Owning a vacation home means having to do more than just market to guests and make them feel welcome. It also means dealing with the financial side of renting out a property for short-term stays. And that includes collecting and paying sales tax. But that rule may be changing in the near term in New York, and that's actually a good thing for property owners.
New York's revenue scrounge-up is positive news for vacation homeowners
New York has been notably battered by the coronavirus pandemic. The unemployment rate in New York City is several points higher than the national average (9.5%, compared to 6.3% for the U.S. on a whole), and Manhattan vacancies in particular have reached record highs.
It's not surprising, then, that Governor Andrew Cuomo is doing everything within his power to boost revenue for the state. And one tactic he's looking to employ is to have vacation rental booking sites like VRBO and Airbnb (NASDAQ: ABNB) collect state sales tax on reservations made through their platforms.
To be clear, these taxes aren't new -- they already exist. But currently, it's on individual property owners to pay them, and that can get cumbersome. By shifting that burden onto platforms like Airbnb, those who rent out their homes have less to worry about from an accounting standpoint. And this change could also help them from a marketing standpoint. If it becomes a matter of policy for sites like Airbnb to collect sales tax, there's less likely to be backlash from guests who don't appreciate being hit with so-called hidden fees.
Right now, Airbnb has a series of voluntary agreements in place with 34 of New York's counties for sales tax remission, all of which are located north of New York City or on Long Island. By having Airbnb take over sales tax collection, it will help make the process more uniform and seamless.
Hotels could be impacted, too
In addition to having sites like Airbnb collect state sales tax, Governor Cuomo's new proposal would allow New York City to collect a $1.50 nightly surcharge on hotel stays. That fee would apply on a per-room basis. Given the average nightly rate for a hotel room in New York City, that fee is likely to fly under guests' radar. What it could do, however, is generate a fair amount of added revenue for a state that desperately needs it.
If all goes according to plan, Cuomo's changes could generate an extra $10 million in revenue for the state for the fiscal year that begins April 1, and then produce $18 million in revenue in subsequent years. And while some property owners in New York may be concerned about the fact that more regulations are being imposed at the state level, ultimately, shifting the burden of sales tax collection from individuals to booking platforms isn't such a terrible thing. If anything, it could lend to fewer tax errors, fewer audits, and fewer headaches for the people who make a living welcoming guests into their homes on a short-term basis.