Airbnb, HomeAway, and 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 Hartford and New Haven, The Constitution 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, motel, and B&B stays, short-term rentals in Connecticut are subject to tax. Tax authorities expect 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 state and local 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 increasingly being placed under the proverbial microscope. It’s recommended that you address compliance before tax authorities address it for you.
Avalara has put together this guide to help you comply with Connecticut 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.
Disclaimer: No short-term 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. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Connecticut tax laws.
Short-term rental tax basics
When you start operating a short-term rental, you may not have experience with lodging taxes, but you are 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 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 is 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 are responsible for collecting the tax and paying it to the proper tax authority.
What is the definition of “short-term rental” in Connecticut?
Short-term rentals in Connecticut are defined as lasting 30 consecutive days or fewer. Specifically, the Connecticut ordinance states that room occupancy taxes should be levied on the first 30 consecutive days of rentals regardless of the ultimate length of occupancy.
Who is required to collect and file taxes on short-term rentals in Connecticut?
If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling, you’re likely responsible for collecting, filing, and remitting short-term rental taxes to Connecticut authorities.
If a third party that is registered with the Connecticut Department of Revenue collects and pays all occupancy tax for your rentals, then you are not required to register with the Connecticut Department of Revenue. This could be an online short-term rental operator such as Airbnb, HomeAway, or VRBO. However, if you offer short-term rentals both independently and through a third party, or the third party does not collect all applicable taxes, you are required to register with the state and fulfil all lodging-tax obligations.
Registering with state and local tax authorities
Before you can begin collecting taxes on your short-term rental in Connecticut, you are legally required to register with the Connecticut Department of Revenue. You can register online. When you register, you will receive a tax registration number as well as instructions on filing your lodging taxes.
Do I need to form an LLC?
In Connecticut, you do not need to form an LLC in order to register with tax authorities.
Local short-term rental regulations
Short-term rental operators in Connecticut 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 Connecticut 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 rules and 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 lodging tax from guests
Once you’re registered with tax authorities, you are ready to start collecting rental tax, which you’ll add to your guest’s bill when they pay for their stay.
Which taxes apply to Connecticut short-term rentals?
In Connecticut, short-term rentals are subject to state room occupancy tax.
|Tax Name||Filed and Remitted To|
|State Room Occupancy Tax||Connecticut Department of Revenue|
Understanding room occupancy tax rates
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 important to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues.
You can use our lodging tax lookup tool to get a rate report specific to your Connecticut 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 Connecticut, all charges associated with occupancy, including accommodations, amenities, and services, whether separately stated or included, are taxable. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Fees that are refundable, such as damage deposits, are generally not subject to lodging taxes unless you keep the deposit.
What happens when my short-term rental platform (such as Airbnb, HomeAway, or VRBO) collects taxes for me?
Before collecting any short-term rental tax from your guests, you need to be aware of whether any taxes have already been collected for you. Some vacation rental platforms, including Airbnb, HomeAway, and VRBO, collect Connecticut short-term rental taxes for you when the listing is booked. However, not all platforms collect taxes. If taxes are not being collected for you, you are responsible for collecting and remitting them to state tax authorities.
At the time of this guide’s publication, Airbnb collects state room occupancy tax for all Connecticut hosts.
HomeAway/VRBO do not collect lodging taxes on behalf of their hosts in Connecticut.
Are guests ever exempt from taxes?
There are situations in which you aren’t required to collect lodging taxes in Connecticut. For example, a guest who rents for a long term rather than a short term will be exempt from short-term lodging taxes. In Connecticut, accommodations purchased by buyers including the federal government, organizations that are exempt from federal income tax, nonprofit healthcare establishments, and qualified diplomatic personnel may be exempt from short-term lodging taxes. Federally recognized Indian tribes located in Connecticut may make exempt purchases of accommodations within Indian country. Guests may be required to present exemption certificates.
Filing room occupancy tax returns
After you’ve collected taxes from your guests, it’s time to file your tax returns with the Connecticut Department of Revenue. In Connecticut, you can file short-term rental tax returns online. In order to file, you will need to enter information on how much you charged for your rentals. You’ll also need to pay the tax amount due, usually via check or electronic transfer. The Connecticut Department of Revenue allows credit card payments, but you may be charged convenience fees for this type of payment.
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.
When do I need to file my returns?
You will be assigned a filing frequency and due dates when you register with the tax authority. At the state level, annual, quarterly, and monthly due dates are as follows:
|Filing Frequency||Due Date|
|Annually||Due the last of the month following the end of the filing period.|
|Quarterly||Due the last of the month following the end of the filing period.|
|Monthly||Due the last of the month following the end of the filing period.|
We recommend contacting your local tax authority if you have any questions about local lodging tax due dates.
Am I still required to file a tax return if I didn’t rent my property during the filing period?
Yes. Short-term rental operators registered with the Connecticut Department of Revenue are 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.” Local tax authorities may have their own requirements.
Are there penalties for filing room occupancy tax returns 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 at the state and local level. 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 Connecticut on time may result in late fees, interest payments, and in extreme cases, legal action.
What options do I have if I have been renting without collecting lodging tax?
If you’re already operating a short-term rental but are not collecting short-term rental taxes, you may be in violation of Connecticut 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 Connecticut 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 Connecticut Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.
Are there options for outsourcing room occupancy tax filing?
Yes. Many short-term rental hosts in Connecticut file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.