The vacation rental market is a thriving and lucrative business here in Florida, and on a national level, that caters to seasonal residents and the tourism industry alike. Unfortunately, due largely to dire economic times, the Florida Department of Revenue and other states’ taxation agencies have targeted this industry for state and local tax audits. While many companies have underreported Florida sales and use tax, a tax audit can substantially impair a company’s financial health and even put a company out of business. As most of you are already aware, the vacation rental market businesses primarily generate revenue by renting, leasing, or granting licenses to use accommodations to guests for various durations. Many businesses also offer guests tangible personal property such as food and beverage sales, mini-bars, rentals of roll-a-way beds, as well as various services and conveniences.
What is often ignored or forgotten by many businesses in Florida is that many of these charges are subject to Florida sales tax. What is taxable? In Florida, the major taxable component is the rental of what is technically referred to as a transient rental or living a c c o m m o d a - tion. A transient accommodation is a “living quarter or sleeping or housekeeping accommodation in any hotel, motel, apartment house, multiple unit structure,” which includes condos. In addition, any mandatory charges by the owner or by the owner’s agent for the use of the transient rental are also taxable. Things like mandatory processing fees, cleaning fees, and booking fees are taxable if they are mandatorily imposed for the use of the rental property. It is these “other” mandatory charges that are often not correctly taxed by the condo owner or management company that can lead to large audit assessments by the State of Florida. Moreover, these charges are also subject to the Tourist Development Taxes (TDT) in many counties that are often at a rate as high as the state sales tax. As evidenced by the staggering increase of litigation by counties against the online travel companies (OTCs), such as Obritz, Expedia, and Travelocity, the counties have been as aggressive if not more aggressive than the Department of Revenue against companies for uncollected TDT. For Condo/Transient Rental Industry - Sales and Use Tax Issues and Savings Opportunities a more thorough analysis and update on the OTC litigation, please visit our firm’s blog page at http:// www.floridasalestax.com/FloridaTax-Law-Blog.aspx.
What is not taxable? The two major exceptions to the vacation rental industry are the “bona fide written lease” and the “continuous residence” exceptions. If a person has entered into a bona fide written lease for longer than 6 months or if an individual has continuously resided in a transient rental for longer than 6 months, then the transaction is exempt from tax. Both exceptions provide creative planning opportunities to reduce or eliminate the sales and use and the TDT taxes within the vacation rental industry. Furthermore, there are ways in which to structure transactions so that certain charges are optional, rather than mandatory, which make for a way to reduce or eliminate tax assessments, or to reduce costs in an extremely competitive marketplace. Specific planning opportunities and issues will be more thoroughly developed in the future newsletters.
About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page..
This article was originally published in April 2012 in the FVRMA E-News, the official electronic publication of the Florida Vacation Rental Managers Association. The original publication may be found be clicking on the following link: FVRMA E-NEWS - APRIL 2012