in California who have failed to collect transient occupancy tax in the past may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for vacation rental homeowners to proactively disclose prior period tax liabilities in accordance with a binding agreement with the California Board of Equalization.
VDAs are offered to encourage cooperation with state tax laws and may result in some or all monetary penalty and interest payments being waived.
Other Common Questions What is the difference between income tax and transient occupancy tax?
Income taxes are reported and paid annually to the federal and many state governments on “taxable” income, which is income after allowed expense deductions. A sales tax is a tax levied by state and city agencies (not federal) and requires you 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 California transient occupancy tax?
No, the 14-day rule applies to income tax and does not affect a vacation rental homeowner’s responsibility to collect and file transient occupancy tax in California.
This guide to California transient occupancy 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.
City Tax Rate Lookup
Big Bear Lake
Laguna Beach BID
San Luis Obispo