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The state and local sales tax for vacation rentals in our area is 12.75%, yet I repeatedly hear from potential guests that they are receiving quotes from other owners who don't charge sales tax. I spoke to someone who has cleaning/maintenance business and they said that they service a number of VR owners who don't charges sales tax.
To me, this is a real problem. First, all my rental quotes are 12.75% higher than VRs that don't charge tax so I'm seriously struggling to be competitive in a very competitive VR market. Second, the state and local governments are not receiving the needed funds for infrastructure, services, etc. that vacationers use and expect. Third, the VR owner is likely not reporting potentially tens of thousands of dollars in income on their tax returns, which just plain stinks to those of us who DO pay our taxes.
Is anyone else experiencing this problem? And do you know if there are any efforts to enforce the laws regarding collection of taxes from vacation rentals? I know that as of 2010, merchant account providers are now sending out 1099s for all transactions. But many of these VRs take check-only payments (like someone I personally know) and can avoid that. BTW, I have nothing against taking checks for payment--80% of my business is by check--but I file monthly sales tax returns with the state so we're completely legit. Just wondered if other VR owners are experiencing the same challenges as we are.
As a VR owner for less than a year, I do itemize taxes (11% payable to the county and state) to renters and often wonder whether I am putting myself at a competitive disadvantage with many others who don't. I suppose it's possible that some VROs may simply build it into their prices and pay the taxes themselves, though I tend to doubt it. I've tried to be on the square in reporting income, though I did not receive a 1099 from my merchant account from last year. Not sure why, except I only started renting in Nov.-Dec., so that may have had something to do with it. Makes me wonder if I'm being foolish by being honest.
We too charge sales tax and report all our income. I agree with Jim it makes me wonder if it is foolish to be so honest but I like being able to sleep at night and not worrying about being dishonest. There are othes in our community who charge the tax and some who do not. Our rate is 6.5% which is low compared to many.
Jim and Suzy, I know I've felt foolish too, knowing that there are vacationers who have not booked with us because we are overpriced compared to the competition. But at least we can sleep at night
I know I've heard that in some areas (Florida, I believe is one of them) VRs are aggressively monitored for sales tax compliance. I think I may have to contact our county taxing authority because this problem has gone on for years. People know they can get away with it, so they do.
I wonder if it would be possible for Homeaway to require proof of a business or sales tax license, documentation, etc. from anyone with a listing. I know that's one more headache for Homeaway, but then they could confirm compliance from anyone who lists a property on HA sites. Last week, I purchased a software program from Adobe at a student discount rate. I had to provide documentation (an email of my course registration) that I was currently enrolled at a college. Within 24 hours, I was verified as a student and given the go-ahead to purchase the program. I know this is putting the burden of proof on HA, but as a site owner I would feel more confident knowing that all my clients are complying with state/local sales tax collection laws.
Here in Tennessee, once you have a business license the state and county authorities send tax returns each month. If you don't fill them out and return them, you get a letter wanting to know where the money is. Tennessee charges you a minimum $15.00 fine plus interest if you're late just one day. But if they don't have you on file as a business, you're off scot free. Once again, a penalty for being honest
This is a real problem for the industry. Lack of compliance or preceived lack of compliance casts the industry in a poor light, with no political support or legal footing. Therefore you see bans, restrictions and things like the most recent proposed legislation in Hawaii, which requires off island owners to use the services of a licensed management company for their rentals. The arguement for this law is that the licensed managers will collect an additional $35 million per year in tax because so many 'by owners' are not tax compliance. This law has not passed yet, but its been a tough fight. Non-compliance hurts us all and the industry.
Tax jurisdictions are waking up though and the environment is changing. There are various efforts accross the country to crack down on vacaction rentals. Going forward it is going to be much more difficult to rent without being tax compliant, but I think we are in the early stages of this change.
I am actually presenting a session this weeked at the HomeAway Summit covering this very subject, if you are attending we should chat.
HotSpot Tax Services
We operate VR's in the Vegas area. Legality has been an on/off process. In 2008 it was illegal, but in 2010 they legalized, asked owners to get a permit, and then closed them down.
A scan of craigslist will show you there are lots of VR's in the area, however we are never able to fully utilize the VR system by showing location, and calendars. I don't like dodging the bullet constantly, but this is a city where we need more help than just the few of us willing participate in making VR's legal.
We have 3 full-time employees who receive full medical benefits, vacation, sick pay... the works. Our homes are usually the best looking ones on the block. One home alone last year brought 4500 visitors to our community. Visitors who might not otherwise choose to stay in a casino or hotel.
We would dearly LOVE to pay licensing fees and collect taxes - I would choose that all day over having to operate in the shadows - even having to take discounts to compete.
Looking for help in Vegas!
I have found that including the tax in weekly or longer rental rates has increased my bookings. Potential guest see the rates online before inquiring so they are not put off by the sudden increase when tax is add. I do have a cleaning fee that is added but that is clearly stated in my listings and expected by most guests. I do charge tax on rentals of less than 7 days and this is reflected in my daily rates.
There are some areas (Volusia County Florida, for example) that expressly prohibit including the tourism tax as part of the price. I'm not sure what the logic is there but it's an area to take care. I *do* wish things were more like Europe where the tax was built-in to the advertised price.
