Short-Term Rental Tax Compliance for Property Managers

Achieving short-term rental tax compliance can be a complex, nuanced process, from understanding filing timelines and frequencies to license registration and revenue reporting. The goal of this article is to put your mind at ease as a property manager and keep your business in good standing. Continue reading to find answers to common questions related to short-term rental revenue reporting and lodging tax compliance.

Disclaimer: This material is for informational purposes only and is not intended to provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

 

What is lodging tax? 

To start, lodging tax is simply a general term that refers to the indirect business tax applied to a short-term lodging transaction. Terminology varies by location, so property managers should pay attention to the terms used by their specific jurisdictions.

Below is an example of a short-term rental property in Myrtle Beach South Carolina. Within the city limits of Myrtle Beach, the total lodging tax rate is 13%. However, you can see that this is composed of seven different state and local sub-taxes. 

 

%	Tax Type	Remit to	By Whom?
5.0%	South Carolina State Sales Tax	South Carolina	Airbnb
1.0%	Educational Capital Improvements Tax	South Carolina	Airbnb
2.0%	State Accommodations Tax	South Carolina	Airbnb
1.0%	Myrtle Beach Tourist Dev. Tax	South Carolina	Airbnb
1.0%	Horry County Capital Projects Tax	South Carolina	Airbnb
1.0%	Myrtle Beach Hospitality Fee	Myrtle Beach	Host
2.0%	Myrtle Beach Local Accommodations Tax	Myrtle Beach	Host
13.0%	Total Lodging Tax Rate

 

What types of short-term rental revenues are taxable?

While the definitions are not standardized across all jurisdictions, in most cases, only mandatory fees are subject to lodging & occupancy tax. This usually includes charges that are required for the reservation, such as rent, cleaning, resort fees, and damage waiver fees. By contrast, most non-mandatory fees like pool heating, service animal fees, or charges for other add-ons don’t typically fall into this category. However, since each tax code is written differently, you should run this by your jurisdiction authorities.

 

What is a merchant of record?

If you are the “merchant of record”, then you are the person or entity responsible for processing transactions, typically through Stripe or another merchant processor. In terms of short-term rental tax compliance, the merchant of record is responsible for collecting and remitting lodging taxes to the relevant jurisdictions. 

 

What is “calculated tax”?

Calculated tax describes the taxable income multiplied by the tax rate for a given property or a portfolio over a specific period of time. For example, Ximplifi breaks out the calculated tax by jurisdiction and by channel to determine how much lodging tax should be collected. Then, property managers can compare that amount to the total taxes that were actually collected from guests.

 

When do I have to file lodging taxes for a short-term rental property?

Filing frequencies vary by jurisdiction, and due dates can be scattered throughout the month. Most importantly, once you set up the tax accounts and licenses for your property, the jurisdictions are expecting timely returns. Even if your short-term rental hasn’t started collecting revenue, or you haven’t collected tax from guests, it’s still important to file tax returns claiming all taxable revenue. 

This is true even if you need to file a “zero dollar” return. The point is, you may not always owe a tax payment, but you can avoid incurring penalties and interest by submitting those documents on time.

 

What if Airbnb is already remitting taxes on my behalf?

In most cases with Airbnb, you are not the merchant of record, so Airbnb collects and remits some short-term rental taxes on your behalf, but usually not all. Using the Myrtle Beach example above, Airbnb is only remitting certain taxes. Failing to pay the taxes due to these other jurisdictions will incur penalties. You can adjust this setting in Airbnb, so that Airbnb passes all those taxes through to you. That way, you can ensure all taxes get filed appropriately.

Additionally, if you are using other channels, such as direct bookings, Booking.com, or VRBO where you are the merchant of record, you will need to collect and file lodging taxes on those reservations as well.

 

What are the benefits of paying lodging taxes?

Maintaining compliance is the most obvious benefit of remitting lodging taxes. Failing to set up the appropriate registrations or comply with tax legislation can lead to penalties, fines, and even license revocation. However, it’s also important to note that state and local jurisdictions use lodging and tourism taxes to fund community services.

Therefore, short-term rental taxes play an important role in attracting local tourism to the areas where your properties are located. Perhaps most importantly, the more that property managers keep their tax accounts in good standing, the more that policymakers will support the short-term lodging industry.

 

What should I do if I receive communication from the jurisdiction about my license?

There are a vast number of reasons why a jurisdiction will reach out regarding your license. They may be contacting you about your license renewal, to correct an inaccurate return, or to notify you of an audit. When you receive this communication, it’s important to respond in a timely manner to resolve any delinquencies. 

First, determine if it’s coming from the state, city, or county. Then, look for any identifying factors such as a specific license or case number that you can reference. Additionally, you should use the jurisdiction’s preferred channels to communicate, whether that’s through an online portal or the postal service.

 

How does accounting factor into my lodging tax compliance strategy?

Maintaining good reporting, record keeping, and overall financials supports your compliance program in several ways. First, it allows you to track all taxable income and tax payments across every jurisdictions where you operate.

Second, it provides visibility to identify and correct errors quickly and avoid over- or under-paying taxes on a given property. Moreover, knowing exactly how much you pay in taxes by jurisdiction and by channel can guide future business decisions.

Finally, in the case that you do receive communication from a jurisdiction regarding an audit or a filing inaccuracy, practicing good accounting ensures that you have the proper documentation and evidence to avoid penalties. 

 

How can Ximplifi help manage short-term rental compliance?

Ximplifi takes away the burden of managing short-term rental accounting and helps property managers keep their finances in order. To help clients avoid a situation where they aren’t collecting enough tax from guests or not paying taxes correctly, Ximplifi will:

• Adjust the tax settings within the property management system and channel software to ensure that the right components of revenue are marked as taxable, 
• Set up the right tax percentages for each property to ensure that the correct tax amounts are actually collected, 
• Determine what is the taxable income by channel and by property in order to remit those taxes, and
• Work with Avalara MyLodgeTax to manage lodging tax reporting and filing requirements across multiple states and jurisdictions

Once accounting software and other systems are set up correctly, maintaining accurate financial records requires a decent amount of time and expertise. For many property managers, having an expert tracking, reconciling, and reporting short-term rental tax provides valuable peace of mind.

With Ximplifi on the lookout for accounting and lodging tax pitfalls, property managers can focus on growing guest revenue and bringing on additional properties. 

 

Finance is a struggle for many short-term rental managers, so having a resource that truly understands the unique aspects of your business eliminates a lot of stress. 

Let Ximplifi become an extension of your team and gain peace of mind around your financials and owner payments. We’re dedicated to helping you achieve your company’s financial goals, growing your bottom line, and making sure you earn the profits you expect as a property manager.

Get in touch with a short-term rental accounting expert today! Contact us

 

Watch the on-demand webinar to learn the 5 steps to a successful short-term rental tax compliance strategy