Extras on Excise: Seeking Fairness in State Lodging Taxes


Arizona and Massachusetts are attempting to “level the playing field” and generate more revenue by modifying their lodging taxes so that all types of rental lodging operators, including online market places (OLM) and online lodging platforms (OLP), are paying state and local excise taxes.

Arizona

In Arizona, lawmakers have realized they stand to increase state revenue if they make it mandatory for OLMs to register with the state department of revenue to pay transaction privilege taxes (TPT) for online lodging transactions; currently, OLMs are not required to register with the department for tax payment. Arizona S.B. 1382, which would implement this change, was submitted to the governor for signature on April 9. The bill specifically amends Ariz. Rev. Stat. Ann. § 42-5005(L) by making registration with the department a requirement beginning Jan. 1, 2019.

The transaction privilege tax is imposed on the privilege of conducting business within the state. Persons and businesses who receive gross proceeds of sales or gross income that is subject to tax must obtain a TPT license before doing business in the state. Currently, OLMs who have elected to register with the department pay a TPT levy of 5.5 percent of the tax base.

In 2017, Airbnb voluntarily began collecting taxes in Arizona and generated $11.5 million in tax revenue. The bill’s sponsor, Sen. John Kavanagh (R), says the bill is intended to “level the playing field among companies voluntarily collecting taxes, brick-and-mortar hotels, and companies not collecting taxes,” as reported by Brenna Goth in an April 9 Daily Tax Report: State article (subscription required).

Massachusetts

Massachusetts lawmakers are considering two bills that would impose the state’s current room occupancy excise tax and any similar municipal taxes on short-term rentals.

H.B. 4327, introduced in March, would create a new tiered excise tax to be imposed on occupants of residential short-term rentals, based on the total amount of rent. The rates would be as follows:

  • 4 percent for residential hosts renting up to two units;
  • 5.7 percent for investor hosts renting between three and five units; and
  • 8 percent for professionally managed hosts renting six or more units.

If the total amount of rent is less than $25 per day, it would not be subject to the excise tax.

S.B. 2381 would update the state’s existing room occupancy excise tax by modifying it to capture all rental types. Any rental lodging subject to the room occupancy tax would be taxed at the current rate of 5.7 percent of the total amount of rent. Total amounts of rent that are less than $15 per day would not be subject to tax.

The bill would capture short-term rentals in the room occupancy excise tax by adding “transient accommodation” and “room reseller” to statutory provisions relating to the tax. Under the bill, a person renting a room or home via an online lodging platform would be deemed an operator and therefore subject to the excise tax.

“Transient accommodation” would be defined as “an owner-occupied, tenant-occupied or non-owner occupied property including, but not limited to, an apartment, house, cottage, condominium, time-share unit or a furnished accommodation that is not a hotel, motel, lodging house or bed and breakfast establishment, where: (i) at least 1 room or unit is rented to an occupant or sub-occupant; and (ii) all accommodations are reserved in advance; provided, however, that a private owner-occupied property shall be considered a single unit if leased or rented as such.”

“Room reseller” would be defined as “a person having any right, permission, license or other authority from or through an operator to reserve, convey or arrange transfer of occupancy of an accommodation for rent, directly or indirectly.”

The bill also addresses compliance concerns and would allow lodging operators to enter into agreements with intermediaries of their choosing, such as Airbnb, to facilitate tax collection and remittance.   

Sen. Michael Rodrigues (D) commented on the bill saying, “[t]his bill levels the playing field by taxing short-term rentals the same way we tax hotels,” as reported by Bloomberg Tax’s Aaron Nicodemus (subscription required).

Stay tuned to Bloomberg Tax coverage for updates on these and other bills relating to hotel occupancy taxes.

 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should rental lodging accommodations booked through online marketplaces be taxed the same as hotels?

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