Our City (Galveston Island) requires a 9% HOT tax, and the State of Texas requires a 6% HOT tax- both on ANY Vacation Rental, under 2 months.( Then the laws get really wonky!) Quite a hefty sum of 15%. Under RATES I spell those fees out out clearly, on all the sites I advertise on.
For a while I tried advertising prices that included taxes, but it became an accounting nightmare (pennies, etc, when I had to file my taxes) , and I didn't see any increase in reservations.
It may depend on the area of your home's location.
My BIG pet peeve is seeing ads that have no mention of taxes at all. I have no problem when someone says Taxes Included. I do know in our area there are those who've tried to dodge the tax man. It didn't work out too well for them once they were caught and couldn't show a true accounting break down.
I agree that you should advertise your sales tax and tell the tenant up front. The problem is that most of the potential renters do not want to agree to pay the tax and feel the landlord is responsible. Or you are just going to pocket the extra money.
This is not the case if you go to your City Tax Advisor. The tax is based on the monthly amount you charge for the rental. Therefore, you have to collect 10% of that amount. This is in Florida.
Your right many landlords are not charging the tax or just not paying it.
I feel I would rather be honest than be sorry later.
We are in Colorado. The sales tax issue is huge. However it is NOT Homeaway's job to police this problem. The government should (but it does not) hold all entities to the same standard. It seems bizzare that the state government just allows tens of millions of dollars to slip through their fingers... but they do. My little company pays over 100K in sales tax per year. We make sure that Colorado gets every dime it is entitled to.
As I see it this is the problem:
1. Unfair competitive environment breeds substandard products. It effectively short circuits the free market economy.
2. Government services are for all people. Thus, STEALING your tax obligations is in effect STEALING from all of us. I don't like taxes any more than anyone else, BUT if I have to pay them, then so should everyone else.
3. Nonenforement is actually encouraging others to cheat. The core of laws, policies and regulations are suppose to encourage us to do good things, not bad things. I have to fight against my own selfish interest to pay my taxes every month. It would be very easy for me to jump on the band wagon of tax STEALING.
It's possible that they only way these people will get busted is to report them. I've spent a lot of time (and money on things like attorney's fees) ensuring my own regulatory and tax compliance. I've read the regulations cover-to-cover and understood them as well I can. So, yes, I take it personally when my competition has an unfair advantage by taking legal and tax short-cuts.
How do people feel about reporting the non-compliant competition? I don't have time or inclination to verify that other people's business practices are on the up-and-up. I *might* if I felt it was negatively impacting my own income.
It would be difficult to tell if other owners are paying the taxes that are due. As I stated earlier, I pay tax on all my rentals but I include the tax in my rate for rentals of 1 week or longer, for shoter term rentals I do add the tax at booking. The tax rate in my area is 10% and I have found when I list a lower rate then add the tax guest seem to be put off. I have found I am better off to list my rates to include the tax even though they may be higher than others in my area who add the tax later or just don't charge tax at all. I would like to believe most of us are paying the taxes we owe but I do think the local and state tax offices should be enforcing the tax laws. I use HotSpotTax to pay my taxes since this saves me time each month but It is easy enough for owners to handle this on their own if they have the time.
sandybeach, I have turned in people for not paying local tourism taxes, and don't feel bad at all. AS I've said, those taxes go toward funding improvements that benefit our local tourist industry.
Normally, when I see a new VR in my area I try to introduce myself ( our area is broken down into neighborhoods on VRBO), and I tend to know where the new ones pop up, just because our area is a small one.
Quite a few of the VR owners in my neighborhood have a network that allows us to refer inquiries to one another when our place is booked, so it's a natural lead in when talking to to the new owners. Something like " Do you need any help in contacting the local tourism tax office?" seems to work. Some people are clueless that they even need to file and pay!
As for breaking out taxes, I find it easier, since our stays tend to be 2- 5 nights, with ocassional week long stays . I do know those who only rent by the week and their rates specify Taxes Included. If someone thinks I'm 'stealing" and not paying taxes, oh well. They'll find another place. I imagine they'd not refuse to pay taxes on a hotel room.
No one really like taxes, but it has to be paid.
I agree. It is practically impossible to tell who is and is not paying the taxes AND this is not our job anyway. BUT I think it is safe to say that most people are not paying sales tax. I recognize that it is a pretty esoteric element of knowledge to know the ins and outs of sales tax and there is public confusion about things like "tax free" Internet transactions. The problem is one part ignorance, one part apathy and one part willful evasion. I hate big government solutions, but if we are ever going to get a high level of compliance with the law, the government must be the mechanism for this. MY OPINION is that if you want to spend any of your valuable time on this issue, it should be directed at your respective state government and/or local government. IMHO I believe an annual fee based on property valuation would be a much easier method to implement and police. For example, if the government required all property owners in the state to obtain a "short-term" rental license. The cost of this license may be something like .25% for every $100 in valuation, per year. Then there would be no need to audit people and have a massive bureaucracy or create large amounts of work on the owners part either. Just pay the fee once a year and be done with it. The fee could be tweaked based on a few factors, but the bottom line is that it would be easy to understand, easy to police and easy to be in compliance with.
