Transient Occupancy Tax—a Guide for Vacation Rental Hosts

An essential aspect of operating a short-term rental is managing taxes. All income you get from renting out your property on Airbnb and similar sites and on your direct booking website is subject to income tax, which you pay to the federal government.

However, as a host or a property manager, you also need to deal with an entirely different tax category—occupancy tax, which your short-term rental guests pay. As the host, you are responsible for collecting it and remitting it to tax authorities, so it's important to be aware of the vacation rental tax rules.

Occupancy taxes in the US are paid to state and local governments and go by many names, such as hotel, lodging, transient room, and accommodation taxes. In this article, we'll talk about the transient occupancy tax (TOT) in California to help you better understand how it works.

Note that this article is not intended to be legal advice. If you have any questions about tax requirements that may apply to your situation, we recommend you check with your local government or seek advice from a local tax professional.

What Is Transient Occupancy Tax?

Renting out your property to travelers looking for a place to stay during their trips can be a great source of extra income. Using vacation rental software like Hospitable, you can automate almost all repetitive tasks and manage everything hassle-free.

To ensure the success of your short-term rental business, it's important to provide a memorable experience for your guests and abide by all local Airbnb rules and regulations. You must also understand and comply with local tax rules and obligations that apply to your STR property.

While the term "transient occupancy tax" is specific to California, about 30 states in the US have similar lodging taxes that apply statewide. Besides, many US states also allow cities and counties to impose additional taxes, and even states without statewide lodging taxes commonly give cities and towns the option to impose them. For example, transient occupancy taxes aren't imposed statewide in California, but the state law gives cities and counties the authority to impose them. This authority is granted to the legislative bodies of both cities and counties by California Revenue and Taxation Code 7280.

The laws that impose lodging taxes typically define the length of stay subject to the tax. It is done to ensure that only tourists pay the tax, but not those who live permanently in the area. For example, in California, transient occupancy taxes typically apply to rental properties that are rented for 30 days or less.

The percentage that needs to be paid by your guests varies depending on where your vacation rental property is located, and each city and county will have different amounts. For example, the current TOT tax rate in the City of Los Angeles is 14%, and the TOT rate in San Diego is 10.50%. You should research the rates for your city or county to determine your exact tax percentage.

Before collecting transient occupancy tax, you must register with your city and apply for the certificate. The tax is added to the total amount you charge your guests and is collected at the same time when a guest makes a payment. For example, if your nightly rate is $200 and the tax is 10%, you would charge your guest $220 ($200 for the nightly rate plus $20 for transient occupancy tax). It's important to let your guests know the exact tax amount they will have to pay before booking.

Collecting Airbnb Transient Occupancy Tax 

In many jurisdictions in the US and worldwide, Airbnb has agreements with tax agencies to collect taxes on behalf of hosts. Airbnb calculates the taxes at the time of booking and collects them when payment is accepted from guests. Then Airbnb remits the taxes to the appropriate tax agency on the host's behalf. In locations where Airbnb collects taxes, the hosts don't have to collect or remit the same taxes.

For example, in California, Airbnb collects transient occupancy taxes in some counties and cities, including San Francisco, Los Angeles, and San Diego, so hosts don't have to collect and remit them. If Airbnb collects taxes for your area, you'll see a tax collection setting on your listing page under Taxes. If there isn't a section for local tax collection under Taxes, Airbnb doesn't automatically collect and pay taxes on your behalf for that listing. Then, you'll need to collect and remit taxes manually.

Airbnb hosts can manually collect taxes on accommodation from guests in several ways:

• Hosts using professional hosting tools offered by Airbnb may be able to add taxes to their listings.
• You can add the tax amount within a special offer that includes a custom discounted price.
• You can collect taxes from guests using the Airbnb Resolution Center after they check in.

You should also remember that even if Airbnb collects and pays taxes for you, it doesn't register your property with tax authorities or file tax returns for you. In some jurisdictions, tax agencies require hosts to continue to file tax returns, even if Airbnb collects taxes on their behalf. As a host, you are responsible for your tax compliance and must file and remit your taxes to the appropriate jurisdiction on time.

If you create a direct booking website using our dedicated service, Hospitable Direct, our system can collect lodging taxes from your guests, including transient occupancy tax, and pass them through to you with the payout. Hospitable will also report the amounts in your Metrics Taxes reports, and you must file and remit those amounts to the appropriate jurisdiction.

If you select Direct Basic as your plan, you must enter your own taxes for each property. Then, Hospitable will calculate the tax amount for each booking request and collect it from the guest if the booking is accepted.

If you choose the Direct Premium plan, Hospitable will calculate all applicable sales and lodging taxes based on the address of each of your US properties and collect them from guests. We'll update taxes when there are changes.

We are also starting to file and remit taxes for Direct Premium hosts in the USA. Check the help article for the most updated list of locations.