Minnesota 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 Minnesota. 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, 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 Minneapolis and St. Paul, The North Star 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 Minnesota are subject to tax. Tax authorities expect many short-term vacation rental hosts to collect 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 short-term 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 Minnesota 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 Minnesota 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.
In contrast, a lodging tax 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.
Taxes on short-term rentals can be known as sales tax, lodging tax, occupancy tax, bed tax, tourist tax, and more. In Minnesota, the total tax rate you charge your guest is made up of many different taxes required by the state and/or local entities such as counties, cities, and towns.
What is the definition of “short-term rental” in Minnesota?
For Minnesota tax purposes, short-term rentals are defined as those lasting fewer than 30 days, or those lasting 30 days or more with no written lease agreement that requires the customer to give notice before ending the rental. Residents with a signed lease for continuous residence for 30 days or more should not be charged short-term rental taxes.
It is important to note that local definitions may differ. Check with your local tax authority for the most up-to-date information.
Who is required to collect and file taxes on short-term rentals in Minnesota?
If you regularly collect payment from short-term guests renting out a room, apartment, house, or other dwelling, you may be responsible for collecting, filing, and remitting short-term rental taxes to Minnesota authorities. However, if you use an accommodations intermediary such as Airbnb, HomeAway or VRBO that collects payment from your guests and then pays you, that intermediary is responsible for collecting and remitting lodging taxes on your short-term rental.
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 are required to report to, which taxes you need to collect, and your tax rates.
You can use our lodging tax lookup tool to get a rate report specific to your Minnesota 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 Authorities
Before you can begin collecting taxes on your short-term rental in Minnesota, you are legally required to register for a sales tax account with the Minnesota Department of Revenue. You can register online. When you register, you will receive instructions on filing your lodging taxes.
You may also be required to register with local tax authorities. Be sure to check with them for details.
Do I need to form an LLC?
In Minnesota, 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 Minnesota 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 Minnesota 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 Short-term Rental Tax
Once you’re registered with tax authorities, you are ready to start collecting short-term rental taxes, which you’ll add to your guest’s bill when they pay for their stay.
Which taxes apply to Minnesota short-term rentals?
In Minnesota, a number of different lodging taxes may apply to your short-term rental, depending on your location. These can include:
|Tax Name||Filed and Remitted To|
|State sales tax||Minnesota Department of Revenue|
|State-administered local sales tax||Minnesota Department of Revenue|
|State-administered local lodging tax||Minnesota Department of Revenue|
|Local sales tax||Local tax authority|
|Local lodging tax||Local 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 important to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. State and local tax authorities should have the latest rates posted. You can also use our lodging tax lookup tool to find the right rates.
What charges are taxable?
In Minnesota, all lodging-related services provided within a guest room are taxable. This includes items such as food and drink, cleaning fees, pet fees, rollaway bed fees, extra person fees, charges for providing services such as laundry, etc.
Fees that are refundable, such as damage deposits, are generally not subject to lodging taxes unless you keep the deposit. Cancellation fees are also not subject to tax. However, no-show fees charged when a room is reserved for a guest who neither arrives nor cancels are taxable.
If you only rent your property out for short terms on an occasional basis or as an isolated incident, you are not required to collect short-term rental taxes on those stays.
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 Minnesota short-term rental taxes for you when the listing is booked.
If you rent your home through an online platform, be sure to identify which taxes (state, local, or both) are being collected and remitted on your behalf to avoid mistakenly collecting tax twice or failing to collect at all.
At the time of this guide’s publication, Airbnb collects state and local sales taxes for all Minnesota hosts, as well as city lodging excise tax for hosts in Duluth. HomeAway/VRBO do not collect lodging taxes on behalf of their hosts in Minnesota.
If your online short-term rental platform collects all applicable taxes for you, then the platform is responsible for tax collection for your bookings. However, if the platform does not collect all the taxes that apply to your rental’s location, then you are responsible for collecting the remainder.
Are guests ever exempt from taxes?
There are situations in which you aren’t required to collect state sales taxes in Minnesota. For example, a guest who rents for a long term rather than a short term will be exempt from sales taxes.
In Minnesota, lodging billed directly to and paid for by the federal government and its agencies is not taxable. Short-term lodging for tribal officials on an Indian reservation is exempt if the officials are acting in their tribal government capacity and lodging is billed to and paid for by a tribal government.
Exemptions may vary for local taxes.
Filing Short-term Rental Tax Returns
After you’ve collected taxes from your guests, it’s time to file your tax returns with the Minnesota Department of Revenue and local tax jurisdictions. In Minnesota, 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 Minnesota 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||Feb. 5 of the following year.|
|Quarterly||Due the 20th of the month following the close of the filing period.|
|Monthly||Due the 20th of the month following the close of the filing period.|
We recommend contacting your local tax authority if you have any questions about local lodging tax due dates.
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 the Minnesota Department of Revenue?
Yes. Short-term rental operators registered with the Minnesota 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 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 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 Minnesota on time may result in late fees, interest payments, and in extreme cases, legal action.
I have been offering short-term rentals without collecting lodging tax. What options do I have?
If you’re already operating a short-term rental but are not collecting short-term rental taxes, you may be in violation of Minnesota 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 Minnesota 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 Minnesota 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 transient occupancy tax filing?
Yes. Many short-term rental hosts in Minnesota file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.