I *love* the idea of valuation-based taxing and dismantling the auditing mechanisms but it might be difficult to do that for people like me who live in their house part of the year and rent it on different parts.
I know this is an old thread, but I was searching the forum to see if this topic had come up and ran across your post. In my state (Florida) there is a vacation rental license that is required to legally operate a vacation rental. Sales tax cannot be paid to the state without having the proper license to collect taxes, so there is definitely a way to tell who pays taxes. There is an online site that allows you to search licenses by city and county. In my area, there are over 100 vacation rentals on VRBO and only 20 legally licensed vacation rental properties! That means that at least 80% of vacation rentals in my area are operating illegally and are not paying sales tax. The really interesting thing is that about half of them charge sales tax in their rates (so they must be pocketing the "tax"! Also in my area, county taxes have to be collected and the business has to be licensed with the city. Only commercially zoned property is allowed to operate a vacation rental. I really get upset that so many people are running illegal businesses. Especially since my property is valued, in part, based on the ZONING. My property taxes are more, and I paid more for my property because of all the things I can do with it because of how it is zoned. People with residential zoning with LOWER property taxes and probably lower purchase prices should not get away with operating an illegal business out of their home. I'm so mad about it that I'm considering turning all of those 80+ vacation rental owners in.
The other thing I run across is that in Florida, sales tax has to be collected for rentals of 6 months or less. I see a lot of month-to-month properties in my area too, and they are operating like a regular long term rental and not charging sales tax. I just gave someone a quote for a 3 month rental and had to include 13% tax. I did inform them that it is illegal for anyone in Florida to rent to them month-to-month without charging tax.
Anyway...that's my rant.
I feel your pain. If I were in your position, I would make sure that none of the 80% are with a company that has multiple properties. This would reduce the number of false positives. BUT once I verifed this stuff, then heck yeah I would turn them in.
At the end of the day though, the government has to have an enforcement division that is willing to enforce. The enforcement topic really is bizzare to me. Colorado litterally has a hand full of people who enforce this stuff. At least tens of millions are being lost. They could hire a hundred enforcement officers and pay $5,000,0000, but bring in $50,000,000.in revenue Sounds like a no brainer to me. But hey...who ever said government made sense.
It sounds like Florida has a system that is potentially workable, maybe they just need a little push. Good luck and please let us know if you do indeed turn someone in. I would be very interested to hear if you get any traction. Maybe it will inspire me and others to do something in our states.
REGARDING including taxes in the rate VS breaking the taxes out
Most governmental entities that I have been around REQUIRE taxes to be broken out. In many places, it is a violation of the Statues of Fraud (State law) to NOT break out the taxes. The theory is that it is deceptive (or put nicely confusing) to consumers to have an all inclusive fee. In theory consumers want to know how much of what they are paying is going to the government. This is an element of transparency I personally think is good. We breakout all of our fees. Every once in a while we will get a question/comment/complaint about all the fees, but 99% of the time guests appreciate the fact that we tell it like it is.
FYI: we breakout taxes, processing fee and cleaning fees. Some of our competitors role some or all of these fees into each other. The entities in our area that combine all the fees tend to be the guys that tack on BS fees to pad their bottom line. I am not saying that everyone does this, but this has been my experience in my area. For example, several of my competitors add a "resort fee." This is a completely factious fee that sounds legitimate. Several of my competitors charge 6.5% for this "resort fee."
Is that 6.5% just another term for Taxes? Never heard of a Resort Fee in our area, but then, nothing suprises me these days. Who knows? Some may start charging a fair weather fee!
I know that most of the Property Management companies handling VRs where ours is located charge a Booking Fee (anywhere from $25- $50), and then they add on the taxes, cleaning fees, etc.,That all ads up in a hurry. I have no idea if they also charge the owner a % of the base rental fee, since I've had no need to contract with a PM, even though I'm over 1,000 miles away from my VR.
I'm sticking with my break out fee structure, since I know the local (City) taxing authority is cracking down on those not paying their fair share.
No this 6.5% is not a tax or any kind of "real" fee. The resort does not "actually" charge anything. It just sounds legitimate. So many people tack it on. This is EXACTLY like a "fair weather" fee.
I believe a booking fee is just fine... as long as you call it what it is. Hey we are all doing this to make money. That is not a bad thing. It only becomes bad when people lie and act like making money is a sin against humanity.
I'm sorry...but I have one more thing to add. VR owners who forego paying the sales and tourism taxes are not only breaking the law, their hurting all of us. If you consider who is else is vying for traveller's dollar, this practice would play right into the hands of big hotel chains and their lobbyist who seek to ban short-term house rentals. They're also "freeloading" off the the tourism taxes that I'm paying.
In response to william.fuller I do not believe I am violation of any laws or committing any kind of fraud. I may have not fully expained. To clarify my earlier post I included the tax in my advertised rate but when I send a guest a breakdown the rent and tax are shown seperately and equal the advertised rate. I do not add any booking or resort or processing but I do add a cleaning fee. In the rates section of my advertising it is noted that there is a 10% tax included in our rates. I also agree that those not paying the required taxes are a problem to all of us.
My experience shows that most VR owners strive to comply with all local laws, including tax issues. Advertising and how we disclose our base rates and taxes are subject to the area our homes are located.
