Short-Term Rentals Now Subject to Rhode Island Sales and Hotel TaxesJuly 21, 2015
Michelle A. Berkovitz, CPA, MST
Beginning July 1, 2015, the State of Rhode Island amended its definition of “hotel” to include all residential dwellings that are used and/or advertised for rent or occupancy. The term “hotel” is defined to include hotels, motels, tourist homes, tourist camps, lodging houses and inns. The term has now been expanded to include houses, condominiums and other residential dwelling regardless of the number of rooms to rent. The definition specifically excludes schools, hospitals, sanitariums, nursing homes and chronic care facilities.
These rentals, if rented for less than 30 days or in one calendar month, will now be subject to the seven percent (7%) sales taxes and up to the six percent (6%) hotel tax. The six percent (6%) hotel tax consists of a five percent (5%) statewide tax and a local one percent (1%) tax. Rhode Island hotels are not affected by the change and will continue business as usual, but other types of property rentals will be affected. Any occupancy of a residential dwelling done through a documented lease arrangement greater than 30 consecutive days, or one full calendar month, to the same tenant, is excluded from the requirement to collect and remit the taxes.
For any documented lease arrangement entered into prior to July 1, 2015, the taxes will not apply as long as the rental occurs in 2015. For any lease or rental agreement that spans multiple years, the subsequent years will be subject to the taxes. The taxes apply to new rentals that begin on or after July 1, 2015. These rentals will be subject to the collection and remittance of sales and hotel taxes to the State of Rhode Island. Depending on whether you rent a room or a whole dwelling determines if your rentals will be subject to an eight percent (8%) or a thirteen percent (13%) tax. Rentals that are for a whole dwelling, such as vacation beach homes, will be subject to an eight percent (8%) tax, which consists of 7% sales plus 1% local hotel tax. Rentals that are for a room in another person’s home, such as a bed and breakfast or rentals through Airbnb, will be subject to a thirteen percent (13%) tax, which consists of the seven percent (7%) sales tax plus six percent (6%) hotel tax.
Any property owner that is currently renting or believes that they will rent their property for less than one calendar month, or less than 30 (thirty) days, is required to apply for and obtain a sales tax permit. The owner must also pay a $10 application fee using Form BAR (Business Application and Registration). Owners that have property managed by a real estate agency or property management company are not responsible for obtaining the sales tax permit or collecting and remitting the sales and hotel taxes themselves. The property managers will be the ones responsible for obtaining the permit, and collection and remittance of the taxes, since they are the ones collecting the monies from the tenants. Room resellers, such as Airbnb, will be the responsible parties to register, collect and remit the sales and hotel taxes.
All permit holders will be required to file monthly sales tax and hotel tax returns. These forms are due on the 20th day of each month for the previous month. The permit holders will also be required to file the annual reconciliation form for sellers of tangible property. Seasonal rentals will only be required to file returns for the months in which they operate. The amount subject to the sales and hotel taxes is the total consideration paid for the rental, including any security deposit not returned at the end of the rental period and any cleaning service fees charged back to the tenant. Each tax needs to be separately stated on each invoice or rental receipt.
Please contact Michelle Berkovitz at 401-330-2712 or firstname.lastname@example.org for further information or visit the Rhode Island Division of Taxation’s website: www.tax.state.ri.us. The FAQs can be found under “Latest Tax News” on the homepage.
Michelle is a manager in BlumShapiro’s Rhode Island Tax Department. Michelle works with companies organized as LLC, partnerships and S corporations, as well as their owners and shareholders. She often handles tax projects involving multistate and state and local taxation.