Sales Tax on Short Term Rentals

Leasing

This is an article about sales tax being collected on short term rentals.

STAY AND PAY:
Indiana to collect sales tax on short-term rentals for first time
By JASON THOMAS April 6, 2019

https://www.newsandtribune.com/news/indiana-to-collect-sales-tax-on-short-term-rentals-for/article_3bcad354-5717-11e9-9ca3-af5cc7946363.html?utm_source=april+15th+monday&utm_campaign=IBREA+News+Letters&utm_medium=email

SOUTHERN INDIANA — Ruth Floyd uses the income she earns from Airbnb to fund improvements to her circa-1880s home in downtown New Albany.
A retiree and “not quite a spring chicken anymore,” Floyd also is an unofficial ambassador of sorts for the Ohio River town, nudging guests toward places to grab a bite to eat and relax just a short stroll from her Mansion Row home on Main Street.

But Floyd is concerned about an Indiana law, passed in 2016 but effective July 1, requiring the collection of sales tax from online short-term rental platforms like Airbnb. She’s worried how potential guests might react to a possible increase in rates to compensate for the added levy.

“A lot of people that I meet, if it weren’t for Airbnb, they probably wouldn’t travel as much,” said Floyd, who rents out a bedroom in her pristine Queen Anne-style home decorated with appropriate furniture, with brochures on New Albany dining destinations within an arm’s reach of the poster bed. “They wouldn’t be spending money in Indiana, so if the fees start going up and people start saying, ‘well, I can’t travel anymore,’ then Indiana or whoever’s trying to make some money will lose out on all of that.”

KNOCK KNOCK, WHO’S PAYING?

Indiana is one of three states that currently doesn’t charge a sales tax for online short-term rental platforms, so how that levy will be collected and remitted is still up in the air. The law that will go into effect this summer stipulates that sales is tax to be collected by a facilitator, like Airbnb, if the rental transpired on such a platform, or the property owner if the property owner makes the transaction directly. A short-term rental is defined as a period of less than 30 days.

Legislation working its way through the General Assembly states that the homeowner is responsible for collecting and remitting the sales tax, but opens the door for companies like Airbnb to collect and remit the tax electronically. The measure, authored by state Sen. Karen Tallian, D-Ogden Dunes, which would amend the law set to take effect July 1, also provides an exemption from sales tax for property owners who rent their primary residence for fewer than 15 days in a calendar year.

“It has already been determined that renting out homes in Indiana is considered a business and therefore required to pay sales tax,” Tallian stated in an email. “These short-term rental properties should be on the same playing field as other businesses, and other hotel or B&B accommodations.”

According to Steve Shur, president of The Travel Technology Association, a Washington, D.C.-based trade association for rental platforms and online travel companies, the industry’s official stance is that short-term renting is a taxable activity — but the collection and remitting should be the obligation of the property owner.

The new law “put the burden of tax collection on the platform, rather than the homeowner, which we don’t believe is the right path,” said Shur, to whom Airbnb directed CNHI for comment. “What the law does is, it puts the burden on the platform first and absolves the homeowner from any responsibility for tax collection or remittance.”

Shur added that platforms like Airbnb would welcome a voluntary agreement with the state in which it would collect and remit the sales tax as a way to streamline the process, like it does in the majority of other states with a tax on short-term rentals. Conversations to that effect have taken place in Indiana but “that’s a proprietary agreement between each company and the [Indiana] Department of Revenue,” Shur said.

Which is a big reason why short-term rental platforms favor Tallian’s bill, which sailed through the Senate in February and now sits with the House Committee on Ways and Means.

“We believe it should be the responsibility of a homeowner, and if a platform is capable, the state should allow a platform to come in and remit those taxes,” Shur said. “[In] some states that requires authorizing legislation, which I think is what Tallian’s bill does.”

Tallian’s bill also stipulates that applicable innkeepers taxes would still apply in addition to sales tax for the 79 Indiana counties that collect such a tax.

HOME SWEET HOME
It is unknown how much revenue a sales tax on short-term rentals might generate for Indiana. A fiscal impact statement attached to Tallian’s bill notes that because the owner of the property being rented, rather than a facilitator, would be required to collect and remit sales tax and innkeepers taxes, the state Department of Revenue may have to process additional tax returns. However, the bill’s requirements “are within the agency’s routine administrative functions and should be able to be implemented with no additional appropriations, assuming near customary agency staffing and resource levels.”

The regulations and fine print are enough to make online platform hosts like Floyd go cross-eyed.

When it comes to how the sales tax would be collected and remitted “I would prefer not to have to deal with it,” said Floyd, who was unaware of the pending law. “The less paperwork I have to do, the better. My dining room table is full of tax papers. Leave me out of that part of it.”

Fellow hosts Katie McBroom and her husband, Jake, who rent out their split-level home in Floyd County on Airbnb, say the sales tax, of which they also were unaware, is just another fee.

“Honestly, I don’t feel like it’s going to affect much,” Katie said, adding that Airbnb charges an administrative fee of its own, on top of the rental rate. “We’ll probably build it into our price, because the Airbnb platform does do a lot of things that makes it very user-friendly. It’s not going to affect hosts as much as it’s going to affect guests.”

That’s what irks Floyd, who claims she could rent out her spare room pretty much every day of the week when the weather turns nice. Those guests translate into economic development dollars.

“They’re spending a lot of their money right here in our little town,” she said, “and I’m encouraging them.”

Jason Thomas is an assistant editor at the News and Tribune. Contact him via email at jason.thomas@newsandtribune.com or by phone at 812-206-2127. Follow him on Twitter: @ScoopThomas.

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