The best thing abt. this Community are the varius experiences we all bring to the table. I love learning what others do, and often tweak my product from ideas I garner here.
Most of us have pretty large investments tied up in our VRs - for one reason or another- and we'd be foolish to try to hedge on local tax laws, or any other law. I'm sure some try to dodge, becasue that's human nature.
Just my two cents. I think most people do not charge tax. I have personally spoken to several hundred owners over the years about this topic. I have NEVER, not once, met an owner that charged tax in my area. This is a topic that comes up everytime my company brings on a new client. The hardest people to convience are those who have self-rented in the past. From the get go they are not happy that a mere 5.775% (our tax rate) will be given to the state of CO.
William, This is a great feed and some awesome information here. I too am a hoem owner in Summit County (Blue River) and just thought I'd let you know there is at least one honest owner out here. I do pay my taxes (9.175%) but it is so frustrating when I get possible renters asking why we charge so much tax and so and so down the way doesn't charge any. I always tell them the other folks are breaking the law. That has worked to my advantage as they prefer renting form someone the perceive as honest.
I'm all for all of us paying the taxes we are supposed to be collecting. My question is how the county tax collectors can enforce an honor system, if they have no way of verifying that the rentals to pay taxes on?
Collection practices vary from place to place, but it can be dangerous to assume that the tax collecting agency will not know that one is renting property on which taxes are owed. States and local governments are becoming increasingly aggressive in identifying and collecting taxes which are owed, and vacation rentals have been recognized as a source ripe for picking. It really is not too difficult to identify rental properties and their owners. Owners should assume that tax authorities will have their employees, or contracted bounty hunters, tracking down tax cheats. If it is not being done now, expect it next year or the year after.
The banks are required by law to furnish finacial transactions to the feds if demanded, but the only source of informaton that I see available to the local tax athorities is something like VRBO/HA, which posts (and keeps track of) transactions to vaction rental owners accounts. Other than monitoring each individual vr, it is an overwhelming amount of data to sift through.
Kerry, good point! My CC processing company supplies me with a financial statement each year ( similar to a 1099) that they also provide to the IRS. I include it when I file my taxes - I'm not about to get audited just because i haven't played by the rules!
I don't mind agreeing to disagree about the level of compliance. Perhaps in some areas there is a very high level of compliance and only certain pockets (like mine) there is low compliance.
As I see it the problem is primarily a result of a poor tax structure and virtually no enforcement. Here is a structure that I think would help a lot. The state should sell a license to each property for each year. The fee structure should be pegged to something like property value. Lets assume a property appraised at $100K to 200K, This property would have a license fee of $500 annually and maybe another $250 for every additional $100K in value. This system would be easy to maintain and easy to enforce. One or two full time employees of the state could comb through the vacation rental web sites and send out non-compliance notices to owners. If the owner did not pay up, then the state could levy a lean against the property or the owner or in states that have an income tax, this fee could be incorporated there. In my home state of Texas they use a similar procedure to tax arcade games. They sell stickers for each game. If an inspector walks into a business without a sticker, then the business gets a fine and has to buy the stickers. This system works very well in situations where it would be easy to cover up revenue.This system would drastically reduce all the red tape associated with caculating, collection and sending in state sales tax every month.
In the Hamptons (Suffolk county, NY) a rental permit is required. In order to receive a rental permit a safety inspection is done by the building departement. Since rentals must be one month or more, there is no sales or use tax. Only short term rentals require this payment.
I believe that more and more towns, cities, and states are mandating a month minimum. Not sure how other towns operate. Are there still taxes required?
As Sage pointed out above. It is not too hard for the taxing authorities to track. I understand in my area, as with others that are revenue strapped, there is an effort to identify vacation and short term rentals that are not compliant with the tax regulations. There is also an effort in my state for the state taxation and assessments office to identify residential property that is rented, full or part time, to remove the owner's homestead tax credits. I doubt they are unique.
I think there different things are being mixed into this discussion. IRS, 1099, and all things of a federal nature are completely separate from the issue of sales tax which is a state and local issue. The tax that is primarily being discussed in this tread is of the nature of sales tax. In order to solve this issue two things have to happen 1. It has to be practical for state and local governments to enforce tax policy. 2. Owners must have a clear and easy way to comply with the law. The first problem is by far the hardest to solve. It will require the political will of elected officals and some serious structural changes in some state and local governments.
At the state/local level, it is quite easy to ferret out most vacation rentals here. The state in which I reside and my VR property is located is quit tax hungry and aggressive. Using the HA & VRBO searches, I identified 18+ pages 450+ properties in one popular vacation destination area in the state. Most had the address listed. All the tax researcher needs do is take that information, overlay in on their property ownership, sales tax account, and owner occupancy tax credits records, and viola. They now have search list. It is probably not hard for their staff IT dept to set up an automatic search function for this. That does not even consider the possibility or probability of being reported by a competitor that might perceive that a non-compliant owner has an unfair advantage.
My observation, is that is best to be on the compliant side of tax policies.
We have seen this issue evolve and really start changing over the last couple years. Tax enforcement is on the increase accross the country. We believe the industry is in the midst of a transition period, going from a not so compliant industry (we could argue how much non compliant) to an industry that will be mostly compliant over the next three to five years.
