Washington Vacation Rental Tax Guide
Avalara Tax Guides

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 Seattle and Olympic National Park, the Evergreen 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. Much like hotel, motel, and B&B stays, short-term rentals in Washington State are subject to tax. Tax authorities expect most 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 homeowners 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 Washington State short-term rental tax laws. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our Washington State 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 Washington State 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. There are no deductions for lodging taxes on short-term rentals.

Taxes on short-term rentals can be known as lodging tax, occupancy tax, sales tax, bed tax, tourist tax and more. Usually, the total tax rate you charge your guest is made up of many different taxes required by the state or local entities such as counties, cities, and towns

Who is required to collect and file taxes on short-term rentals in Washington State?

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 local authorities. You may be the property owner, a renter subleasing a room, a third-party property management firm, or other party.

What is the definition of "short-term rental" in Washington State?

Short-term rentals in Washington State are defined as lasting fewer than 30 consecutive days. Residents with a signed lease for continuous residence 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 definition.

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 Washington State address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, number of required registrations, 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 lodging tax on your short-term rental in Washington State, you are legally required to register with the Washington State Department of Revenue. You must register for tax purposes with the state if you operate a short-term rental three or more times in a year.

You can register online on the Washington State Department of Revenue website. There is no registration fee. When you register, you will receive a Unified Business Identifier (UBI). This UBI number is a unique number assigned to you, and it is the "account ID" you use to report to the Washington State Department of Revenue. You will also receive information on your filing frequency.

Do I need to form an LLC?

In Washington State, you do not need to form an LLC in order to register with tax authorities.

Business registrations

Short-term rental operators in Washington State are required to apply for a state business license. You can complete your application for a business license online on the Washington State Department of Revenue website when you apply for tax registration. The state charges a $19 non-refundable processing fee for the business license.

Washington State short-term rental hosts must also pay state business and occupation (B&O) tax, but could qualify for the small business B&O tax credit. You may also be required to apply for local short-term rental permits or business licenses.

Short-term rental regulations

Short-term rental operators in Washington State should be aware of rules and regulations that apply to them. While state-level rules in Washington State mostly pertain to taxes, local communities may have their own requirements for short-term rentals, including rules covering:

  • Legality
  • Zoning
  • Advertising
  • Neighborhood notification
  • Building and housing standards

Homeowner Associations (HOA) located in Washington State 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. It's important to note that beginning January 1, 2019, lodging businesses in Seattle with fewer than 60 units will be required to collect a 7% King County Convention and Trade Center tax (King County establishments outside Seattle charge 2.8%) in addition to other existing short-term rental taxes.  Previously, lodging businesses with fewer than 60 units were exempt from the Convention and Trade Center tax.

The tax will be imposed on vacation rentals, short-term rentals, or any other lodging. There are a number of exclusions including:

  • lodging businesses located in a town with a population of less than 300;
  • hostels;
  • lodging businesses operated by a university health care system exclusively used for family members of patients;
  • and businesses offering temporary housing for (i) individuals treated for trauma, injury, or disease and their families; and (ii) operated by an organization or governmental entity registered as a charitable organization with the Washington Secretary of State or classified as a charity or private foundation by the Internal Revenue Service.

Which taxes apply to Washington State short-term rentals?

In Washington State, 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

Washington State Department of Revenue

Local Sales Tax

Washington State Department of Revenue

Regional Transit Authority Tax

Washington State Department of Revenue

Special Hotel/Motel Tax

Washington State Department of Revenue

Tourism Promotion Area Charge

Washington State Department of Revenue

Convention and Trade Center Tax

Washington State Department of Revenue

The exact tax requirements for your short-term rental depend on its location.

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 Washington State lodging tax lookup tool to find the right rates.

What charges are taxable?

In Washington State, anything that the host requires the guest to pay in order to use the accommodation is considered part of the rental fee. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc., whether they are stated separately or rolled in to the overall price of the accommodation. Charges for extra services provided by the short-term rental operator such as parking, food service, or laundry are also taxable.

Fees that are refundable, such as damage deposits, are generally not subject to lodging taxes unless the host keeps the deposit. The same is true for optional fees for services provided by a third party. For example, if you contract with dry cleaning and laundry businesses to pick up and deliver dry cleaning and laundry to guests, the cost to the guest is not subject to sales tax.

What happens when my marketplace (Airbnb or HomeAway) collects taxes for me?

Before collecting any short-term rental tax from your guests, you need to understand whether any taxes have already been collected for you. Some vacation rental platforms, including Airbnb, HomeAway, and VRBO, collect Washington State 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. Never assume that all taxes are collected on your behalf.

At the time of this guide's publication, both Airbnb and HomeAway/VRBO collect state and local sales tax and lodging taxes due on short-term rentals, including special hotel/motel tax, convention and trade center tax, regional transit authority tax, and tourism promotion area charges, on behalf of Airbnb hosts in Washington State.

Even though Airbnb, HomeAway, and VRBO collect and remit these taxes for their hosts in Washington State, hosts are still required to register with the Washington State Department of Revenue and file regular lodging tax returns reporting their rental income.

Are guests ever exempt from taxes?

There are situations in which you aren't required to collect lodging taxes. For example, a guest who rents for a long term rather than a short term will be exempt from short-term lodging taxes. In Washington State, certain foreign officials are also exempt from sales tax.

Filing Short-term Rental Tax Returns

After you've collected taxes from your guests, it's time to file your tax returns with the Washington State Department of Revenue and local tax jurisdictions. In Washington State, 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 Washington State Department of Revenue allows credit card payments, but you will 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. Annual, quarterly, and monthly due dates are as follows:

Filing Frequency

Due Date

Annually

Due by Jan. 31 each year.

Quarterly

Due at the end of the month following the tax quarter.


Monthly

Due on the 25th of every month.

 

If the due date falls on a weekend or legal holiday, the due date is extended to the next business day.

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 Washington State Department of Revenue?

Yes. Short-term rental operators registered with the Washington State 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."

Are there penalties for filing taxes late?

Whether you choose to offer short-term rentals through a marketplace like Airbnb or direct 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.

The Washington State Department of Revenue places the legal responsibility for short-term rental tax revenue squarely on the shoulders of the host. Failure to register with tax authorities and file short-term rental tax returns in Washington State on time may result in penalties, interest payments, and in extreme cases, legal action.

 

One day after the due date to the last day of the month following the due date.

9 percent (up from 5 percent)

First day of the second month following the due date to the last day of the second month.

19 percent (up from 15 percent)

First day of the third month and beyond

29 percent (up from 25 percent)

 

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 Washington State 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 Washington State 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 Washington State 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 Washington State file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.