Montana vacation rental tax guide
Avalara free tax guides
NOTE: The outbreak of COVID-19 (caused by the coronavirus) may have impacted vacation rental tax filing due dates in Montana. 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 Bozeman, Big Sky, and Glacier National Park, Big Sky Country 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 Montana are subject to tax. Tax authorities expect short-term vacation rental hosts to collect 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 Montana 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 Montana 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 facility tax, transient tax, lodging tax, occupancy tax, bed tax, tourist tax, and more. In Montana, 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 Montana?
Short-term rentals in Montana are defined as lasting fewer than 30 consecutive days. Residents staying longer than this should not be charged short-term rental taxes. It is important to note that this definition may vary from location to location. 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 Montana?
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 Montana authorities. You may be the property owner, a renter subletting a room, a third-party property management firm, or other party.
However, if your rental’s average daily accommodation charge for a single person is $22.47 or less, you are not required to charge lodging taxes.
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 Montana 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 Montana, you are legally required to register with the Montana Department of Revenue. You can register online. When you register, you will receive a sales tax permit as well as 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 Montana, 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 Montana 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 Montana 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 rental tax, which you’ll add to your guest’s bill when they pay for their stay.
Which taxes apply to Montana short-term rentals?
In Montana, 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 lodging facility use tax||Montana Department of Revenue|
|State lodging facility sales tax||Montana Department of Revenue|
|Local resort tax||Local tax authority|
|Tourism business improvement district (TBID) fee||Local TBID authority|
The exact tax requirements for your short-term rental depend on its location.
Determining accurate lodging 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. 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 rental charges are taxable?
In Montana, charges paid to use the facility and that are integral to the stay are taxable. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Meals, transportation, entertainment, laundry services, or similar charges are not subject to lodging taxes as long as they are stated separately.
Fees that are refundable, such as damage deposits, are generally not subject to lodging taxes unless you keep the deposit.
What if taxes are collected by my short-term rental platform (Airbnb, HomeAway, etc.)?
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 Montana short-term rental taxes for you when the listing is booked. However, platforms do not collect taxes in all locations, and they may not collect all the state and local taxes you owe.
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 lodging facility use tax and state lodging facility sales tax for all Montana hosts. HomeAway/VRBO do not collect any lodging taxes on behalf of their hosts in Montana.
Even if your online rental platform collects taxes for you, do not assume that the platform is taking care of short-term rental tax registration or filing for you. Often, when rental platforms collect lodging taxes in a particular jurisdiction, they do not file lodging tax returns on behalf of individual hosts. Rather, they pay a lump sum to the jurisdiction and often do not share identifying information on hosts. That means it’s usually up to hosts themselves to report how much lodging tax has been collected and paid on their behalf.
Are guests ever exempt from taxes?
There are situations in which you aren’t required to collect lodging taxes in Montana. For example, a guest who rents for a long term rather than a short term will be exempt from short-term lodging taxes. In Montana, charges for accommodations billed directly to and paid by the federal government, charges for accommodations on an Indian reservation rented to an enrolled member of the same Indian reservation, and rental charges billed to a diplomat who presents a tax-exempt card issued by the U.S. State Department may be exempt from short-term lodging 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 Montana Department of Revenue and local tax jurisdictions. In Montana, 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 Montana 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, quarterly due dates are as follows:
|Filing Frequency||Due Date|
|Quarterly||Due the last day 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.
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 Montana 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 rental 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 Montana 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 Montana 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 Montana 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 Montana 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 short-term rental hosts in Montana file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.