The most common compliance failure among new short-term rental owners is not the income tax. It is lodging and occupancy tax, because platforms collect some of it automatically in some jurisdictions and owners reasonably assume that means all of it everywhere.
Why the split exists
Booking platforms have entered into voluntary collection agreements with many states, counties and cities. Where such an agreement exists, the platform collects and remits the covered tax on bookings made through it.
Those agreements are jurisdiction by jurisdiction and tax by tax. A platform may collect state sales tax and not county tourist development tax in the same location. It may collect for one county in a state and not the adjacent one.
The result is a patchwork, and the only reliable way to know your position is to ask the taxing authorities directly for your specific address rather than inferring it from what appears on your payout statements.
This is an explanation, not tax advice. My BnB Accelerator, LLC is a real estate acquisition firm, not a CPA firm. Work with a qualified professional. Our independent partner firm is AE Tax Advisors.
The taxes that typically apply
- State sales or transaction tax on transient accommodation, which many states impose.
- County occupancy, tourist development or lodging tax, frequently a separate registration and filing.
- City lodging or hotel occupancy tax, again typically separate.
- Special district assessments, such as tourism improvement districts, which exist in some resort areas.
Each of these may have its own registration, its own filing frequency and its own return. A property can require three or four separate registrations, and a jurisdiction that is not collected by the platform requires you to file even in months with no revenue in many cases.
Direct bookings change the picture
Platform collection agreements cover bookings made through that platform. A direct booking taken on your own website or by phone is generally not covered, which means the tax is yours to collect and remit even in a jurisdiction where the platform handles it for platform bookings.
This catches out owners who build a direct booking channel to save platform fees and do not adjust their tax process. The fee saving is real and it comes with a compliance obligation.
If you take direct bookings, build tax collection into the checkout and the remittance into your monthly process from the first reservation rather than retrofitting it later.
Getting registered properly
- Identify every taxing jurisdiction that applies to the specific address: state, county, city and any special district.
- Contact each and ask what registration is required for short-term rental accommodation.
- Ask each specifically whether the platforms you use have a collection agreement covering that tax.
- Register where required, even where the platform collects, since many jurisdictions require registration regardless.
- Confirm filing frequency and whether zero-revenue returns are required.
- Retain the written answers.
That last step is worth the effort. A written answer from the authority is a much better position than a recollection of a phone call if a question arises later.
What non-compliance costs
Lodging tax authorities generally have long look-back periods and impose interest and penalties. An owner who discovers three years later that a county tax was never remitted faces the tax plus interest plus penalties on three years of revenue.
Some jurisdictions also tie the short-term rental permit or license to tax compliance, meaning a delinquency can put the operating permit at risk. In a capped market, that is an existential rather than financial problem.
Several jurisdictions offer voluntary disclosure programs that reduce penalties for owners who come forward before being contacted. If you discover a gap, raising it with your CPA promptly is materially better than hoping it goes unnoticed.
Building it into the operation
The practical approach is to treat lodging tax as a monthly operating task rather than an annual one, because most jurisdictions file monthly or quarterly.
Set up a separate ledger line for taxes collected so the money is visibly not yours. Owners who treat collected tax as revenue and spend it face a cash problem at filing time that is entirely self-inflicted.
If you own properties in multiple jurisdictions, the administrative load grows quickly, and specialized lodging tax software or a bookkeeper who handles it is usually worth the cost by the second or third property.
Keep reading
Frequently asked questions
Do booking platforms collect all lodging taxes?
No. Platforms have voluntary collection agreements jurisdiction by jurisdiction and tax by tax. A platform may collect state tax and not county tax in the same location. Confirm your position directly with each taxing authority for your specific address.
Do I owe lodging tax on direct bookings?
Generally yes, and the platform's collection agreement does not cover them. If you build a direct booking channel, build tax collection into checkout and remittance into your monthly process from the first reservation.
What happens if I miss lodging tax filings?
Authorities generally have long look-back periods and impose interest and penalties. Some jurisdictions also tie the operating permit to tax compliance. Voluntary disclosure programs exist in several jurisdictions and reduce penalties for coming forward.