The question in my mind is will this be done proactively by the industry taking the lead? Or will compliance ultimately happen due to heavy handed new legislation (like Hawaii) or enforcement actions (like Colorado) and many other locations? And are there negative and even punative consequences for the industry due to non-compliance or percieved non-compliance.
In terms of solutions, HotSpot already has an easy an affordable web-based solution for owners and managers to be fully compliant at a cost that ranges on average from $6 per month to $12 per month depending on the location of the property. HotSpot will handle all the compliance tasks such as file all returns, pay the taxes, register and renew required licenses, etc, basically full compliance. Some owners understand the rules and don't mind dealing with these tasks, but many do not, which is why HotSpot was created.
I am interested in what people are seeing around the county from their tax authorities.
We are required to get a rental permit from the county we have the home in. Anything under 30 days is considered short term. You are require you to file a monthly report with them even in moths with no rentals and of course pay them 10% of gross receipts. I know many that never get a permit and never pay any tax.
Unfortunately that is so true. Too many homeowners just rent out their homes without having safety checks, permits or pay applicable taxes and fees.
I have tried to explain this to renters, but usually they are only interested in the bottom line, the rate of course.
At least I can sleep at night knowing that I have done the right thing.
So this gets your area about 50% of the way to what I think is a sustainable policy that can be reasonably enforced. If your area would change the 10% fee for rentals to a 1% fee to total appraised value, then it would be easy for the government to get its due. Since enforcement would be drastically easier, then compliance would be much higher because of the higher probability of getting caught.
Homes in most states are appraised by a local governmental appraisal district. The local and state government use this value to assess taxes for properties. Most states already have a structure in place to levy and collect these taxes. All the necessary human and procedural infrastructure is already in place. There is no guess work involved in figuring out how much property owners will owe. The opposite situation exists when owners are asked to report income for their properties. Owners can hide income and owners often may not know what they are suppose to do when it comes to SALES TAX in a state they may not live in.
So how is enforcement easier? It is very simple. Property owners generally have to advertise in order to find renters. Thus, all the government needs to do is have a few people troll through the vacation rental listings and look for violators. Since the violator is not taxed based on SALES, there is no need for an audit. All the government will have to do is kindly inform the owner that he/she needs to pay for a permit. If the owner ignores or refuses to comply then the government may put a lien on the property, just like they already do when property taxes are not paid. Only two things are required to make this a reality. 1. A law that creates a RENTAL PERMIT. 2. A very small number of government employees who are compliance officers. Everything else is already in place.
"Thus, all the government needs to do is have a few people troll through the vacation rental listings and look for violators" I have read and heard of this but aimed at sales tax enforcement and to remove homestead credit for non-compliant properties. Hopefully, it is just an urban legend, and not fact. But, then again, if one is compliant, (as I am), it does not matter. Certainly, it would level the playing field for compliant owners.
Thanks. Good posts & reading.
I don't see how 1% on assessed value would work. What if a house is used only 50% of the time as a rental? Would you charge the owner as if it were 100% rented out? If a region must tax, a tax on receipts is really the only way to go.
That is a great question! I used 1% mainly as an illustration. In reality there could be tiers based on different criteria. Here are a couple of thoughts. Beach communities in the South may base the tax on a six month season, whereas Hawaii may base the tax on a 12 month season. Each state or even each county or city could create its own rules that are fair to its citizens. This is 100% a state and local issue. Another method that may work is to sell the RENTAL PERMITS based on a 6 month period or even a quarter. This would make a little harder, but it seems to me that it is still a pretty simple proposition. Here is another idea. The government could sell the Permits based on a monthly fee. An owner who only intends to rent from March through August would simply fill out the application for that time frame and pay the appropriate fee. They would be required to only advertise those times. Again, this would require some additional enforcement, but not a lot. I estimate it would be quite simple for an compliance officer to look at 100 property listings per day. That means that one person could look at something like 20,000 listings per year. Assuming the compliance officer is paid $40K per year, this is a $2 per property cost of enforcement. These RENTAL PERMITS would cost between a few hundred to a few thousand dollars per year. This means that the cost of enforcement is something like .01%. That is an incredibly low cost.
I am not a tax advocate. In fact, I would love it if the government would just stay out of our business in general. However, if they are going to extort money from us, I want them to do it fairly and equally to all of us. Taxiing based on receipts is fair in theory. However, in practice it is most certainly not the way to go because of a) high administrative costs on both the owner and the government b) high level of non-compliance. I also think the FAIRNESS arguement really does not get us very far. Lets face it property owners are the most over taxed entities in the country. It is easy to pick on us because we cannot move our real estate. I merely want us to all be picked on in the same way.
property owners are the most over taxed entities in the country
Ah, but property owners do not pay sales taxes on vacation rentals, it is the renters who pay this tax. The owners merely do a bit of administrative work. When I mail the check to the state I may feel as if it is my money being sent, but actually it never was my money, I was just holding it for the state until it became time to send the money to its rightful owner. And, okay, it takes me about 10 minutes twice a year to prepare the General Excise Tax and Transient Accomodation Tax forms.
