Airbnb, Homeaway, and VRBO have changed the way vacationers travel. More and more guests are choosing to rent private homes over booking hotels. The opportunity for residents of Texas to take advantage of this has never been greater.
With a bounty of glorious destinations including Galveston, Big Bend National Park, and South Padre Island, the Lone Star State offers prospective vacation rental hosts the opportunity to pad their income and meet new people.
But new income opportunities bring new tax implications. State and local tax authorities in Texas expect most vacation rental home hosts to properly collect and file hotel occupancy tax on short-term rentals (also commonly referred to as bed tax, lodging tax, sales tax, or tourist tax).
To help you get compliant with Texas tax laws, Avalara has put together this guide covering the following key points:
- Understanding Tax Compliance
- Getting Started
- Due Dates and Penalties
- Local Laws and Regulations to Consider
- Commonly Asked Questions
Disclaimer: No 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.
Understanding Tax Compliance
You might wonder why you have to consider hotel occupancy tax when renting out your home (or other dwelling). For state and local governments, tax revenue represents a sizable portion of funding. The lodging industry’s movement toward more nontraditional rental options doesn’t excuse hosts from their tax obligations.
Much like hotel, motel, and B&B stays, short-term lodging in Texas is subject to sales tax. Whether you choose to rent your home through a marketplace like Airbnb or direct to the consumer, you open the door to tax liability at the state and local level.
Failure to comply with state and local tax laws may not catch up with homeowners in the short term. Increasingly, however, the sharing economy is being placed under the proverbial microscope. It’s recommended that you address compliance before tax authorities address it for you.
Take the time to understand when, where, and how you’re expected to collect, file, and remit hotel occupancy tax to the Texas Comptroller of Public Accounts. The sooner you understand your hotel occupancy tax responsibilities, the better you can avoid potential late payment fines and interest penalties.
In its simplest form, hotel occupancy tax management for your Texas rental home can be summarized in three key steps: Registration, Collection, and Filing.
We’ve described each step below to help you better understand what’s required. That being said, taxes can be complicated. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Texas tax laws.
Step 1: Register with the appropriate government agencies
Prior to renting out a Texas home, short-term rental hosts may be required to register with state and local tax authorities. Exact requirements are specific to the location of your rental. For specific tax rate and licensing requirements, visit our Texas hotel occupancy tax lookup tool. It should be noted that collecting hotel occupancy tax in Texas prior to completing all necessary registrations is against the law.
For each completed registration you’ll be assigned a filing frequency. For the state, it’s typically quarterly or monthly. At the local level, it’s typically monthly, quarterly, or both, depending on location.
Step 2: Collect hotel occupancy tax from short-term renters
Before collecting any hotel occupancy tax from your guest, find out whether state or local sales tax has already been collected on your behalf. Some vacation rental marketplaces collect Texas hotel occupancy tax for their hosts.
At the time of this guide’s publication, Airbnb is collecting Texas hotel occupancy tax on behalf of the host.
It’s important to note that hotel occupancy tax may be collected on your behalf at the state level, but not the local level. If you rent your lodging through a marketplace, be sure to identify which sales tax (state, local, or both) is being collected to avoid mistakenly collecting tax twice or failing to collect. Do not assume all taxes are collected on your behalf.
If it turns out you have to collect hotel occupancy tax from your guests, you’ll need to determine the appropriate tax rate to charge. This rate depends on the address of the vacation rental property. Avalara offers a tax rate lookup tool you can use to determine the appropriate taxes to collect and the correct rates to charge for your vacation rental home address.
Step 3: File hotel occupancy tax returns
Now, it’s time to file your tax return with the Texas Comptroller of Public Accounts and any local tax jurisdictions with which you have registered. If you have multiple returns to file, it’s important to remember their due dates may not be the same. Also, in Texas, registered vacation homeowners may be required to file state and local returns regardless of whether any hotel occupancy tax has been collected. Such returns are commonly known as “zero dollar returns.”
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. It’s not uncommon for well-meaning taxpayers to overlook basic details that may result in filings being rejected.
Due Dates and Penalties
Failure to file Texas state and local hotel occupancy tax returns on time may result in late fees, interest payments, and in extreme cases, legal action. This holds true regardless of whether any tax was collected during the filing period. Once you’re registered with the Texas Comptroller of Public Accounts, it’s important to stay on top of your filing deadlines.
Due dates for Texas hotel occupancy tax returns are as follows:
- Quarterly: Due the 20th of the month following the close of the quarter
- Monthly: Due the 20th of the month following the close of the filing period
In general, due dates for local hotel occupancy tax returns in Texas are the same as the state filing due dates. However, it’s always best to confirm this with your local tax authority.
