Commonly asked questions from short-term rental hosts: Is the cleaning fee we pay to our cleaning company taxable?

Here at Avalara MyLodgeTax, we hold webinars on a regular basis to help short-term rental hosts better understand lodging tax compliance. During these sessions, we get questions about all kinds of vacation rental lodging tax situations.

We realize if one person has a question, plenty of others out there are probably wondering the same thing. So, we’re offering this series of blog posts in which we’ll provide answers to common short-term rental host questions. Short-term rental tax compliance can be complicated and confusing, but we’re here to help.

Q: Is the cleaning fee we pay to our cleaning company taxable?

A: Cleaning fees actually come up quite a bit when it comes to short-term rental taxes. But first it may be helpful to quickly review the types of taxes that apply to short-term rentals and who pays them.

One type of tax is income tax, which you or your business pay to the federal government or your state, based on — you got it — your income. While your cleaning company may pay income tax on the cleaning fee you pay them, this fee is not taxable for you.

Another type of tax — our specialty — is lodging tax. Generally, this is a tax paid by your short-term rental guests, calculated as a percentage of the rent paid for the accommodation, and added to the bill. Lodging tax can be levied by your state or local government. The tax authority that levies the tax also determines what fees or charges are subject to the lodging tax your guests must pay.

The question of whether cleaning fees are taxable for short-term rental guests depends, first of all, on whether you pass the fees you pay to your cleaning company on to your guests. If you don’t, there will be no taxable event. However, most hosts do charge guests cleaning fees that cover the amounts they pay to their cleaners.

Taxability for cleaning fees passed on to guests also depend on the rules of the particular jurisdiction. However, in most jurisdictions, cleaning fees are considered an essential part of the accommodation and they are taxable, whether or not they’re itemized on the bill you give your guests.

In Sonoma County, California, for example, “any and all expenses required to rent the room or lodging,” including charges such as “housekeeping or cleaning fees, linens, energy charges, resort fees,” and the like are subject to the county’s transient occupancy taxes.

In Tennessee, normal cleaning fees routinely charged to all guests as part of overnight rental unit charges are subject to state sales taxes. However, if the fee is only charged to guests under abnormal circumstances (for example, an additional cleaning fee for violating a non-smoking rule), the additional room cleaning fee would not be subject to state sales tax.

This is a rare exception to the general principle that short-term rental cleaning fees are subject to lodging taxes. But it does underscore the reality that short-term rental taxes are very local in nature and that a rule that applies in one jurisdiction may be different in the next town or county over. To be sure you’re in compliance, always check with your local tax authority.

Help for filing lodging tax returns

MyLodgeTax can help short-term rental operators automate lodging tax to streamline and simplify lodging tax compliance, including filing required lodging tax returns. For more information on lodging tax requirements in each state, see our Lodging Tax Guides. We can also help you answer individual lodging tax questions. Drop us a line and we’ll get back to you with answers.

If you’ve got a burning question about lodging tax, send us an email at MyLodgeTaxMarketing@avalara.com and we’ll try to answer it in an upcoming post.

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