TRANSIENT RENTALS AND SALES TAX
Some apartment communities engage in seasonal rentals. Some managers who concentrate primarily on annuals will encounter situations when they are asked to rent one or more units seasonally. Before taking on seasonal rentals, the property manager must understand and follow all the laws set forth by the Florida Department of Revenue, or they could be in for some trouble. Recently, the Department of Revenue, hereinafter DOR, has increased its auditing and has been catching quite a few property managers by surprise. Most of the property managers who were in noncompliance did not fail to collect the taxes intentionally, but simply failed to know the law and made a mistake.
This article will address only a small part of the requirements regarding the taxes in seasonal rentals, and we will concentrate on the “non-rent” items which are taxable. Most property managers, if asked, will know that the “rent” is taxable on a seasonal rental, but the DOR goes a bit farther, and there are big traps for the unwary. If you find after reading this article that you have not been properly collecting the taxes, we recommend you contact your accountant right away and see what the best approach would be to avoid bigger problems, if and when you are audited. If you are audited and found to be in noncompliance, you will be subject to the back taxes, interest and penalties. Often the penalties and interest will be waived by the DOR if the mistake was unintentional, but the back taxes could be substantial.
What Constitutes a “Transient” Rental?
The words seasonal or transient mean the same for the purposes of tax collection. If the rental term is for a period of 6 months or less, the tax must be collected. This would include a verbal month to month tenancy, so it is crucial that you never allow a resident to reside on premises month to month from day one, unless you expect to collect the taxes. Under this scenario, the tax liability is only for the first 6 months and stops after that.
What Taxes Need to be Collected?
Unfortunately, the typical 6% “state sales tax” is just the beginning. There is also a discretionary sales surtax in many counties, the amount varying by county, and the Local Option Tourist Development Tax, commonly referred to as the Tourist Tax, this amount also varying by county. Some taxes are paid directly to the State of Florida and in some cases paid locally. You need to know your county and know the law that applies. Many counties differ, so make no assumptions.
What is Taxable?
Here is the issue. It is not simply the base rent that is taxable. According to the DOR, the TOTAL amount charged to the seasonal renter is taxable. Many seasonal rental agreements state the rent amount and also have a cleaning charge. This cleaning charge is taxable and it is the most commonly overlooked tax by the property manager. While the cleaning charge is the most commonly overlooked and incorrectly untaxed charge, it is only the beginning of the items which must be taxed.
The following are some of the charges the DOR has stated are taxable, but it is not an all inclusive list. You may have other charges which also could be considered by the DOR as taxable. If in doubt, err on the safe side and charge the tax.
- The Base Rent: This is the most obvious charge and is not the problem.
- Electricity: In many but not all seasonal rentals, the electric is included in the rent, especially in weekly rentals. Sometimes though, the resident does pay the electric in full or an amount over and above a particular set amount by the manager. Any amount paid by the resident for electricity is taxable.
- Cleaning: This is the real problem area. Many property managers are not aware that this is taxable and simply add the cleaning charge to the bill. The DOR is fully aware of the lack of knowledge of the property managers, and this is the most common tax that has not been collected.
- Parking: Some condominiums that allow seasonal rentals charge additional vehicle fees or parking fees, and these are taxable.
- Miscellaneous charges: Garbage Pick-up, Life Guard, Security, Furniture rental, Club House use. If these amounts are extra, and the resident must pay for them, the amounts are taxable.
Other potentially taxable amounts:
1. Application fee: If an application fee is required, this fee may also be subject to the tax.
2. Condo Approval Fee: The law is unclear, and this may be taxable.
Phone and Long Distance Charges:
Phone and long distance charges that the resident incurs are not additionally taxable to the resident, most likely because the DOR and all the other taxing authorities have already handled that on the phone bills.
Exceptions to the Tax:
Most, but not all seasonal rentals, are subject to taxation. There are some exceptions carved out but not frequently encountered. A seasonal rental to a full time college student is exempt from taxation. Rentals to federal employees are exempted out as well, if they are performing work related duties. This would be encountered in such hurricane related situations when FEMA employees needed a place to rent on a short term basis. Military personnel and diplomats are also exempt, and in the case of military personnel, they must be traveling under military orders. It is the responsibility of the lessor to obtain all the necessary documentation from the resident before any exemption should be given. If in doubt, check with your accountant or attorney.
Are You In Compliance?
If you are not, get into compliance immediately. Make sure your lease or reservation agreement states that the amounts are taxable, and if you already have leases for next season, take a look at them and make it clear to the residents that they must pay sales tax. If they refuse to pay, refer them to the law. If the lease or reservation agreement did not properly address the fact that the seasonal resident would be liable for the sales tax and the resident refuses to pay, you may be put in a position in which you or the owner must pay the amount due. In any event, make sure you do a self-audit immediately of your files and those of the agents you may be in charge of in your office. We highly recommend you download the DOR publication called SAKES AND USE TAX GUIDE FOR TRANSIENT RENTALS and contact your CPA for guidance.
- The Curable Noncompliance Examined PART 1
- THE CURABLE NONCOMPLIANCE EXAMINED PART 2
- THE WRIT OF POSSESSION – WHAT IT IS
- THE WRIT OF POSSESSION AND THE FULL UNIT
- WORK ORDER COMPANY POLICY AND THE LAW