by Localgov Short-Term Rental Team, on July 1, 2021 at 10:14 AM
A look at common challenges around transient rental taxes
The topic of local tax remittance can be very difficult for all players to understand, from local leaders in charge of compliance to businesses required to remit. But short-term rentals come with additional challenges due to industry lobbying, layers of regulation, and market growth. This means that local governments often lack control, feel short-changed, and generally frustrated with the short-term rental industry altogether.
Challenge #1: Local governments need revenue
In many states, local governments are tasked to pay for growing infrastructure needs, satisfy resident demands, and augment services that help broaden the tax base.
One way that many municipalities try to secure additional dollars and not burden local businesses and residents is through taxing spending incurred by tourists and business travelers, such as hotels, taxis, and transportation hub fees. And as short-term rental platforms gain popularity as a flexible way to find accommodation, cities are turning to these booking engines for a source of much-needed revenue.
Takeaway: Local governments need well-considered ordinances around short-term rentals that address real-world market conditions. Learn more about short-term rental ordinance development in our complete guide for local governments.
Challenge #2: Some short-term rental platforms don’t collect taxes
Wait—that’s not entirely true. Some short-term rental platforms collect taxes, but not in all locations. Some don’t do it at all. Airbnb has agreements with hundreds of municipalities across the country, but certainly not in all communities. In these specific areas, Airbnb will collect and remit taxes on behalf of hosts. In communities without voluntary collection agreements, Airbnb tells hosts to collect and remit transient rental taxes on their own. Other platforms, such as Booking.com, don’t collect at all, and other platforms are just beginning their own voluntary collection programs.
The result? A system that’s confusing for independent hosts to navigate that almost guarantees that municipalities with taxes on short-term rental stays don’t receive what they’re owed.
Takeaway: Local governments can’t count on online travel platforms to ensure total tax compliance. The first step is to develop a voluntary collection agreement with online travel platforms. But it’s not the last step. Check out our complete guide on total tax compliance for local governments.
Challenge #3: Double-check remittances as often as possible
Even when cities establish voluntary collection agreements with platforms such as Vrbo and Airbnb, it’s still very challenging to know that the remittances received are accurate. Why? Short-term rental platforms don’t disclose addresses of properties to municipalities. In fact, they purposely obscure geographical information in the name of privacy. Short-term rental platforms also don’t tell cities about the length of stays, property details, or other critical info. Also, voluntary collection agreements place limits on how often cities can audit short-term rental platforms to identify and claim back taxes.
Takeaway: All municipalities where short-term rentals exist should have an audit program. However, performing regular audits to ensure short-term rentals is complicated due to the lack of details provided by platforms, takes special technical knowledge, and requires significant staff time. Discover how Localgov can help.
Challenge #4: Facilitate easy compliance using online payment & registration tools
There’s a perception that most short-term rental hosts are mom-and-pop operations with just a unit or two. However, it’s just as likely (if not far more likely in some cities) that the short-term rental market is dominated by investors with multiple units in several cities. But no matter if your local hosts have one rental or 100 rentals, your local government can level the playing field by offering all entrepreneurs an easy way to get in compliance with your requirements.
Takeaway: Add an online tax and fee solution to your local government. With Localgov, municipalities can offer businesses an easy-to-use digital platform to register properties and pay taxes on their terms—accept multiple forms of payment at any time. No more paper forms and checks.
Next steps for local leaders
As a local leader, it’s very important to stay on top of how local governments can achieve total compliance on short-term rental taxes and fees.
>> We’re excited to offer this short-term rental guide that addresses what local leaders need to know about this burgeoning market.
But our team of seasoned local-government experts is also standing by to consult with your team about short-term rental ordinances, tax compliance audits, tax-and-fee administration platforms, and more. Schedule your demo today.
