Rhode Island vacation rental tax guide

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Airbnb and HomeAway/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 Newport and Providence, the Ocean 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 and B&B stays, short-term rentals in Rhode Island are subject to tax. Tax authorities require 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 under increased scrutiny so it’s important to address compliance before tax authorities address it for you. 

Avalara MyLodgeTax has put together this guide to help you comply with Rhode Island 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.

No short-term vacation rental 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 Rhode Island tax laws.

 

Short-term rental tax basics

When you start operating a short-term rental, while you might not have experience with lodging taxes, you’re probably familiar with income tax. It’s important to understand the difference between the two.

Income tax is reported and paid annually to the federal government and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.

Lodging tax on a short-term rental is a percentage of the cost of your guest’s stay that’s added to the price on the bill. The guest pays the tax, but you’re responsible for collecting the tax and paying it to the proper tax authority.

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

For tax purposes, short-term rentals in Rhode Island are defined as reservations of 30 days or fewer.

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

If you 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 Rhode Island tax authorities. 

If you use a hosting platform such as Airbnb that collects guests’ payments for you, the hosting platform is required to register with the Rhode Island Division of Taxation, charge and collect the tax, and remit the tax on your behalf.

Location is key to compliance

The location of your rental is a crucial piece of information for short-term rental 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 Rhode Island 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.

Registering with tax authorities

If you collect payments from short-term rental guests directly, you’re legally required to register with the Rhode Island Division of Taxation. Once you’ve registered, you’ll receive a sales tax permit as well as instructions on filing your lodging taxes.

Do I need to form an LLC?

In Rhode Island, you don’t need to form an LLC to register with tax authorities.

Local short-term rental regulations

Short-term rental operators in Rhode Island 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) located in Rhode Island 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 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’ve registered with tax authorities, you’re 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 Rhode Island short-term rentals?

In Rhode Island, a number of different lodging taxes may apply to your short-term rental, depending on your location. These can include:

Tax name File and remit to
State sales tax Rhode Island Division of Taxation
State hotel tax Rhode Island Division of Taxation
Local hotel tax

Rhode Island Division of Taxation


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 critical to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. 

Our lodging tax lookup tool can give you a rate report specific to your Rhode Island 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 Rhode Island, all charges for occupancy are taxable. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. If a damage deposit is required, separately stated, and refundable, the taxes do not apply to the refunded portion of the damage deposit.

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

Before collecting any short-term rental taxes from your guests, you need to be aware of whether taxes have already been collected for you. In Rhode Island, short-term rental marketplaces are required to collect short-term rental taxes for you when they accept payments from guests. If taxes aren’t being collected for you, you’re responsible for collecting and 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 Rhode Island. For example, a guest who rents for a long term rather than a short term will be exempt from short-term lodging taxes. 

In Rhode Island, accommodations purchased by buyers including federal or state agencies 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 Rhode Island Division of Taxation. In Rhode Island, you can file returns online. In order to file, you’ll need to enter information on how much you charged for your rentals. You’ll also need to pay the tax amount due. The Rhode Island Division of Taxation 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’ll be assigned a filing frequency and due dates when you register with the tax authority. For filing with the Rhode Island Division of Taxation, due dates are as follows:

Filing frequency Due date
Monthly Due the 20th day of the month following the end of the filing period
Quarterly Due the 20th day of the month following the end of the filing period
Annually

Due January 31 following the filing period

 

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 Rhode Island Division of Taxation?

No. Seasonal short-term rental operators must file monthly tax returns only for the months they’re in operation. However, they are required to file an annual reconciliation return every year in January.

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 tax laws. Failure to register with tax authorities and file short-term rental tax returns in Rhode Island 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 a short-term rental but you’re not collecting short-term rental taxes, you may be in violation of Rhode Island 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 Rhode Island 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 Rhode Island Division of Taxation. 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. Numerous short-term rental hosts in Rhode Island file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.

The Vacation Rental Property Owner

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