Texas 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 Austin, Dallas, the Alamo, and Big Bend National Park, the Lone Star 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 Texas are subject to tax. Vacation rental hosts are required to collect applicable taxes from guests and remit them to the proper authorities.

Failure to comply with state and local 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 Texas 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 Texas 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 is added to the price of the bill. The guest pays the tax, but you’re responsible for collecting the tax and paying it to the proper tax authority.

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

For tax purposes, short-term rentals in Texas are defined as reservations of less than 30 consecutive days.

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

If you collect payment from short-term guests renting out an apartment, house, or other dwelling, you’re likely responsible for collecting, filing, and remitting short-term rental tax to Texas tax authorities. The state hotel occupancy tax applies to any building in which members of the public rent sleeping accommodations for $15 or more per day. Local hotel taxes apply to sleeping rooms costing $2 or more per day. Local tax authorities may have their own requirements.

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 your tax rates.

Use our lodging tax lookup tool to get a tax report specific to your Texas 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 Texas, you’re legally required to register with the Texas Comptroller’s Office to receive a hotel tax permit.

If an online short-term rental marketplace such as Airbnb or Vrbo collects all state hotel occupancy taxes on your behalf, then you don’t need to have a tax account with the Texas Comptroller’s Office or file state hotel occupancy tax returns. However, you may be required to collect and pay local lodging taxes.

Do I need to form an LLC?

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

Local short-term rental regulations

Short-term rental operators in Texas 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’re 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 Texas short-term rentals?

In Texas, short-term rentals are subject to state hotel occupancy tax and may be subject to local lodging taxes, depending on the jurisdiction.

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 Texas 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?

Texas imposes lodging tax on short-term rental revenue. This includes fees such as pet fees and cleaning fees. Cancellation fees are taxable, but fees for early or late departure are not. Separately stated charges for personal services related to cleaning and readying a room for occupancy or laundry/dry cleaning are taxable, but other separately stated services, such as child care, are not taxable.

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. Some vacation rental marketplaces collect Texas short-term rental taxes for you when the listing is booked.

If an online short-term rental marketplace collects all state hotel occupancy taxes on your behalf, you don’t need to have a tax account with the State Comptroller’s Office or file state hotel occupancy tax returns. However, you may be required to collect and pay local lodging taxes.

Are guests ever exempt from taxes?

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

These guests are exempt from state and local lodging taxes:

• Federal government agencies and their employees traveling on official business
• Foreign diplomats issued a tax exemption card by the U.S. Department of State, unless the card specifically excludes hotel tax
• Texas state officials with a special hotel tax exemption card
• Some nonprofit entities and their employees traveling on official business

These guests are exempt from state hotel occupancy tax only:

• Exempt religious organizations
• Qualified charitable organizations
• Educational organizations including independent school districts, public and private elementary and secondary schools, and in-state higher education institutions

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Texas Comptroller’s Office. In Texas, you can file returns and pay tax online or by mail. The Texas Comptroller’s Office allows credit card payments, but may charge a fee. You may also need to file lodging tax returns with local tax authorities.

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 Texas Comptroller’s Office. For state hotel occupancy tax returns, due dates are as follows:

Local tax authorities may have their own due dates for local lodging tax returns.

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 Texas Comptroller’s Office?

Yes. Short-term rental operators registered with the Texas Comptroller’s Office are required to file returns each assigned filing period, regardless of whether you had any short-term rental income or collected short-term rental taxes. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.

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 at the state and local level. As tax revenue is a major source of local funding, 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 Texas 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 Texas 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 Texas 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 Texas Comptroller’s Office. 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 Texas file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.