Connecticut vacation rental tax guide

Airbnb and Vrbo have changed the way vacationers travel, with many guests choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Mystic, Hartford, and New Haven, The Constitution State offers prospective short-term rental hosts the opportunity to bring in extra income.

But new income opportunities bring new tax implications. Like hotel and B&B stays, short-term rentals in Connecticut are subject to tax. Vacation rental hosts are required to collect applicable short-term lodging taxes from their guests and remit them to the proper authorities.

Failure to comply with tax laws can result in fines and interest penalties. These may not catch up with you in the short term, but the sharing economy is under increased scrutiny, so it’s important to address compliance before tax authorities address it for you.

Avalara MyLodgeTax has put together this guide to help you comply with Connecticut short-term rental tax laws. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No short-term vacation rental tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Connecticut tax laws.

When you start operating a short-term rental, you might not have experience with lodging taxes, but you’re probably familiar with income tax. It’s important to understand the difference between the two.

Income tax is reported and paid annually to the federal government and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.

Lodging tax on a short-term rental is a percentage of the cost of your guest’s stay that’s added to the price on the bill. The guest pays the tax, but you’re responsible for collecting and paying it to the proper tax authority.

What’s the definition of “short-term rental” in Connecticut?

In Connecticut, room occupancy tax applies to the charges for the occupancy of a room or rooms in a hotel, motel, lodging house, or bed-and-breakfast establishment for 30 consecutive calendar days or less.

Rental contracts for a period of less than 90 days, including month-to-month contracts, are considered short-term rentals subject to room occupancy tax for the first 30 days of occupancy. Room occupancy tax does not apply to rental contracts of any length if the owner or operator does not provide furniture for the occupancy.

Who’s required to collect and file taxes on short-term rentals in Connecticut?

If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling, you're likely responsible for collecting, filing, and remitting short-term rental taxes to Connecticut authorities.

If a third party registered with the Connecticut Department of Revenue Services collects and pays all occupancy tax for your rentals, you are not required to register with the department. This could be an online short-term rental marketplace such as Airbnb or Vrbo. However, if you offer short-term rentals directly to guests and through a third party, or the third party does not collect all applicable taxes, you are required to register with the state and fulfill all lodging tax obligations.

Location is key to compliance

The location of your rental is a crucial piece of information for short-term rental tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and the appropriate tax rates.

Use our lodging tax lookup tool to get a rate report specific to your Connecticut rental’s address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.

Before you can begin collecting taxes on your short-term rental in Connecticut, you’re legally required to register with the Connecticut Department of Revenue Services. You can register online to receive a tax registration number.

However, if you offer short-term rentals exclusively through one or more short-term rental platforms that are collecting lodging taxes for you, you are not required to register with the Connecticut Department of Revenue Services.

Do I need to form an LLC?

In Connecticut, you don’t need to form an LLC to register with tax authorities.

Local short-term rental regulations

Short-term rental operators in Connecticut should be aware of the local regulations that apply to them, including rules covering:

• Legality
• Permits, licenses, and registration
• Zoning
• Advertising
• Neighborhood notification
• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of short-term rental policies that apply to your property.

Once you’ve registered with tax authorities, you’re ready to start collecting lodging taxes, which you’ll add to your guest’s bill when they pay for their stay.

Which taxes apply to Connecticut short-term rentals?

In Connecticut, short-term rentals are subject to state room occupancy tax.

Tax rates

Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s critical to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues.

Our lodging tax lookup tool can give you a rate report specific to your Connecticut address. The report includes the estimated total tax rate to collect from guests, required registrations, frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

What charges are taxable?

In Connecticut, all charges associated with occupancy, including accommodations, amenities, and services, whether separately stated or included, are taxable. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc.

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects taxes for me?

Before collecting any short-term rental taxes from your guests, you need to be aware of whether any taxes have already been collected for you. In Connecticut, vacation rental marketplaces such as Airbnb and Vrbo are required to collect and remit room occupancy tax on their hosts’ behalf. 

However, if you offer short-term rentals both directly and through a marketplace, or the marketplace does not collect all applicable taxes, you are required to register with the state and fulfill all lodging tax obligations.

Are guests ever exempt from taxes?

There are situations in which you aren’t required to collect lodging taxes in Connecticut. For example, a guest who rents for a long term rather than a short term is exempt from short-term lodging taxes.

In Connecticut, accommodations purchased by buyers including state-designated exempt organizations or qualifying government agencies may be exempt from short-term rental taxes. Guests may be required to present exemption certificates.

Sales and purchases of accommodations located in Indian country by federally recognized Indian tribes located in Connecticut are not subject to Connecticut lodging tax.

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Connecticut Department of Revenue Services. In Connecticut, you can file and pay the tax amount due online. The Connecticut Department of Revenue Services allows credit card payments, but you may be charged convenience fees for this type of payment.

Take the time to double-check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. For filing with the Connecticut Department of Revenue Services, due dates are as follows:

I didn’t rent my property during this filing period. Am I still required to file a tax return for my short-term rental with the Connecticut Department of Revenue Services?

Yes. Short-term rental operators registered with the Connecticut Department of Revenue Services are required to file returns each assigned filing period, regardless of whether you had any short-term rental income or collected lodging taxes. Such returns are commonly known as “zero dollar returns.”

Are there penalties for filing taxes late?

Whether you choose to offer short-term rentals through a marketplace like Airbnb or Vrbo or directly to guests, you open the door to tax liability. Tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with tax laws. Failure to register with tax authorities and file short-term rental tax returns in Connecticut on time may result in late fees, interest payments, and in extreme cases, legal action.

I’ve been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating a short-term rental but not collecting short-term rental taxes, you may be in violation of Connecticut tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.

Short-term rental hosts in Connecticut may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Connecticut Department of Revenue Services. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.

Are there options for outsourcing lodging tax filing?

Yes. Numerous short-term rental hosts in Connecticut file several state lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.