North Carolina vacation rental tax guide

With a bounty of popular destinations including the Great Smoky Mountains, Asheville, and the Outer Banks, the Tar Heel State offers ample opportunity for short-term rental (STR) businesses.

But these opportunities come with tax obligations. Like hotel stays, STR stays in North Carolina are subject to lodging taxes. Failure to comply with state and local tax laws can result in fines and interest 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 North Carolina 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 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 North Carolina tax laws.

Lodging tax is calculated as a percentage of the cost of the 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 North Carolina?

In North Carolina, gross receipts from the rental of an accommodation are subject to lodging taxes. Accommodations rented to the same person for a period of 90 or more continuous days are exempt from lodging taxes.

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

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 North Carolina tax authorities.

If all your rental transactions go through a marketplace facilitator such as Airbnb or Vrbo, you don’t need to register with the state, collect taxes, or file lodging tax returns. Short-term rentals of accommodations for fewer than 15 days in a calendar year are tax exempt unless they go through a marketplace facilitator.

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 North Carolina 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 North Carolina 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.

Before you can begin collecting taxes on your STR in North Carolina, you’re legally required to register with the North Carolina Department of Revenue. You can register online to receive a Sales and Use Tax Certificate of Registration.

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.

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

Which taxes apply to North Carolina short-term rentals?

In North Carolina, 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 North Carolina address.

What charges are taxable?

In North Carolina, charges included in the sales price of the rental are taxable, including charges such as cleaning fees, pet fees, and marketplace fees. Cancellation fees and security deposits refunded to guests aren’t subject to lodging taxes. STR rentals for fewer than 15 days in a calendar year are tax exempt unless they go through a marketplace facilitator.

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

North Carolina requires all marketplace facilitators, such as Airbnb and Vrbo, to collect and remit sales tax on behalf of all operators. If all your STR transactions go through a marketplace facilitator such as Airbnb or Vrbo, you don't need to register with the state or file state lodging tax returns.

If lodging taxes aren’t being paid for you, such as when guests book directly with you rather than through a marketplace, you’re responsible for remitting them to state tax authorities.

Are guests ever exempt from taxes?

There are situations in which you aren’t required to collect lodging taxes in North Carolina. For example, a guest who rents for a long term rather than a short term is exempt from short-term lodging taxes. Sales paid for directly by the federal government and North Carolina state agencies may be exempt. Exemption certificates may be required.

After you’ve collected taxes from your guests, it’s time to file your tax returns with the North Carolina Department of Revenue. In North Carolina, you can file returns and pay tax online or manually. The North Carolina Department of Revenue allows credit card payments, but you may be charged convenience fees for this type of payment.

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 North Carolina Department of Revenue, 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 North Carolina Department of Revenue?

Yes. STR operators registered with the North Carolina Department of Revenue are required to file returns each assigned filing period, regardless of whether you collected STR income or 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 STR tax returns in North Carolina 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 North Carolina 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 North Carolina 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 North Carolina 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 operators in North Carolina file several state and local lodging tax returns every year. Filing solutions such as Avalara MyLodgeTax can relieve this burden.