One may argue that no one should be required to contribute any money to support government. But most of us have some government services we would be loathe to give up. If any group is going to be taxed, perhaps it is appropriate that it be those who take vacations. Vacations are not necessities like food or medical care (both of which are taxed here in Hawaii), so everyone who is paying the taxes we collect does so voluntarily--none of our guests has been forced to take a vacation. So I guess that those who would argue that no one should be required to contribute any money to support government should have no objection to taxes on vacation rentals.
I don't mean to hijack this thread, but let me clarify. I did not intend to suggest that I/we should pay no tax at all. I am fine with some tax. Keep it fair and keep the redistribution of wealth low. I do not accept the premise that optional activities like vacations in someway gives the government more moral authority to tax. Moral authority should be imbued in a social contract. I don't think our social contract gives this authority. I would like to present an alternative theory of taxation, one that exists in our society today. Our government gives tax credits for things that it believes is good for society and tax penalties for things it considers bad. It is an undeniable fact that vacations are great for families and the human mind. Thus, the government should subsidize the vacation industry and all vacationers :-)
I would never think of not charging, collecting, filing and paying the 11% (state and local) taxes for my area here in Florida. It never was my money, I was just holding it for the taxing authorities. Here in Florida that amount includes all fees (cleaning, etc.) that one might charge (not deposits) for all housing rental less than 6 months. The extra local 5% goes to help bring tourists to our area. I am proud to say that I am helping our area attract business - since so many of us (not just us in hospitality) depend on our tourists and need these improvements and advertising it takes to promotes our SW Florida area. And the tax man will find those violators and not impose the taxes on your guests, but it will be the VR owner who will now be responsible. I know, that even though I was already in compliance, I was checked out and had to provide documentation.
So I say..... I prefer to be honest and I feel (or I hope) my competitors (and there are 1,000's in my area) are doing the same. They just may not know that the taxes should be on all additional fees. Not their fault, since this is clear as mud.
It should be a level playing field for all.
Thanks for verify the accuracy of what I was told, or read, about the complinace checks. Interesting the way HA/VRBO formats the Reservation Manager System with three (3) options; Sales Tax, Sales tax included, or No Sales tax. While compliance rests with the property owners, it makes me wonder if HA/VRBO has "skin in the game" as they know locations and a to a degree facilitating the transactions when taxes are not charged and should be.
Both VR and HA should be especially sensitve to privacy issues of sharing any finanacial information with an outside source.
If it were discovered that VR/HA beached this trust- Not only could it expose them to litigation, it would fracture the loyalty with its subscriber/advertiser, and encourage the rise of competition from other, more dedicated sites.
After all, compliance is an agreement to wishes.
I have plenty of beefs with HA/VRBO, but on this issue I think they are spot on. The government should not dictate to a private business that the business should do the governments job of taxing and collecting. These kind of requirements are just another form of taxation. Also, HA/VRBO and its users are best served by having a flexible system. It is entirely possible that an owner may choose to create a simple pricing structure that includes tax and uses easily digestible numbers and another owner (like me) chooses to break out all the fees so that the renter knows exactly what they are paying for.
I believe that we are supposed to quote (by law) our price (without the taxes) like the retail and hotels do, then "plus" any applicapbe taxes, to do so otherwise is wrong...... but I am not totally certain, but pretty certain. Just not sure, but I have been in the commercial real estate business my whole adult life and do commercial rentals as well and I do know that we are required to it this way. I assume that this would be the same, I have known LL that were doing it differently and were reprimanded.
There are a lot of renter related expenses that could be charged too. Example- utilities. I believe VR/HA has the capabiities to add these charges to the quote, and would we be responsible to collect taxes on that surcharge?
I just ran the figures, and found that my properties netted only 7% last year, after assessments.
That is more than 63% less than what the state cleared on taxes at 11%
Are we on the wrong side of the equation?
Kerry - I understand that you are saying that you received a 7% return on your investment in the VR property. Congratulations. That is a much better return than most investments are paying. In most locations, property values are going up, so if you figure you have some unrealized capital gains on top of that 7%, you truly are doing very well.
Yes, more than likely any additional expenses (ie. utilities) which would be part of the costs of tenancy would be taxable as well. In commercial real estate - all pass thru's are taxable including the real estate taxes which are normally part of the CAM (common area maintenance) and many consider is a legal form of double taxation.
I didn't see my situation in any of the responses so here is another possibility... I checked very thoroughly with the local government before listing my Second Home as a property for vacation rental. I was told that since it was my "second home", it was not taxed the 10% occupancy tax like a rental property, or something to that effect.
I realize not everybody rents out their second home( I live in another state), but I imagine a lot of people do. I am sure many people are simply not taxing and violating the law, but perhaps at least some people are in my situation -and exempt?
Let me state right up front that I am NOT attacking you or questioning your integrity. It is very very hard to imagine that your situation is as you believe. The "loop hole" you are describing would be obvious to any taxing authority and the resident owners would scream bloody murder. Those tax payers (who actually elected the taxing folks) would insist the non-residents be taxed in the same way as the residents. I can only think of one extremely rare exception. It could happen (as in almost never) that a taxing body intentionally created this loop hole in order to give outside incentives for out of state investors. Again, the policital back lash of such a policy would cause many politicians to lose their jobs. I should also clarify that I am only speaking in terms of short-term rentals. Many states exclude sales tax on stays longer than 30 days.
