Common lodging tax terms that short-term rental hosts should know

Like any business, operating a short-term rental (STR) means having to deal with taxes. When vacation rental owners think about taxes, income taxes may first come to mind. These are taxes paid to federal or state governments, based on total income, and usually paid once a year out of an individual’s or company’s pocket. 

Lodging taxes are also important for STR hosts to address. These taxes are assessed on short-term accommodations, including hotels and STRs. Levied by local governments from the town to the state level, they’re paid by the guest, not the STR operator. While hosts don’t have to pay these taxes themselves, they are responsible for collecting them from guests and remitting them to tax authorities.

Here are some important terms STR operators need to know about lodging taxes.

Cleaning fee: One very common question for short-term rental hosts is: Do I need to charge lodging tax on cleaning fees? For the most part, the short answer is yes. But, as with anything tax related, laws are local, so it’s important to check out the specific rules from the jurisdiction that governs your STR.

Deposit: Another common question concerns whether STR operators need to charge taxes on guest deposits, such as security or pet deposits. Typically, any short-term rental charges that are mandatory are subject to lodging tax. However, refundable fees, such as security deposits, most often aren’t subject to lodging taxes. Again, it all depends on the specific regulations in your area, so get to know your local lodging tax rules.

Jurisdiction: A jurisdiction is a geographical territory in which a government agency may exercise its power. STRs may lie within more than one jurisdiction — for example, separate state, county, or city tax jurisdictions. Each of these jurisdictions may have its own lodging taxes, registration requirements, lodging tax return filing processes, and other requirements. 

Lodging tax: Lodging tax is a tax levied on short-term accommodations, usually as a percentage of the cost to the guest. There are many different names for lodging taxes, including bed tax, hotel tax, occupancy tax, transient tax, and more, depending on the jurisdiction. Sales taxes can also function as lodging taxes when they apply to sales of short-term accommodations.

Lodging tax calculator: A lodging tax calculator can help you figure out the total lodging tax rate for your vacation rental property. The total rate may be made up of different taxes from various jurisdictions. The Avalara MyLodgeTax calculator allows you to enter your rental address to receive the correct lodging tax rate to charge your guests.

Lodging tax collection: Lodging tax collection is the step in the tax process in which taxes are paid by the guest and received by an STR operator, manager, or marketplace to remit to tax authorities. This is done at time of payment for the accommodations charges. Property managers or marketplaces such as Airbnb or Vrbo may do this on behalf of an operator when they receive payment from the guest. However, this varies from jurisdiction to jurisdiction — in many areas, the owner-operator is solely responsible for collecting lodging taxes.

Lodging tax compliance: Lodging tax compliance is the process of following short-term rental lodging tax laws. In most cases, this involves several steps, including registration with tax authorities, collection of taxes from guests, filing lodging tax returns, and remitting tax funds to tax authorities. Violating these laws can result in fines, penalties, or even criminal charges. Tax laws can vary substantially between jurisdictions, so it’s crucial to understand the lodging tax rules that apply to your STR property. 

Lodging tax exemption: In some cases, certain entities and people are exempt from paying lodging tax on the cost of accommodation. Most often, exemptions are set at the state level and apply to government or nonprofit payors, but this isn’t universal. Rules can vary greatly among state and local jurisdictions.

Lodging tax rate: The lodging tax rate is the percentage of the total accommodations cost that must be remitted to tax authorities. Each jurisdiction may have various taxes, each with its own rate. The total tax rate for a short-term rental is the sum of all these different taxes combined. This is the amount the host collects from the guest, although the operator may need to remit various taxes to separate tax agencies. 

Lodging tax registration: As the first step in tax compliance, most tax jurisdictions require STR operators to register to receive a tax collection license or permit. This may be a sales tax permit or a license specifically for lodging taxes. You may have to apply for a permit in more than one jurisdiction, depending on the local rules that apply to you.

Lodging tax return filing: Lodging tax filing is the final part of the lodging tax process, after you’ve registered with tax authorities and collected taxes from guests. You may be required to file lodging tax returns and pay the amount due weekly, monthly, quarterly, or annually, depending on the jurisdiction. In most jurisdictions, you’re required to file by the deadline even if you have no short-term rental income to report for the period (often known as a zero dollar return). Keep in mind that if you collect lodging tax in more than one jurisdiction, the filing frequency and deadlines can be different for each jurisdiction.

Masters Rule: The Masters Rule (named after the annual Masters Tournament golf event) is a federal income tax rule that exempts STR operators from paying federal income taxes on STR income if they rent their property out for fewer than 15 days a year. However, this federal income tax rule does not apply to local lodging taxes, which can cause some confusion for hosts. While some local jurisdictions may exempt STRs from lodging tax if they operate for less than a certain length of time during the year, this is far from universal. In most jurisdictions, any STR stays paid for by guests are subject to local lodging taxes.

Sales tax: In many jurisdictions, especially at the state level, sales taxes apply to accommodations charges, including for hotels and STRs. Sales taxes may be one of several different lodging taxes from different jurisdictions that can apply to a vacation rental property.

Short-term rental marketplace: An STR marketplace, such as Airbnb and Vrbo, provides an online platform for STR operators to advertise their properties and transact with guests. Often, the marketplace facilitates booking, payment, and communication between hosts and guests. STR marketplaces often help STR owners with lodging tax compliance by collecting taxes from guests at the time of payment and remitting the taxes to local authorities. But, this varies among jurisdictions. It’s important to understand which aspects of lodging tax compliance your marketplace does or doesn’t handle for you.

Taxable charges: Lodging taxes are calculated as a percentage of the cost of lodging and added to the guest’s bill. However, not every charge is necessarily subject to lodging taxes. Charges such as fees for cleaning, extra guests, pets, insurance, or deposits may also be included in the bill, but may not be taxed the same way as lodging costs. To charge and collect the right amount of lodging tax, you need to make sure you understand which types of charges are subject to lodging tax or not in your jurisdiction(s).

Zero dollar return: STR operators are often required to file returns each assigned filing period, regardless of whether they had any short-term rental income or collected lodging taxes. Such returns are commonly known as “zero dollar returns.” The exact rules vary by jurisdiction.

Avalara MyLodgeTax can help vacation rental hosts automate and simplify lodging tax compliance. For more on short-term rental taxes in your state, see our vacation rental tax guides. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.