Do You Have to Pay Sales Tax on Vacation Rentals?
Understand when sales tax applies to vacation rentals, how rates vary by location, and key factors that influence tax obligations for hosts and guests.
Renting a vacation home can be a great alternative to hotels, but many travelers and property owners overlook the tax implications. Sales tax on short-term rentals varies by location, length of stay, and local regulations, making it essential to understand when and where these taxes apply.
Some states and cities impose sales tax on vacation rentals just like hotels, while others have different rules or exemptions. Property owners are responsible for collecting and remitting these taxes, adding complexity to managing a rental.
Taxable Criteria for Vacation Rentals
The taxability of vacation rentals depends on factors such as the length of stay and the type of property being rented. Many states classify short-term rentals as stays lasting fewer than 30 days, though some extend this threshold to 90 days. Rentals within this category are typically subject to sales tax, similar to hotel stays.
The type of property also affects tax obligations. Traditional vacation homes, condominiums, and even single rooms may be subject to sales tax if rented on a short-term basis. Some states, such as Florida, require vacation rental owners to collect and remit sales tax. Others, like Pennsylvania, impose a hotel occupancy tax on short-term rentals, even if the property is not a traditional lodging establishment.
How a rental is booked can also impact tax liability. Online platforms like Airbnb and Vrbo may automatically collect taxes in states where they have agreements with tax authorities. Where they do not, property owners must handle tax collection themselves. Failure to do so can result in fines and interest on unpaid taxes.
Variations in Sales Tax by Location
Sales tax rates and regulations for vacation rentals vary widely across states, counties, and cities. Some states, such as Hawaii, impose a general excise tax instead of a traditional sales tax, with rates differing by island and rental type. Texas applies both a state hotel occupancy tax and allows local jurisdictions to add their own taxes, sometimes pushing the total rate above 15%.
Local governments often impose additional taxes on short-term rentals. In Arizona, the state levies a transaction privilege tax, but cities like Scottsdale and Sedona add their own taxes, meaning two properties just miles apart can have different tax rates.
Tourist-heavy destinations frequently impose higher taxes to fund infrastructure and tourism promotion. New Orleans applies an additional occupancy tax on vacation rentals to support tourism development. In California, cities like San Francisco and Los Angeles impose transient occupancy taxes exceeding 14%, making short-term rental taxes a significant cost for both hosts and guests.
Filing and Payment Procedures
Property owners must register with state or local tax authorities before collecting taxes from guests. Many states require a sales tax permit or transient occupancy tax license, which involves submitting business details, estimated rental income, and ownership information. Some states, like California, require separate registrations at both the state and municipal levels.
Filing frequency depends on jurisdiction and rental income. North Carolina requires monthly filings for higher-earning hosts, while some states allow quarterly or annual filings for lower-income rentals. Missing deadlines can result in penalties. Florida, for example, imposes a late filing penalty of 10% of the tax due per month, up to 50%, plus interest on unpaid balances.
Tax remittance methods vary. Some states require electronic payments through tax portals, while others accept paper filings. Texas mandates electronic payments if tax liabilities exceed a certain amount. Keeping detailed records of guest stays, rental income, and taxes collected is essential, as tax authorities may request documentation during audits.
Potential Exemptions
Some vacation rentals qualify for tax exemptions based on rental frequency and renter type. Many states exempt properties rented for only a limited number of days per year. In Maine, rentals of fewer than 15 days annually are not subject to sales tax, while Idaho exempts properties rented fewer than 30 days per year from lodging taxes.
Certain renters may also qualify for exemptions. Some states exempt rentals to government agencies, nonprofits, or religious institutions if proper documentation is provided. Virginia, for example, exempts rentals to federal government employees on official business when payment is made directly by the government. Some jurisdictions allow tax-exempt entities to avoid sales tax if they present a valid exemption certificate at booking.
Extended Stays
The length of a guest’s stay can determine whether sales tax applies. Many states exempt rentals exceeding a certain duration, often 30 days. In Texas, rentals longer than 30 consecutive days are exempt from state and local hotel occupancy taxes. Illinois has a similar exemption, provided there is a continuous rental agreement. New York extends this threshold to 90 days.
If a guest initially books a short-term stay but later extends beyond the exemption threshold, tax treatment varies. Some jurisdictions require tax collection on the initial portion of the stay, while others retroactively exempt the entire period. In Florida, if a guest stays beyond six months, the entire rental becomes tax-exempt, and any previously collected taxes must be refunded. Property owners should verify local regulations to avoid miscalculating tax liabilities on extended bookings.