A bit more than ten years ago, Airbnb reached a big milestone: a cool million nights had been booked on the young online platform. Fast-forward to 2022, and bookings on Airbnb have now sped past the billion mark without so much as a blink. With major platforms like Airbnb stoking the fire in the boiler room, the short-term rental (STR) train has been on a wild ride.
But if we look around the country today, there are big signs everywhere that the Wild West days are over, and that the STR industry is entering a new phase. No more “gunfights, stagecoach robberies, bank holdups, bounty hunters, and brothels,” to use Amy Hinote’s words at VRM Intel. Local governing bodies have had the benefit of watching STRs in action in their communities for years, and they've measured the strengths and limitations of their existing ordinances. Now, they’re getting ready to pass new regulations to bring non-compliant operators into compliance and collect on lodging taxes that might have fallen through the cracks in the past.
Lodging taxes for STRs can be confusing
If you click the dropdown arrow next to the ‘tax’ line item on your STR booking, you’ll notice familiar entries (like state sales taxes or room occupancy taxes), some less familiar entries (like local option taxes and discretionary sales surtaxes) and some that are out of left field (who’s heard of the Boise auditorium district tax?).
Lodging taxes are a really effective way for communities to fund local infrastructure, tourism and services. Affordable housing has become a major issue in popular destinations where STRs contribute to depleting the available housing stock, and new taxes can subsidize housing developments and help alleviate some of the pressure. But it can be hard for STR owners and operators to keep track of all the changes.
For example, a number of towns on Cape Cod are considering adding a 3% community impact fee to the 14.75% lodging taxes already in effect, with the provision that those new funds be used exclusively for affordable housing projects. In Frisco, Colorado, a new 5% excise tax just came into effect in June, and the city expects to collect $1.5 million a year in new tax revenue to fund workforce housing.
5 steps to streamline your tax obligations
Let’s face it: If you’re operating an STR business, higher lodging taxes aren’t exactly the incentive you’re looking for to attract guests and grow your business. But with mandatory registrations and harsh penalties now in place pretty much everywhere around the country, you simply can’t afford to be in the dark about your tax obligations. They will vary greatly from place to place, but there are 5 essential steps you need to take regardless of where your STR is located:
Step 1: Register with the relevant city, county and state agencies - Until recently, local governments lacked visibility into the STR market in their jurisdiction. Many owners, operators and property managers were operating without a license, making it impossible for government officials to communicate with them, let alone enforce regulations and collect taxes. That’s not the case anymore. Most jurisdictions now require that you not only register your business, but also include your registration, permit or license number on all your listings, and the top online platforms won’t let you operate without one.
Step 2: Research your local lodging tax requirements - There’s no shortage of online articles on the topic of lodging taxes, but watch out: many are badly outdated, even when they’re published on government websites. And with many communities (from Maui to Chautauqua) currently under moratorium to give themselves time to develop new ordinances and possibly revise their tax requirements, you simply can’t rely on what you read online. But a real time solution like the Fyllo Regulatory Database for short-term rentals will help you stay on top of all the latest developments and point you in the right direction.
Step 3: Know what charges are subject to taxes - Mandatory fees (like rent, resort fees, pet fees, additional guest fees, parking fees or cleaning fees) are generally subject to lodging taxes, but each jurisdiction does it slightly differently. In some areas, taxes are levied on refundable deposits too, and refunded when the deposit is refunded.
Step 4: Collect lodging tax from your guests - Depending on your jurisdiction, online platforms like Airbnb, Vrbo and Vacasa will collect all lodging taxes on your behalf, some of the taxes or none at all. And you might be renting out your property directly too. You need to know where the gaps are because you’re the one ultimately responsible for collecting those taxes.
Step 5: File your tax returns - Even if the online platforms you’re using have a licensed vendor agreement with your jurisdiction and do a perfect job of collecting and remitting all the taxes you owe, you still need to file regular returns with all the relevant tax authorities. If your tax liability is over a certain threshold, some jurisdictions will require you to file monthly instead of quarterly or annual reports. Others (like the Louisville Metro Revenue Commission) might require you to file monthly reports regardless of your level of activity. You’re responsible for keeping track of all the nuances for the properties you’re overseeing.
Stay on top of all your lodging taxes, old and new
The STR industry is changing fast. Every day, some new regulation is knocking at the door, and you should stay on top of every new bill and ordinance proposal to protect your business. Check out the Fyllo Regulatory Database for short-term rentals, it will help you keep pace with compliance—now and into the future.