Interesting thread and a number of different issues are brought up. I wanted to offer some thoughts based on our experience of managing tax compliance for over 10 years and filing these taxes for thousands of locations across the U.S. We frequently learn new and different things from our vacation rental owner customers who have highly localized experiences and knowledge, so I always like following these discussions. Some comments based on what we have seen:
1) Many tax jurisdictions routinely 'troll' through vacation rental websites. However, there are typically no full owner names or property address on the websites so this type of enforcement tactic is not necessarily easy. Some tax jurisdictions have told us the 'trolling' method is not a cost effective enforcement tactic. Some do trolling intensively.
2) Website operators have terms, conditions and privacy policies that prohibit an operator from sharing any information with a tax authority or anybody else. Our experience is that website operators (like HomeAway/VRBO) vigorously protect the privacy/information of their users and will continue to do so. A tax jurisdictions efforts to use a VR website for tax enforcement may and has historically been met with a letter to stop 'trolling' (especially if the email inquiry form is used.) Some tax jurisdiction have demanded customer lists, which never works because a website like HomeAway is not legally authorized to provide anyone that info. Again, this is based on our experience, I can't speak for HomeAway.
3) Taxes are almost always required to be separately stated, but as a practical matter we have not seen anyone have a problem by doing all inclusive pricing. We recommend separately stating the taxes as a good business practice.
4) Mandatory charges are taxable, regardless of what you call them (the common one is the cleaning fee).
5) There are a few locations around the U.S. that exclude vacation rentals from taxation. States such as MA, NY, LA, DE, RI, NJ and certain communities have wording in their definition of a 'hotel' (in their code/statutes) that excludes the tax if fewer than xxx number of units. In these areas a single vacation rental is usually exempted due to this threshold. Important note, this does not mean that there is not a city or county tax that may be applicable. For instance, New York state recently lost a court case and issued a ruling basically exempting vacation rentals from the state and county sales tax, but each county and NYC continue do continue to levy a local room/hotel tax.
6) It is unfortunately very common for a vacation rental owner to contact a tax jurisdiction and get bad advice. Depending on who answers the phone, what department is contacted and how the questions are phrased can result in varying and incorrect answers. Virtually every location in the U.S. has some form of short-term rental/hotel tax, locating the definition of a hotel in each jurisdiction is the definitive answer to taxability.
Sorry for the rambling post, probably more info than most people care to know. Hope everyone had a great Thanksgiving.
HotSpot Tax Services
I am assuming that you are not in the state of Florida, but since I only know the laws of Florida... It is regardless of your status or situation, we are required to collect 6% tax, plus any local taxes (in my case an additional 5%) for any occupancy that is not more than 6 months. So on a 6 months lease we still have to charge and collect 11%, on 6 months and a day, we still should be reporting it, but list it as exempt. But if it is a month to month, from the beginning, (ie, no stated lease over 6 months) and they stay beyond 6 months, it is all subject to all of the applicable taxes. Of this I am certain for Florida, regardless of any situation. And if you say you have a long term lease, they will ask to see an executed copy, if you are audited by your taxing authority.
All states are different...... And some local areas are not as diligent as others on their auditing practice, but you know the saying about "death and taxes". ;-/
I am very new to VRBO. When I called the City where I live, the gal told me that the tax rate is 12.77 % for any rentals 7 days or less. For rentals 1 month it is 1.5 %. I know what you mean where some people do not charge tax. I see it on the listings. "Tax included". I think that they must adjust thier price and include it. I live in an area where people may not want a VRBO. So, I want to do the right thing, be legal and charge the tax and also pay the tax. That means filing monthly! UGH I don't like paperwork. The clerk at the city told me she know that there is not any watch dog on this tax but one day it could really bite you!
Many of the folks inquiring about my property have expressed that they expect to pay tax. I am hoping that charging the tax won't make me non competative either.
Sue,I think you have a few options ( but you still have to file those taxes- part of doing business!)
I've tried quoting an all inclusive fee ( base rental, taxes, cleaning fee). Many in my area do not, so I 've gotten away from that "quote".
I have a template response that I can cut and paste that outlines the fees:
Base Rental (# of nights at High or Low Season) = XXXXXX
Tax 15% + XXXXX
Cleaning fee + XXXX
TOTAL RENTAL FEE = XXXXXX
An Addtional Damage Deposit of XXXX is required.
We require 50% of the base rental fee to confirm a reservation and the balance, including the Damage Deposit, is due 30 days prior to the date of arrival.
We do not charge taxes on the reservation fee, since we charge a cancellaltion fee of $100. ( It all comes out in the wash).
A note of advice: There is a certain amount of paperwork and tracking you HAVE to do in this business. Once you get used to it it si not that bad. You're running a business, so you need to be professional.
I'm sure others will weigh in here too!
Based on your email and tax references it sounds like your property is in Arizona. We (HotSpot) will file the monthly return for a $6 fee per month. We are an option for people that do not want to manage the taxes themselves, and there are a lot that don't.
Let me know if we can assist or if you have other questions.
HotSpot Tax Services
I came across with this debate and I just want to add a little bit of my frustration ( almost 3 years after the initial post) :
A recent taxation reform was approved for VR increasing San Diego, CA rates from 10.5% to 11.05%. I immediately reflected it in my rental agreement as well as my webpage. Guess how many folks in my area did the same?? That should explain why so many inquiries are being turned down as " very high rates" from my potential renters...
