Similar to a hotel room, your vacation rental is subject to state, county and local taxes. What the tax is called – sales, lodger’s, hotel, use, tourist or transient occupancy tax, for example – and what you must charge, if anything, varies by location.
Here are the steps to licensing and collecting taxes for your vacation rental:
Confirm What City Your Rental Home Is In
Even if it seems obvious, it’s a good idea to double check what city your rental home falls in and if this is in the incorporated or unincorporated part of the town. You can contact your city’s planning and zoning office to find out. From there, you’ll be able to proceed with determining the relevant city, county and state licensing and tax laws.
Register Your Rental Property
The most typical scenario is that you’ll be required to get a license from your state (to collect sales tax) and your city (to collect lodging tax). But you might only be subject to one or the other – or neither. Check for state, city and county licensing laws. Take note of any renewal process. You may need to renew your permit yearly, but it could just be a one-time fee or even a simple, free online registration just to get you on the books.
Calculate Your Taxes Owed
You would think the governing bodies that require you to collect taxes would make it easy for you to determine what you owe. Alas, no. Luckily HomeAway commissioned HotSpot Tax Services to create a chart with basic tax guidelines per state for vacation rental owners. It’s a good place to start. HotSpot also has a helpful example of how sales and lodging taxes work.
Post the Tax Rate In Your Listings
You might be thinking, “Do I have to?” Depending on state laws, this may not be up to you. Some states mandate that taxes be listed clearly and separately from vacation rental rates. Other states may not require that you list them at all. Either way, it’s best to be up-front with your fees. If you’re not required to list the rate separately, some owners decide to roll them into the overall cost and state “including taxes.” Keep in mind, this will affect your accounting practices.
File Returns and Make Tax Payments
These taxes are really no different to your guest than making a retail purchase. You are simply collecting them for the state, county or city and passing them on. The taxes will likely be due monthly or quarterly with strict deadlines. For the tech savvy, there are actually a few cell phone apps that can help store and manage your receipts for tax purposes: check out Shoeboxed and Receipt Bank.
There are, admittedly, some inconsistencies in our industry when it comes to collecting taxes: some owners do, some don’t. Legally, it isn’t optional. Policing is random but increases as the market does. If you’ve been renting for years and didn’t realize you need to collect taxes (or you’ve been skirting the system and feel like it’s time to get in line), you may be able to begin doing so without incurring huge penalties. Check if your state revenue agency has a Voluntary Compliance or Voluntary Disclosure program. It’s best to find them before they find you.