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Tax on Short-Term Rentals – Taxing on Landlords & Municipalities

author photo of Annette Nellen

Today’s ease of renting out almost any type of property you are not fully using is turning more individuals into landlords and lessors. Airbnb touts over 1.5 million listings. A report from Airbnb released in June 2015 indicated that a typical middle class family renting out one property might generate about $7,500 of additional income. That’s enticing to many individuals and families – maximizing your income from underutilized assets.

Some cities have changed their rental laws to discourage conversion of long-term housing into short-term housing. This might be done by limiting the number of days during the year that a home can be rented, or by only allowing a rental if the owner or tenant is also present (home-sharing). For example, San Francisco allows a maximum of 90 days rental per year when the owner is not present. Santa Monica forbids vacation rentals, but allows unlimited days of “home-sharing.”

We hear a fair amount of news about transient occupancy tax (TOT) that many cities impose on short-term rentals (usually 30 days or less). In some cities, Airbnb has agreed to collect the tax (and the city likely needed to change its law to allow that arrangement). Some cities also impose a business license tax.

I don’t think we hear a lot about whether these rentals are also subject to sales tax. In many states, the sales tax is not broad enough to cover residential rentals, but just like checking for the application of TOT, business license, and income tax, owners and their tax advisers should also check about sales tax. Here are examples of three jurisdictions that may impose sales tax on short-term residential rentals:

  • Colorado – Sales 11 document
  • Florida – see GT-800034 about sales tax on rental or living or sleeping accommodations.
  • Idaho – on 8/12/15, the Idaho Tax Commission issued a news release to remind about the 6% sales tax and 2% travel and convention tax on short-term rentals.
  • Savannah, GA – the city’s website on short-term rentals also has a link to the relevant law on short-term vacation rentals that includes Sec. 8-10017 about imposition of sales tax.

That seems like a lot of tax when sales tax is also owed, if along with TOT, business license and income tax. Plus, there might be a one-time or annual registration fee.

With the low costs of entry to this potential money-making opportunity, tax advisers will continue to see more clients doing this. It would be a good idea to see what the client knows. Did they check the law in their city or county to see if they are even allowed to rent? If they are a tenant or a homeowner in an association, have they checked to see if the rental is allowed? Do they know their tax obligations?

Tax advisers should also likely get up to speed on the rules of at least their state and local communities. You may be surprised. And, watch for continuing law changes at the state and local level. Unlike hotels, these short-term rentals involve voters and they might persuade lawmakers to ease rules (maybe – lawmakers might also want to tighten rules for various reasons).

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

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Comments

2 Responses to Tax on Short-Term Rentals – Taxing on Landlords & Municipalities

  • Posted by Laura on October 2, 2015 12:00pm:

    I'm sure most airbnb providers don't even think of this issue.

    • Posted by Annette on October 5, 2015 11:34am:

      I think you are correct. And in some cities there is additional registration requirements beyond possibly a business license tax. San Francisco requires making an appointment to start the registration process - http://www.sf-planning.org/index.aspx?page=4004

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