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Attention Business Owners: Ignorance Isn’t Bliss

  • Oct 31, 2014 | Gail Cole

 Sales tax and transient room tax apply to vacation rentals in Utah.

Part of running a business, even a very small business, is taking the time to understand the obligations and requirements of that business. Do you need a business license to operate? Are you required to collect and remit taxes? These sorts of questions should be asked, and answered. Not knowing the answer does not relieve you of the burden of responsibility. Put another way, ignorance is not bliss.

Just ask the Utah State Tax Commission “to excuse him from having to pay the taxes that the [Audit] Division has assessed because he did not know that he was supposed to charge these taxes to his guests.”

Guess what? He’s not excused.

The taxpayer says that he discussed his tax obligations with the City and his income tax preparer prior to renting out the vacation property back in 2005. Since sales tax and transient room tax were not mentioned, it didn’t occur to him to collect them.

He should have contacted the Utah Tax Commission.

The Audit Division sent the taxpayer a Vacation Rental Self-Review survey, asking him to review his rentals and to report the appropriate sales tax and transient room tax, but the completed survey was never returned. The Audit Division of the Tax Commission assessed sales tax and transient room tax on the taxpayer, basing the amount on the business’ net gross receipts, as shown on Schedule C of the taxpayer’s federal income tax returns. The taxpayer does not dispute the amounts the Division says he charged his customers, or even the amount of tax assessed on those charges.

After learning of his sales and transient tax obligations, the taxpayer collected taxes on the rental of his vacation home (he has not yet remitted them). He also attempted—unsuccessfully--to recoup unpaid tax from past clients. Because of his current compliance and the fact that his business is “barely profitable,” he asks the Administrative Law Judge to excuse the entire assessment. If not that, could the amount owed be reduced?

The answer? No.

The onus of paying the taxes falls on the taxpayer, not on his past vacation rental clients or the Utah Tax Commission. As a result, the taxpayer must pay the full amount owed, plus interest. He is fortunate that no penalty was imposed. Read the decision in full.

photo credit: faungg's photo via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.