7 lodging tax collection reminders for short-term rental property managers

Helping your clients comply with lodging tax obligations takes a real burden off their shoulders — but that burden then becomes yours. Lodging tax compliance can present a learning curve, so it’s important to have a firm grasp of the process before you start. Here’s what you need to know about the collection step of lodging tax compliance.

Before you can start collecting lodging tax for your clients, you need to register with the proper tax authority. For more on lodging tax registration and filing, see this post. 

Once you’ve registered, you’ll be ready to collect lodging taxes from your clients’ short-term rental guests. The tax is usually calculated as a percentage of the cost of the rental and added to the bill. To get that percentage right, you need to know which charges are taxable and the correct total tax rate. In some jurisdictions, the tax may be a flat fee that’s added to the bill, but this is uncommon.

Each jurisdiction has its own rules on what charges are subject to lodging taxes, and it’s critical to know these rules in order to collect the right amount of tax. Often, all amounts guests must pay to use the property — including charges such as cleaning fees — are subject to lodging taxes. However, each jurisdiction has its own rules.

For example, in many jurisdictions, amounts charged for refundable deposits aren’t subject to lodging taxes. In South Dakota, however, tax is charged on refundable deposits, and the tax is refunded if the deposit is refunded. 

You’ll also need to know the appropriate tax rates to apply to the charges. The final rate may be made up of more than one tax. In Austin, Texas, for example, the total lodging tax rate for short-term rentals is 17%. This consists of a 6% state hotel occupancy tax and an 11% city hotel occupancy tax, which itself is comprised of a 9% occupancy tax and an additional 2% venue project tax. In general, you add all the taxes together and charge your clients’ guests one total rate.

Keep in mind that rates can and do change frequently, so you should check the rate regularly. For some jurisdictions, it’s easy to find the correct rate online, but this is not necessarily always the case. If you’re unsure about the right rates, you may need to personally ask the appropriate authority. MyLodgeTax can also help rental hosts make sure they’re charging the right rates.

Once you receive tax revenues from clients’ guests, you’ll need to reserve those funds until you file the lodging tax return and pay the amount due. It’s a good idea to reserve these funds in a separate bank account from other funds.

For the most part, you’ll present the total tax rate to guests as a single percentage, but if the total includes different taxes and/or different jurisdictions, you’ll need to keep track of these and pay the correct amount to the right jurisdiction when you file your tax returns.

It’s very important to keep good records of how much total revenue your client has received and how much you’ve collected for taxes. This will be key when it comes time to file your taxes, which is the final step in the lodging tax process for short-term rental operators.

If your client lists their property on a short-term rental platform such as Airbnb or HomeAway/Vrbo, the platform may automatically collect taxes on your client’s behalf. It’s key to know which taxes your client’s platform is collecting — or not collecting — so the tax isn’t collected twice.

Manually making certain you’re collecting all of your clients’ lodging taxes correctly can be a big job. MyLodgeTax can ease that burden by doing the work for you, including registering with tax authorities, keeping up on correct tax rates, and filing lodging tax returns. If you’re a property manager and have questions about short-term rental lodging tax, drop us a line and we’ll get back to you with answers.