By: Matthew Getty
Winter is, indeed, coming, but nearly every season in Vermont attracts tourists (Mud Season and Black Fly Season excepted). Many people, both Vermonters and out-of-staters, own vacation properties that are rented for short periods of time in order to offset the cost of ownership. Recent years have seen an increase in such activity through online tools such as Airbnb and VRBO (also known as Home Away). If you are a property owner engaged in short-term rental activity, you need to educate yourself about Vermont’s meals and rooms tax.
Airbnb has entered into an agreement with the State and begun collecting the tax. Other web services may follow. Until then, you need to register with the Vermont Department of Taxes to collect and remit the tax. The state tax rate on rentals is 9%, but many towns (such as Killington) have also imposed a 1% option tax that is collected by the State. You can find a list of option taxes and the towns that impose them here: http://tax.vermont.gov/business-and-corp/sales-and-use-tax/local-option-tax/municipalities.
You can find more information about the rooms and meals tax on the Department of Taxes website. Here is a short fact sheet to start with: http://tax.vermont.gov/sites/tax/files/documents/RoomwithaviewFS.pdf. Here are three highlights to remember:
- As of July 1, 2018, you are required to post your tax account number and some other information in any advertisement.
- The tax applies to all short-term rentals. The fact that an income tax exclusion might apply to your situation (the “14 day rule”) does not also exclude the applicability of the rooms tax. If you do not pay the tax, the Department of Taxes may guess the amount that you owe based on the information available to them (such as your advertisement). You do not want to be put in the position of trying to disprove the State’s estimate of the tax, which could be off the mark by an order of magnitude. You need to keep good records and maintain compliance. The State is not interested in the excuse that you “were just trying to offset your expenses and didn’t really make any money.”
- You, as the operator of the rental property, are personally liable for the meals and rooms tax. Placing the property in a business entity will not shield you from liability, because the meals and rooms tax, like sales tax, is a “trust tax”, which means that you are personally responsible for collecting the tax that is owed by the renter, and turning it over to the State. In the eyes of the law, failing to collect the tax is equivalent to misappropriating someone else’s (the renter’s) money. For this reason, the State can be very aggressive in pursuing collection, and when it does, you will end up paying a tax you would never have owed if you had charged it to the renter in the first place. So, it is better to specify the tax and collect it than have the State take it out of your pocket after the fact, particularly if you have already used the rent to pay those expenses it was intended to cover.
There are many other nuances to this tax. If you have any questions about it, you will be better off having your situation reviewed sooner rather than later.