I did a little research with my local competitors, and sure enough the "old" percentual rate is still there...
Note: My rental rates are equivalent to the competitors. The bottom line price is the problem since taxation now is higher from me. Is there any way I can alert other owners in the area to make them aware of the new law and , at least, " pretend" they are collecting the new rate correctely? I would love to hear some experienced thoughts about this frustrating situation...
You can always send them an inquiry "I am another VR owner in San Diego and noticed you have not yet raised your tax from .... to ... in your ad. Are you aware the rates changed recently?"
If there isn't a HA Community group for your area, you might want to start one and invite them to join when you send them the inquiry.
Thanks for your suggestion. I did find a San Diego community with 7 members ( I am now the member # 8), and I asked them how they feel about the situation, and if they would be willing to help me with some awareness of the new taxes among the community. I haven't heard back from them yet. Anyway, I decided to take the initiative sending an inquiry to others around me ( my main competitors). The idea is to let them either aware of ( or in compliance with) this new tax increase. I am trying to get them into the the fair competition with VR business. So far I got responses from "thank you for your tip" to " yes, I am aware of, but I was too busy to update the web". A little of " neighborhood watch" policy doesn't hurt, right?. I know it's a scratch on the surface, but little by little we can start moving things around about taxation. Law enforcement for sure would be ideal, but any type of monitoring service from HA would help as well. Some food for the thoughts...
Not all states levy sales taxes. Oregon is one of them. We do, however have city and county taxes. Our vacation rentals are in the county;we are required to pay 1% occupancy tax. When and if we are annexed, we will be required to conform to city regulations. I see homeowners in our area that do not charge any taxes. Others charge the required 1%. What I don't understand is that some charge a 10 or 11% tax. Isn't that fraud? If the 'taxes' are not being submitted to the government body that does not require them ....
Obviously not all states are the same, and if homeaway or any other group required an across the board tax, special adjustments would have to be made for states and areas like ours.
Oregon does not have sales tax, but there is a 1% state lodging tax that was implemented several years ago.
As you noted, each city and county in Oregon has a room tax in addition to the state tax. To your point, anyone collecting tax or overcollecting tax and not remitting is committing a pretty serious offense. The tax jurisdictions view collected tax as their money and if you keep it and don't pay it to them it is a form of theft. This is much worse than simply not know or not collecting the tax.
I know that this is an old thread, but I had to add something funny (I think). While there are some that would cheat, there are those of us that pay....then when we get a corporate rental for a period over 30 days....we wonder if we will be audited because we don't have to pay taxes on any rentals over 30 days. Funny how some are built with the "we'll deal with it if it becomes an issue" and then those of us that stress about the accuracy of what we are paying
And those that don't pay....probably wonder.....(along with the rest of us) why so many new laws are being put into place daily on things that shouldn't even be an issue.
Two Bit, I'm still new at this VR business and one thing that the previous owner stressed was to "pay the taxes, tourism and real estate on time!" And keep all the other licensing up to date. I know there are many people in my area who (1) do not pay tourism tax and (2) are not licensed. I am always thinking the person on the other end could be testing me. It would be so easy for the county to pose as false inquiries and ask for quotes. Because we are licensed State and County they have all of our info. The only thing that reassures me is the county is over worked and under paid and most likely doesn't have time to commit to looking for violations.
Maybe? I am actually glad that I am not one of them........I think that the reality is that life is more complex for those "gaming" life, than those of us that try hard to do the right thing. They may "think" life is less stressful....but if they are ever caught...life will become way more stressful, than those of us trying to do the right thing!
In CO we have to be very careful with the 30 day rule. The state of Colorado considers any transation over 30 days as a real estate transaction. Only licesned agents or the acutal owner of a property may conduct a real estate transaction and the transaction must follow all sorts of special rules. As a professional property manager, we will not take rentals over 30 days. If we have a long-term rental request, we will offer to do multiple 30 day rentals, but of course this triggers sales tax. I just did a quick calculation we paid about $240K in sales tax last year. Wow that is more than just a little bit of pocket change!
I also have to be careful about paying taxes and length of stay. One of my first guests was a woman who was referred to me by the owner and called to make a reservation. I took all her info and gave her a detailed quote over the phone. She insisted that the owner (her good friend) told her she wouldn't have to pay tax. I told her I would talk to the owner and call her back. The owner tells me she never promised no tax. I again called the guest and backed up the phone call with an emailed quote. She calls the owner telling her I'm gouging her. I end up giving her a discount to make up for paying the tax. Then in a subsequent phone call with the owner wondering about the big discount, the owner tells me she is not friends, she just handed her a business card with the listing in line at the grocery store. This woman called back the following year for another reservation, at which time I told her there would be no discounts, and tax would be charged per state law. She argued and I very politely declined her reservation. Her next phone call was of course to the owner who told her all rentals were handled by me and she couldn't help her.
Now when someone asks about paying the tax, I tell them we pay our taxes honestly and above board, and I they wouldn't want to stay with someone who would jeopardize their business so easily, would they?
The market is so competetive here that if I did not charge tax, or comply with any state law, I would be afraid of someone lodging a complaint. Not worth the hassle!