As a vacation rental property owner, you are required to charge and collect sales tax on all short-term rentals in most states. In most cases, short-term is defined as a rental of less than 30 days, but in some cases short-term rentals are defined as rental periods up to six months.
Many of these sales taxes are specific to lodging and are a significant tax revenue source in resort communities. These taxes are established by state, county and local governments, and may be referred to as sales, lodging, hotel, room, tourist, or transient accommodations taxes. Non-compliance may result in significant penalties and interest charged by tax authorities on taxes not remitted. We are also seeing a significant increase in enforcement on vacation rentals around the country due to state and local governments’ need for additional tax revenue sources in this challenging economic climate.
As a vacation rental property owner, you're required to do the following:
Register your property. The registration process varies by location. In some states you are only required to register with the state, and in other locations you are required to register with the state, county and city. It is important to check with each governmental authority. Some locales require vacation rentals to have a business license or other similar forms of licenses.
Collect sales tax from renters. The tax you are required to collect is set by state, county and city governments. In some areas there is one rate for the entire state; in others, the taxes charged varies by the county and city. Generally, these taxes range from 5% to 15% tax on the total rent charges, typically averaging around 10%.
File tax returns monthly and/or quarterly. Once you collect the tax from your renters, you are required to file the appropriate tax returns to the state, county or city (or potentially all three based on the location of your property). The returns are typically due monthly or quarterly. The required filing frequency is determined by each tax jurisdiction.
Make tax payments to city, state, and county tax authorities. Along with the tax return, payment must be remitted each month or quarter to the appropriate state, county and/or city. Due dates for these tax returns and payments vary. Remember, you are simply the middle man. These payments are really coming in from your renters.
Renew licenses annually. Many tax and business licenses must be renewed each year, which may include the payment of an annual license fee. Most tax jurisdictions will mail you the renewal form each year, but it is important to keep your licenses renewed and active.
Take advantage of HotSpot Tax Services. If you are looking for ways to lighten your load, HotSpot offers vacation rental owners and managers a simple and affordable way to fully comply with all tax and licensing requirements. HotSpot handles all licenses, tax return filings, payments and recordkeeping for their clients, for an average cost of $10 per month. Read more info and start the compliance process at www.hotspottax.com.
Article written by Kim Stephens, a Certified Public Accountant (CPA) with over 20 years of experience in accounting and finance. Kim is also the co-founder of HotSpot Tax Services, a company solely dedicated to helping vacation property owners with sales and lodging tax compliance. Kim can be reached at 877-589-0207 or www.hotspottax.com .
© Copyright Kim Stephens 2006