If you’re already renting your home but not collecting hotel occupancy tax, understand you may be in violation of Texas 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 hotel occupancy tax.
As tax revenue is a major source of state and local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with state and local tax laws.
Local Laws and Regulations to Consider
Business Licenses: It’s very rare for a short-term rental host in Texas to be required to register for a business license. However, a few markets, such as Austin, have a licensing process you may need to complete.
Zoning Rules: Not all buildings are available for business, rental, or living usage. Most local governments have laws specifying how a home can be used. Before renting out your home, be sure to review city zoning and planning codes.
Building and Housing Standards: In most cities throughout the United States, minimal construction, design, and maintenance standards exist. Dwellings may need to meet stated criteria in order to operate legally. Contact your state and local governments for more details.
Special Permits: Check to see if your city or county requires any special permits in order to rent out your dwelling.
Homeowner Associations: Homeowner Associations (HOA) located in Texas may have specific rules regarding vacation rentals as dictated in Declaration of Covenants, Conditions, and Restrictions (CC&Rs). Additionally, the CC&Rs may include a provision allowing for amendments to add further restrictions on the property in the future. It’s important to review this information to understand any vacation rental limitations inherent to your HOA. As a member, it’s your responsibility to understand the association’s covenants and rules.
Other Rules to Consider: This list should not be considered exhaustive. Other rules and regulations associated with leases/subletting, and condo or 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.
Commonly Asked Questions
Let’s face it, managing vacation rental taxes in Texas can be complicated. As a vacation rental homeowner, you may encounter scenarios that leave you scratching your head. For example, who’s responsible for collecting hotel occupancy tax if your long-term tenant subleases the room to a short-term guest?
To help you better understand your tax obligations, we’ve created a list of questions we frequently hear from vacation rental homeowners. Don’t see an answer to your question? Drop us a line and one of our tax experts will get in touch.
State and Local Taxes
What is the definition of “short-term rental” in Texas?
Short-term rentals are defined by the Texas Comptroller of Public Accounts as periods of less than 30 consecutive days. Residents with a signed lease for continuous residence longer than this should not be charged hotel occupancy tax.
Does the Texas Comptroller of Public Accounts require vacation rental owners to register with the state?
Yes. For the purpose of collecting hotel occupancy tax revenue, the Texas Comptroller of Public Accounts requires all vacation rental homeowners to register with the state prior to collecting hotel occupancy tax on vacation rental revenue.
What is the current hotel occupancy tax rate in Texas for short-term rentals?
The current state hotel occupancy tax rate in Texas is 6 percent. City and county taxes may also apply.
Do local jurisdictions in Texas have vacation rental requirements?
Yes. Counties and some cities in Texas require vacation rental homeowners to collect hotel occupancy tax from transient occupants.
Need to look up a sales tax rate for a specific location? Choose from the list of cities in the right column or use our Texas tax rate lookup tool to determine the tax rate and licensing requirements for your specific address.
Are there local registration requirements in Texas?
Yes. Depending on location, vacation rental homeowners in Texas may be required to register their dwelling with city or county tax authorities.
Are there any other licenses or permits needed for Texas vacation rental property owners?
There may also be local hotel occupancy taxes you’re required to collect so be sure to check with your city or county tax administrator for further information
Collecting Hotel Occupancy Tax
Who is required to collect and file hotel occupancy tax in Texas?
Whether you’re the property owner or not, if you collect payment from short-term guests who are not exempt from hotel occupancy tax, you’re likely responsible for collecting, filing, and remitting hotel occupancy tax to the Texas Comptroller of Public Accounts and, depending on location, local tax authorities. You may be the property owner, a renter subleasing a room, a third-party property management firm, or other party.
What happens if I forget to collect hotel occupancy tax from my guests?
Generally speaking, hotel occupancy tax is collected from guests upon payment. However, the Texas Comptroller of Public Accounts places the legal responsibility for this tax revenue squarely on the shoulders of the host. Failure to collect tax from guests means the host will need to pay the tax or recoup the tax revenue from the guests.
Furthermore, the Texas Comptroller of Public Accounts has the authority to levy fines and charge interest on late payments and outstanding tax revenue.
Are there exemptions from hotel occupancy tax in Texas?
It’s important to remember short-term guests have rights and you need to understand and respect those rights. Tax exemptions are a prime example. Although uncommon, there are several situations where guests may be exempt from paying hotel occupancy tax in Texas. Examples include full-time students, active military personnel present in the community under official orders, and rental of accommodations in a migrant labor camp.
