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Debt & Equity

Simple solution to home rental occupancy tax and compliance

By Rob Stephens, Co-Founder and General Manager, Avalara MyLodgeTax

Every day now there are articles, headlines, editorials and complaints about tax and regulatory issues in the vacation rental and home sharing market.

Recently, the city of Portland fined vacation website HomeAway over users’ unpaid lodging taxes, and the city of Los Angeles is in the midst of a debate of how to handle home rentals.

The popularity of home rental sites like Airbnb and VRBO have been surging for years.


Travelers love this type of accommodations and the trend is not slowing down, despite the barrage of negative press in not only some of the most popular rental cities like San Francisco and New York, but really in every state across the country.

There are now hundreds of thousands, perhaps millions of individuals engaging in vacation rentals and home rentals across the U.S.

As the industry grows, tax agencies are grappling with licensing, taxes, regulations, and the ongoing debate that the home sharing market is actually driving up rental costs in certain cities.

Many municipalities are struggling with how to regulate the industry, and individuals renting their homes are often unaware of the associated tax and licensing requirements, which are often complex.

But with technology and automated solutions tied to partnerships, many of these issues can be resolved.

In all but a few locales across the U.S., by renting a home, apartment or even a room, a person is engaging in a business activity, which is taxed and regulated by state and local government agencies.

Hotels already pay these taxes, and vacation and home rentals are required to do the same. How can the home rental industry be embraced and supported in communities if they are not playing by the rules and being good neighbors by paying their share of taxes?

The problem is that many people renting their home are simply unaware of the requirements — or, they are aware and try to be compliant, but lose steam when trying to navigate complex layers of tax and license rules with different agencies.

These are business taxes and rules designed for established businesses with access to research tools, showing them how to determine and comply with the rules and regulations.

There are perhaps millions of homeowners faced with navigating the complexity of lodging taxes, not to mention the multiple licenses or registrations that must be completed by the homeowner in order to become compliant.

The right solution that allows homeowners to gain compliance in the home rental industry needs to be easy to use, affordable to access, and provide assurance that tax rules and regulations are being handled and updated in an automated fashion.

Technology and tax automation is the way to make this incredibly easy for all participants: travelers, homeowners, rental websites, and tax agencies.

The vast majority of rental transactions are now booked through electric payment platforms directly tied into leading rental websites.

For any transaction in the U.S., technology exists today to calculate the correct occupancy tax rate for any address, collect the tax funds, and then automate the filing and paying of the tax to the various tax agencies, when and where they are due. This can be done on any rental transaction.

This technology combined with the booking systems of leading websites will enable homeowners to be fully tax compliant with the click of a button. Tax automation software will do all the work at a nominal economic cost that is less than what people pay to accept credit card payments.

For decades, banks have already connected and automated payment systems across the world with credit card payments, and tax automation will do the same for occupancy taxes in the home and vacation rental space.

Owners renting their homes will not have to struggle with the rules, rates and tax filings, because tax automation software will do all of it for them when each rental transaction is booked.

As a current homeowner and vacation rental owner, I enjoy the many benefits of the home sharing economy — and I understand it is important to find a way to better evolve the industry.

All of us who are in the home renting business need to become compliant so that we have a strong position when arguing our rights as homeowners.If not, we don’t have an argument to make when it comes to pushing this industry towards unreasonable regulation, or worse an outright ban.

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