Now that you are an Airbnb host, you have a slew of new responsibilities. From booking new guests to advertising your rental property, I am sure that your hands are full. While you're busy booking your short-term rental, setting a listing price, and advertising your rental, you must also remember your new tax compliance obligation. That’s right, as an Airbnb host, you are responsible for collecting and remitting occupancy taxes.
Occupancy taxes may have come to you by surprise, and your associated responsibilities may be a bit confusing. To help demystify this new tax, we will explore the nuts and bolts.
What is an Airbnb occupancy tax?
Airbnb occupancy taxes are taxes that are imposed by the state and or local government on the guest. The overall purpose of the tax is to impose a fee on tourists for using the parks, highways, utilities, and other public amenities the state offers. The occupancy tax rate varies by locality. This means you'll have to check in with your local department of revenue to learn what the applicable tax rate is for your jurisdiction.
This tax goes by various names. You may see it under the following names: lodging tax, hotel tax, hotel occupancy tax, bed tax, room tax, transient occupancy tax, or transient lodging tax, just to name a few.
No matter the name, the purpose is the same: to collect taxes on stays in short-term rentals.
This process is generally automatic and is processed on Airbnb’s digital rental platform. Hosts only have to manually input this data when the Airbnb platform does not automatically withhold the occupancy tax for the jurisdiction, but you should check with your jurisdiction. In some cases, even where the process is automated, there may still be some manual components.
While this tax is paid by guests when they make a reservation, it may have some impact on the listing price you set for your rental. This may be so because when guests book your listing, the occupancy tax is added to the final cost of the Airbnb. To keep prices within the range you believe is attractive to customers, you should consider the taxes when setting the price for your listing.
Where in the U.S. enforces this tax?
Airbnb occupancy taxes are imposed throughout the U.S. You will need to check in with your local taxing authority to see if you're exposed to these taxes; when in doubt, always consult a tax advisor.
Airbnb can currently collect and remit occupancy taxes in 51 states, but you have a right to waive this service. If you decide to waive this service, you can find the waiver language in the terms of service Airbnb has provided you. And remember, you will still have to check in with your local tax office to learn whether there are any city, county, or municipal occupancy taxes. These you will have to collect and remit yourself.
Difference between income tax and occupancy tax
While occupancy taxes may be deducted on a guest's tax return, if there is a business purpose for the booking or the listing, this tax should not be confused with personal income tax.
Personal income tax, as the name suggests, is a tax on the adjusted gross income of the taxpayer, whereas the occupancy tax is a tax imposed by the state and or local government on the guest staying in your booking. The tax is imposed on the listing price times the nights stayed.
While you cannot include occupancy taxes that you remit on your tax return, you should remember to practice good record keeping and keep track of the fees, including cleaning and advertising, as well as any other business expenses you incur. These can be deducted when you file your taxes by the extended deadline. The IRS has extended the filing deadline to May 17, 2021.
Millionacres bottom line
Now that you're generating rental income on the Airbnb platform, you're exposed to a whole new tax world. As the old saying goes, to whom much is given, much is required. And now, you're required to collect and remit occupancy taxes. The good news is that you can have Airbnb collect and remit your state taxes, so that will be one less tax obligation you have to worry about. While this is so, you will still have to keep track of your local tax rates and remittance process. If this is a little confusing, always remember to consult your tax advisor.