In most cases, substantiating documentation must be presented by the guest prior to payment. We encourage you to check with the Texas Comptroller of Public Accounts for explicit details.
My guests are not from Texas. Do I need to collect hotel occupancy tax?
Yes. hotel occupancy tax is collected based on the location where it is applied and, with few exceptions, is applied to all short-term renters in Texas. As mentioned in the prior questions, there are some exemptions to this rule, but they are not predicated on the state or country a person calls home.
Are apartment or condo rentals taxable?
Apartment and condominium short-term rentals in Texas are treated the same as single-family home short-term rentals and taxed accordingly.
Hotel Occupancy Tax Due Dates and Filing
What are the due dates for hotel occupancy tax returns in Texas?
Upon registering vacation rental properties with the Texas Comptroller of Public Accounts, you’ll be assigned one of the following filing frequencies and due dates.
- Quarterly: Due the 20th of the month following the close of the quarter. As an example, hotel occupancy tax collected in Q3 (July, August, and September) is due October 20.
- Monthly: Due the 20th of the month following the close of the filing period. As an example, hotel occupancy tax collected in July is due August 20.
Are there options for outsourcing hotel occupancy tax filing?
Yes. Many vacation rental hosts in Texas file up to 20 state and local hotel occupancy tax returns annually. For many, this time burden is alleviated with filing solutions such as MyLodgeTax.
I didn’t rent my property during this filing period. Am I still required to file a hotel occupancy tax return with the Texas Comptroller of Public Accounts?
Yes. Vacation rental owners registered with the Texas Comptroller of Public Accounts are required to file returns each assigned filing period regardless of whether any hotel occupancy tax revenue was collected.
What happens if my assigned due date is on a weekend or holiday?
If the hotel occupancy tax return due date assigned by the Texas Comptroller of Public Accounts falls on a Saturday, Sunday, or state/federal holiday, returns and payments will be timely if they are postmarked on the first business day following the assigned due date.
Does the Texas Comptroller of Public Accounts offer a discount for on-time filing?
Taxpayers who file Texas hotel occupancy tax returns prior to the assigned due date may claim a collection allowance of 1 percent of the tax revenue collected.
Penalties and Interest Payments
Will I be assessed a penalty if my hotel occupancy tax return is filed late?
The Texas Comptroller of Public Accounts has the legal authority to assess a penalty of $50 on hotel tax returns filed after the assigned due date.
Tax remitted within 30 days of the due date will be assessed a 5 percent penalty. After 30 days, the penalty increases to 10 percent.
For details on local hotel tax late filing penalties in Texas, please check with specific tax authorities.
Does the Texas Comptroller of Public Accounts charge interest on an outstanding hotel occupancy tax balance?
Outstanding hotel tax may be charged interest beginning 61 days after the due date. The interest rate charged is equal to the prime rate (as published in the Wall Street Journal on the first business day of each year) plus 1 percent.
For details on interest charges on outstanding hotel tax revenue in local Texas jurisdictions, please check with specific tax authorities.
What should I do if I am unable to file my return on time due to circumstances beyond my control.
Assessed penalties for late filing or paying of hotel occupancy tax may be waived if hosts can show circumstances beyond their control prevented them from filing or paying hotel occupancy tax returns on time. Examples include illness, natural disaster, accident, etc. Contact the Texas Comptroller of Public Accounts for more information.
I have rented my home for years without collecting hotel occupancy tax. What options do I have?
Vacation rental homeowners in Texas who have failed to collect hotel occupancy tax in the past may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for vacation rental homeowners to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Texas Comptroller of Public Accounts.
VDAs are offered to encourage cooperation with state tax laws and may result in some or all monetary penalty and interest payments being waived.
Other Common Questions
What is the difference between income tax and hotel occupancy tax?
Income taxes are reported and paid annually to the federal and many state governments on “taxable” income, which is income after allowed expense deductions. A sales tax is a tax levied by state and city agencies (not federal) and requires you to collect tax on the gross amount collected from your guests renting your vacation property — there are no deductions.
Does the 14-day rule apply to Texas hotel occupancy tax?
No, the 14-day rule applies to income tax and does not affect a vacation rental homeowner’s responsibility to collect and file hotel occupancy tax in Texas.
This guide to Texas hotel occupancy tax compliance should be considered an asset to help you understand and prioritize your vacation rental tax challenges. It should not be considered a substitute for professional tax advice