Hotel occupancy tax: What short-term rental owners need to know

The Pennsylvania Department of Revenue has been ramping up collections efforts for the state hotel occupancy tax lately.

This 6 percent tax (7 percent in Philadelphia and Allegheny County) applies to pretty much any lodging rentals for fewer than 30 days. And yes… that includes vacation rentals and other short-term rentals of private homes through services like Vrbo and Airbnb.

After a successful outreach effort to about 6,000 renters in 2016, those efforts are going to be directed at a much larger population in 2017. Using past tax data, the department has identified about 100,000 taxpayers who have reported rental income on their tax returns, but who have not registered and paid the hotel tax. Throughout April and May, letters are being sent to these taxpayers informing them of the tax and asking that they voluntarily get current on any past obligations if any of that income was from short-term rentals.

According to department staff who spoke at a forum on April 20, the primary goal of this enforcement effort is educational rather than punitive. While taxpayers would be expected to pay several years of back taxes, they are less concerned about collecting penalties and interest than they are in getting these individuals to register for the appropriate tax licenses and keep up-to-date on future obligations. In fact, this effort is being conducted during the 2017 tax amnesty program, which may help minimize any penalties and interest. That said, taxpayers who do not contact the department after this initial mailing may be subject to an assessment that carries additional penalties and interest.

Many Realtors® own rental properties. If you’ve been doing short-term rentals of those properties and not paying the hotel tax, it may be advisable to check with your accountant and/or attorney to see whether voluntary compliance makes sense. If you represent property owners and have been brokering short term rentals for them, it’s possible that they may be getting these letters as well. The best advice for those clients is to check with their own accountants and attorneys. Don’t attempt to advise them on their responsibilities or how they should respond to the rentals. And more to the point, you should be sure to read up on the tax and the related rules to ensure that you’re providing clients with proper guidance in the future.

As a final note, most counties also have a county-level hotel tax. This tax is in addition to the state tax, and is paid to the county rather than the state. Property owners who register with the state should also register with the county, and vice-versa. The information is generally not being shared between these two levels of government, so it’s up to the taxpayer to make sure they’re in compliance at both levels. More information can be found through the county treasurer’s office.