Kentucky vacation rental tax guide

With a bounty of popular destinations including Louisville, Lexington, and Mammoth Cave National Park, the Bluegrass State offers ample opportunity for short-term rental (STR) businesses.

But these opportunities come with tax obligations. Like hotel stays, STR stays in Kentucky are subject to lodging tax. Failure to comply with state and local tax laws can result in fines and penalties. Tax jurisdictions are increasingly making STR tax compliance a priority, so it’s important to address compliance before tax authorities address it for you.

Avalara MyLodgeTax put together this guide to help you comply with Kentucky lodging tax laws at the state level. Local jurisdictions such as cities or counties may have their own lodging tax rules. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No lodging tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your STR questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Kentucky tax laws.

Lodging tax basics

Lodging taxes are calculated as a percentage of the cost of your guest’s stay and added to the price on the bill. The guest pays the tax, but the STR operator is responsible for collecting and paying it to the proper tax authority.

What’s the definition of “short-term rental” in Kentucky?

Rentals to transients for less than 30 consecutive days are subject to lodging taxes in Kentucky.

Who’s required to collect and file taxes on short-term rentals in Kentucky?

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 lodging taxes to Kentucky tax authorities.

If you book your STRs exclusively through a marketplace such as Airbnb or Vrbo that collects and remits lodging taxes for you, you don’t need to collect and file state lodging taxes. Local tax authorities may have their own requirements.

Location is key to compliance

The location of your rental is a crucial piece of information for lodging tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and the appropriate tax rates. Use our lodging tax lookup tool to get a rate report specific to your Kentucky rental’s 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.

Local short-term rental regulations

STR operators in Kentucky should be aware of the local regulations that apply to them, including rules covering:

• Legality
• Permits, licenses, and registration
• Zoning
• Advertising
• Neighborhood notification
• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of STR policies that apply to your property.

Registering with tax authorities

Before you can begin collecting taxes on your STR in Kentucky, you’re legally required to register with the Kentucky Department of Revenue. You can register online. Depending on your jurisdiction, you may be required to register with your local tax authority and file local lodging tax returns in addition to state registration and filing.

STR operators aren’t required to register with state tax authorities if all rentals are facilitated by  marketplaces. You need to register, collect lodging taxes, and file returns for any rental transactions that you facilitate directly.

Collecting lodging tax

Once you’ve registered with tax authorities, you’re ready to start collecting lodging taxes, which you’ll add to your guest’s bill when they pay for their stay.

Which lodging taxes apply to Kentucky short-term rentals?

In Kentucky, a number of different lodging taxes may apply to your STR, depending on your location. These can include:

Tax rates

Before you can begin collecting lodging taxes, you need to know the correct rate to charge to avoid compliance issues. Our lodging tax lookup tool can give you a rate report specific to your Kentucky address.

What charges are taxable?

In Kentucky, all charges that are required to use the accommodations are subject to state sales and transient room taxes. This includes charges such as cleaning fees, pet fees, rollaway bed fees, extra person fees, marketplace fees, etc. State sales tax is charged on the whole rent amount, including any amounts charged for state or local transient room taxes.

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects lodging taxes for me?

In Kentucky, STR marketplaces such as Airbnb and Vrbo are required to collect and remit state and local lodging taxes for all Kentucky operators. Operators who do business exclusively with an online marketplace don’t need to maintain state tax accounts.

Are guests ever exempt from lodging taxes?

There are situations in which you aren’t required to collect lodging taxes in Kentucky. For example, receipts from a customer for a continuous stay of 30 days or more are excluded from the transient room tax. Accommodations purchased by buyers including nonprofit educational, charitable, and religious institutions and government agencies may be exempt from short-term lodging taxes. Guests may be required to present exemption certificates.

Filing lodging tax returns

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Kentucky Department of Revenue. In Kentucky, you can file returns and pay the tax amount due online.

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. For filing with the Kentucky Department of Revenue, sales tax due dates are as follows:

State transient room tax due dates are as follows:

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

Yes. STR operators registered with the Kentucky Department of Revenue are required to file returns each assigned filing period, regardless of whether you had any STR income or collected lodging taxes. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.

Are there penalties for filing taxes late?

Whether you choose to offer STRs through a marketplace like Airbnb or Vrbo, or directly to guests, 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 tax laws. Failure to register with tax authorities and file lodging tax returns in Kentucky 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 an STR but not collecting lodging taxes, you may be in violation of Kentucky 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.

STR hosts in Kentucky 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 Kentucky 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 lodging tax filing?

Yes. Many STR hosts in Kentucky file several state and local lodging tax returns every year. Filing solutions such as Avalara MyLodgeTax can relieve this burden.