STR regulations and lodging taxes that apply to the five ‘best places to invest’
- Mar 8, 2023 | Jennifer Sokolowsky
AirDNA, a data and analytics company for short-term rental (STR) markets, recently released its Best Places to Invest in 2023 report. To identify high-performing, growing short-term rental markets that provide returns for investors, the company uses its property-level performance data for Airbnb and Vrbo to create a proprietary ranking metric, the AirDNA Investor Score. The score for each market is based on data in four areas: rental demand, revenue growth, investability, and regulation.
Regulation is a new addition in AirDNA’s index this year, recognizing the fact that short-term rentals face increasing regulation at the local and state level. AirDNA incorporated Revedy’s regulation score for each city, which considers both current regulatory risk for STR investors and the likelihood of increased regulation in the future.
The AirDNA report notes legal restrictions that may negatively impact investors. However, even when laws aren’t onerous to STR operators, owners should be aware of the local rules they’re expected to follow in their market. Here’s a breakdown of what hosts need to know in terms of regulations and lodging taxes in the top 5 markets in AirDNA’s ranking.
1. Fairbanks, Alaska
In Alaska, STRs face few regulations at the state level, and they’re not subject to state lodging taxes. However, the state of Alaska considers collecting rental income as a business activity that requires an Alaska Business License. Fairbanks operators also need to obtain a city business license.
Fairbanks rentals of 30 consecutive days or less, including short-term rentals, are also subject to the city’s room rental tax. This means hosts must register with the city for tax purposes, add the tax on to their guests’ bills, file regular returns, and remit the tax to the city.
While Airbnb and Vrbo collect lodging taxes on behalf of their hosts in Anchorage, they don’t collect in Fairbanks, which means hosts there must collect room rental tax on their own.
See the state Vacation Rental Tax Guide for more information on short-term rental taxes in Alaska.
2. Evansville, Indiana
Evansville doesn’t have any regulations specific to STRs, although it does require all single-dwelling and/or multi-dwelling rental property owners to register with the city.
Short-term rentals in Evansville are subject to state sales tax and Vanderburgh County innkeeper’s tax. Operators who rent out their personal primary residence for fewer than 15 days in the current or preceding calendar year, and whose vacation rentals are not made through a marketplace such as Airbnb or Vrbo, are exempt from these lodging taxes.
Airbnb and Vrbo collect both state and county taxes on behalf of their Indiana hosts. Hosts are not liable for lodging taxes if a marketplace collects all taxes due.
However, when Evansville hosts have transactions that do not go through a marketplace, they are responsible for registering with the Indiana Department of Revenue, collecting taxes from guests, and submitting tax returns to authorities with the state and Vanderburgh County.
See the Indiana Vacation Rental Tax Guide for more information on short-term rental taxes in the state.
3. Rockford, Illinois
Rockford doesn’t explicitly regulate STRs.
Short-term rentals in Rockford are subject to state hotel operators occupation tax and city hotel/motel tourism tax, which hosts must add to their guests’ bill. Operators are required to register with the Illinois Department of Revenue and file lodging tax returns with both state and city tax authorities. While Airbnb collects both state and local lodging taxes on behalf of its Rockford listings, Vrbo does not.
See the Illinois Vacation Rental Tax Guide for more information on short-term rental taxes in the state.
4. Springfield, Illinois
Springfield’s zoning code categorizes STRs into three different categories, with different rules for each type. Owners are required to apply for approval from the city in order to operate any type of short-term rental; they also must obtain a city business license. Vacation rental properties can’t be rented solely for parties or other events.
Type 1 short-term rentals are owner-occupied primary residences located in zoning districts that allow single-family or townhouse residences. They can’t be rented for more than 95 days a year when the owner is absent.
Type 2 short-term rentals can be located in zoning districts that allow single-family or townhouse residences. The operator is not required to live at the property, and there is no limit on the number of days per year the property can be rented. Hosts are required to have a meeting with adjacent property owners within 500 feet, and 55% of those neighbors must sign an affidavit in support of the short-term rental in order for it to be permitted. Type 2 rentals are subject to city density requirements. Operators must also obtain a certificate of occupancy from the city, which requires an inspection.
Type 3 short-term rentals can be located in districts other than those zoned for single-family or townhouse residences. No more than two Type 3 short-term rental units are allowed on a property. Operators must also obtain a certificate of occupancy from the city, which requires an inspection.
Vacation rentals in Springfield are subject to state hotel operators occupation tax and city hotel and motel tourism tax, which hosts must add to their guests’ bills. Operators are required to register with the Illinois Department of Revenue and file lodging tax returns with both state and city tax authorities. While Airbnb collects both state and local lodging taxes on behalf of its listings, Vrbo does not.
See the state Vacation Rental Tax Guide for more information on short-term rental taxes in Illinois.
5. Burdett, New York
Burdett doesn’t regulate STRs, but some state laws do apply.
According to the New York State multiple dwelling law, short-term rentals are only allowed in most multifamily buildings if the permanent resident lives in the unit while guests are staying there.
Short-term rentals in New York state are generally subject to state sales tax, which means operators must register with the New York State Department of Taxation and Finance, collect the tax from guests, and file regular returns.
However, the rental of a bungalow, defined as a single-family living unit with its own kitchen, bathroom, and sleeping rooms rented fully furnished, is not subject to state tax as long as no housekeeping, food services, or other common hotel services are provided.
Burdett short-term rentals are also subject to Schuyler County hotel or motel room occupancy tax. Hosts must register with the county, collect the tax from guests, and file regular returns. Airbnb collects Schuyler County hotel or motel room occupancy tax, but not state sales tax, and Vrbo does not collect any lodging taxes for Burdett hosts.
See the New York Vacation Rental Tax Guide for more information on short-term rental taxes in the state.
Following the rules
Even in the most STR-friendly cities, operators will have some rules to follow. Lodging taxes are very common, even in areas where short-term rentals are free from other regulations, as local governments recognize the value of the revenue short-term rentals can generate.
Governments are becoming more proactive about enforcement as well, with many using technology to track down operators who aren’t following the law. Investors should be prepared to get familiar with the regulations and comply for smooth STR operations.
MyLodgeTax can help vacation rental hosts automate and simplify lodging tax compliance. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.