Many Vermonters and those living outside Vermont who own property in the state are renting their spare rooms or other types of lodging to visitors. In many cases, the rent charged to the lodger is subject to the Vermont meals and rooms tax and should be collected and remitted to the Vermont Department of Taxes.
Should You Collect the Meals and Rooms Tax
You may view your venture as small scale compared to a larger bed and breakfast or inn. However, Vermont tax law requires that you collect and remit tax, just like any other business operating in Vermont. Vermont law states that sleeping accommodations offered to the public for a consideration on premises operated by a private person, entity, institution, or organization are subject to the Vermont Meals and Rooms Tax if those rentals total 15 or more days in any one calendar year. Please note: If you rent your room or other type of lodging to the same person for 30 or more consecutive days, the person is then considered to be a permanent resident, and different rules apply. The following is a noninclusive list of types of lodging rented or owned by the host which fall under the provisions of the law:
A house or room(s) in a house
Cabin, cottage, condominium, ski lodge
Barn, bunkhouse, tree house, camper, tent
You are personally responsible for collecting and remitting the tax to the Department of Taxes. If your rental falls within the provisions of the law, then you must charge your guests the 9% Vermont meals and rooms tax. In addition, if you are providing meals to your guests and billing them separately, those meals are also subject to tax. One exception to you collecting and remitting the tax is if Airbnb is doing so on your behalf.
Local Option Tax Also May Apply
In addition to the state-imposed business taxes, you may be required to collect and remit a 1% local option tax imposed by some Vermont municipalities. A municipality may choose to levy a local option tax on 1) meals and alcohol; 2) rooms; and/or 3) any items subject to sales tax.
Businesses are responsible for collecting and remitting local option taxes along with state business taxes. Local option tax is destination-based, meaning tax applies based on where the buyer takes possession of the taxable item. Please note that you should always calculate the local option tax as 1% of the taxable (net) sales for each town for collecting and remitting local option taxes along with state business taxes. If you are subject to local option tax and have not been collecting and remitting it, you may have a tax liability. Find out which municipalities levy local option tax or lookup towns by zip code.
If you sell merchandise to your guests, such as your homemade candles or soap, you must charge the 6% Vermont sales tax on these items. Also, if you purchase items for your business and no sales tax is charged, such as purchases made online or in a state that does not impose sales tax, you must remit the applicable 6% Vermont use tax.
Are tips taxable?
Generally, tips are not taxable, but there are exceptions. A "tip"means either:
- a sum of money gratuitously and voluntarily left by a customer for service, or
- a charge for service that is indicated by the seller on the bill, invoice, or charge statement that
- does not exceed 20% of the total charges and
- is separately accounted for and fully distributed to service employees, in addition and supplemental to normal salary and wages, which must meet or exceed state and federal minimum wage requirements.
Tips in excess of 20% must be reported as taxable, even if fully distributed to service employees. If any portion of the tip is retained by the operator, rather than by service employees, the portion retained becomes a part of the charge to the customer and is thus subject to tax. For meals and rooms tax purposes, business owners and operators are not service employees, even when they perform functions typically performed by service employees.
Vermont Business Tax Account and License
Businesses who do not solely use Airbnb to rent their room must register for a Vermont Business Tax Account and license prior to collecting the tax. Registration is free. All businesses must display their licenses for customers at each location as authorization to collect tax on behalf of the State of Vermont. Register online for a business tax account at myVTax or learn more about owning and operating a business in Vermont.
If you use an online platform to advertise your short-term rental, and the platform collects the rents and taxes on your behalf, you do not need to establish a meals and rooms tax account with Vermont. In this situation, the Vermont Department of Taxes requires the online platform to obtain a Vermont business tax account and a Vermont Meals and Rooms Tax account number. The platform must then post the tax account number on the advertisement for your rental.
If, however, you collect the tax on some of your bookings and remit it to the Vermont Department of Taxes, you are required to register for a Vermont business tax account and obtain a Vermont Meals and Rooms Tax account number. You must post this tax account number on any advertisement for your short-term rental. When advertising your rental on a website that does not collect and remit tax on your behalf, you must state your tax account number on the advertisement. You must also state your tax account number an advertisement when using other means of advertising such as posting on social media, through the Chamber of Commerce, or on a bulletin board at your grocery store.
If you use an online platform that collects the rent and tax on your behalf but also use other means of booking, you must still obtain a Vermont business tax account and tax account number for your rental to collect and remit the tax.
Maintain Good Records
We highly recommend that you maintain good records for your business, including dates of rental, names of tenants, the dollar amount charged for the rental, and tax charged and collected.
Voluntary Collection Agreement
You are personally responsible for collecting and remitting meals and rooms tax. If you are subject to tax and have not been collecting and remitting it, you may be responsible for up to seven years of tax, interest, and penalty. Coming forward voluntarily through the Department’s Voluntary Disclosure Program may reduce your exposure to three years of tax and interest.