Montana vacation rental tax guide

Airbnb and Vrbo have changed the way vacationers travel, with many guests choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Bozeman, Big Sky, and Glacier National Park, Big Sky Country offers prospective short-term rental hosts the opportunity to bring in extra income.

But new income opportunities bring new tax implications. Like hotel and B&B stays, short-term rentals in Montana are subject to tax. Vacation rental hosts are required to collect applicable taxes from their guests and remit them to the proper authorities.

Failure to comply with state and local tax laws can result in fines and interest penalties. These may not catch up with you in the short term, but the sharing economy is under increased scrutiny, so it’s important to address compliance before tax authorities address it for you. 

Avalara MyLodgeTax has put together this guide to help you comply with Montana short-term rental tax laws. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No short-term vacation rental tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Montana tax laws.

Short-term rental tax basics

When you start operating a short-term rental, you might not have experience with lodging taxes, but you’re probably familiar with income tax. It’s important to understand the difference between the two.

Income tax is reported and paid annually to the federal government and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.

Lodging tax on a short-term rental is a percentage of the cost of your guest’s stay that’s added to the price on the bill. The guest pays the tax, but you’re responsible for collecting and paying it to the proper tax authority.

What’s the definition of “short-term rental” in Montana?

For tax purposes, short-term rentals in Montana are defined as reservations of less than 30 consecutive days.

Who’s required to collect and file taxes on short-term rentals in Montana?

If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling, you’re likely responsible for collecting, filing, and remitting short-term rental taxes to Montana tax authorities. You are not required to collect lodging taxes if a third party, such as an online marketplace, collects taxes for you on all your short-term rental transactions.

Location is key to compliance

The location of your rental is a crucial piece of information for short-term rental tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and the appropriate tax rates.

Use our lodging tax lookup tool to get a rate report specific to your Montana rental’s address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.

Registering with tax authorities

Before you can begin collecting taxes on your short-term rental in Montana, you’re legally required to register with the Montana Department of Revenue. You can register online to receive a lodging facility sales and use tax account.

Depending on your jurisdiction, you may be required to register with your local tax authority and file local lodging tax returns in addition to state registration and filing.

Do I need to form an LLC?

In Montana, you don't need to form an LLC to register with tax authorities.

Local short-term rental regulations

Short-term rental operators in Montana should be aware of the local regulations that apply to them, including rules covering:

• Legality
• Permits, licenses, and registration
• Zoning
• Advertising
• Neighborhood notification
• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of short-term rental policies that apply to your property.

Collecting short-term rental tax

Once you’ve registered with tax authorities, you’re ready to start collecting lodging taxes, which you’ll add to your guest’s bill when they pay for their stay.

Which taxes apply to Montana short-term rentals?

In Montana, a number of different lodging taxes may apply to your short-term rental, depending on your location. These can include:

Tax rates

Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s critical to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. 

Our lodging tax lookup tool can give you a rate report specific to your Montana address. The report includes the estimated total tax rate to collect from guests, required registrations, frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

What charges are taxable?

In Montana, charges paid to use the facility that are integral to the stay are taxable. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Meals, transportation, entertainment, laundry services, or similar charges are not subject to lodging taxes as long as they’re stated separately.

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects taxes for me?

Before collecting any short-term rental taxes from your guests, you need to be aware of whether any taxes have already been collected for you. In Montana, short-term rental marketplaces are required to collect state lodging taxes from guests when a short-term rental is paid for. Marketplaces may not collect locally administered taxes. If taxes aren’t being collected for you, you’re responsible for collecting and remitting lodging taxes to state tax authorities.

Are guests ever exempt from taxes?

There are situations in which you aren’t required to collect lodging taxes in Montana. For example, a guest who rents for a long term rather than a short term is exempt from short-term lodging taxes.

In Montana, charges for accommodations billed directly to and paid by the federal government, charges for accommodations on an Indian reservation rented to an enrolled member of the same Indian reservation, and rental charges billed to a diplomat who presents a tax-exempt card issued by the U.S. State Department are exempt from short-term lodging taxes.

Filing short-term rental tax returns

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Montana Department of Revenue. In Montana, you can file returns and pay tax online. The Montana Department of Revenue allows credit card payments, but you may be charged convenience fees.

Take the time to double-check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. For filing with the Montana Department of Revenue, state lodging facility sales and use tax due dates are as follows:

I didn’t rent my property during this filing period. Am I still required to file a tax return for my short-term rental with the Montana Department of Revenue?

Yes. Short-term rental operators registered with the Montana Department of Revenue are required to file returns each assigned filing period, regardless of whether you had short-term rental income or collected any short-term rental taxes. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.

Are there penalties for filing taxes late?

Whether you choose to offer short-term rentals through a marketplace like Airbnb or Vrbo directly to guests, you open the door to tax liability at the state and local level. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with tax laws. Failure to register with tax authorities and file short-term rental tax returns in Montana on time may result in late fees, interest payments, and in extreme cases, legal action.

I’ve been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating a short-term rental but not collecting short-term rental taxes, you may be in violation of Montana tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.

Short-term rental hosts in Montana may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Montana Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.

Are there options for outsourcing lodging tax filing?

Yes. Numerous short-term rental hosts in Montana file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.