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New state tax law affects short-term rentals

On Behalf of | Feb 11, 2020 | Business Law

With the rise in popularity of short-term rental services such as Airbnb, HomeAway and VRBO over the past few years, states have been forced to address some tax questions. Indiana has been one of only seven states from which Airbnb did not automatically collect taxes. Simply put, no one was sure what to collect, or whether they were even required to do so.

Indiana legislation passed in 2019 took effect last July 1. It provides that any short-term rental host was to be defined by the state as a merchant, and therefore owed taxes much like the 7% tax other hotels and bed-and-breakfasts pay. However, that initial law still did not specify who was responsible for paying those taxes.

In response to the confusion, lawmakers then drafted a second bill that states the host of the short-term rental is responsible for collecting taxes. It also gives platforms such as Airbnb the right to collect them on behalf of a host. The only exception to this rule exists for hosts who rent space in their primary residence for less than 15 days per year. These hosts are exempt from any lodging or inn taxes.

Short-term rentals have become big business. Property hosts in the state of Indiana were reported to have collected $36 million from the Airbnb platform in 2018. That does not include rentals hosted on VRBO or HomeAway. The majority of those earnings were from Marion County, which accounted for $14 million. The Indiana state legislature is making every effort to land all rental taxes in the same space so that hosts understand exactly how much to collect, and from whom.


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