Sales Tax Due When You Rent Out Your Vacation Home

Most states require people who rent out their vacation homes to charge and collect state sales and lodging taxes on the income they earn from short-term rentals.

Many people rent out their vacation homes on a short-term basis. Websites like homeaway.com or airbnb.com can make renting your vacation home a very easy process. However, you might be surprised to learn that most states require people who rent out their vacation homes to charge and collect state sales or lodging taxes on the income they earn from short-term rentals. These taxes go by different names—for example:

  • sales tax
  • lodging tax
  • occupancy tax
  • transient occupancy/rental/lodging tax
  • hotel tax
  • room tax
  • gross receipts tax
  • bed tax
  • transaction privilege tax, or
  • tourist tax.

What Is a Short-Term Rental?

Sales and/or lodging taxes are only due on income owned from "short-term rentals." Thus, for example, a landlord who rents out a home on an annual basis need not pay these taxes. What constitutes a short-term rental varies from state to state. In many states, any rental less than 30 days is considered short term. In other states, rental periods of up to six months may be considered short term and therefore subject to sales taxes. Moreover, in some areas rentals of private homes are entirely exempt from these taxes. In addition, many states have “casual use” rules that excuse rentals of only one or two days per year from such taxes.

How Sales Taxes Work

These taxes are completely separate from income tax and are not collected by the IRS. They are collected by your state, county, and/or city. Like all sales taxes, they are paid by the person who purchases the goods or services (the vacation home renter), not the person who provides them (the vacation home owner). Your role is limited to collecting the taxes and remitting them to the appropriate state and/or local agency. Depending on where your property is located, you may have to pay the sales tax you collect every month or every quarter (three months).

The amount of local taxes varies, as does how they are calculated. They can be based on a flat fee, rental percentage, number of guests, number of nights guests stay, type of property involved, or a combination of any of these. In some areas there is one rate for the entire state, in others, sales tax rates vary from city to city or county to county. On average, they equal about 12% of the income earned from the short-term rental (including rents, cleaning fees, and other fees). The taxes are typically due monthly or quarterly. The due dates can vary depending on the amount of tax owed.

For example, if you rent out your vacation home for one month and earn $2,000 in total revenue for the month and your sales tax rate is 12%, you’ll have to charge your renters $240 in sales taxes. You must collect and remit the funds to the appropriate agencies--this could be a state, county, and/or city agency.

Sales tax rates and procedures vary from state to state. If you rent your vacation home through Airbnb, it may collect and remit the sales taxes due for you. Otherwise, you’ll need to do it yourself. You’ll need to register your home with your state sales tax agency and, possibly, with your city and/or county. Alternatively, can pay a sales tax service company, such as mylodgetax.avalara.com, to collect and pay these taxes for you.

You can find summaries of the local short-term rental taxes charged in many areas, along with helpful links, on the Airbnb website. This list is helpful whether or not you use Airbnb to rent your property. Useful summaries are also available on the Avalara website. There is a list of website links for all state sales tax agencies.

What If You Failed to Collect Sales Taxes?

Many vacation home owners are unaware that they need to pay sales tax on short-term rentals, and simply don't collect them. Some go years without collecting such taxes. If you're in this boat, contact your state, county, and/or city sales tax agency to find out what you should do. Coming forward voluntarily can help lower your tax bill because many sales tax agencies will waive the penalties due when you do so.

For more on taxes and short-term rental properties, see Tax Guide for Short-Term Rentals: Airbnb, HomeAway, VRBO and More, by Stephen Fishman.

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