In some jurisdictions, sales tax applies. So that is one more thing to check. (And don't forget that one of the first things to check is if the local jurisdiction even allows short-term rentals!)
Here is a post originally on SalesTaxSupport.com.
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:
·
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).
What do you think?
