Operating a short-term rental in Rhode Island comes with several tax obligations that hosts must navigate to stay compliant and avoid penalties. Understanding these taxes is essential for anyone renting their property for vacation rentals.
Key Taxes for Vacation Rentals in Rhode Island
Sales Tax (7%)
All short-term rental reservations of 30 days or less are subject to a 7% state sales tax. This tax applies to the total rental price, including additional fees such as cleaning charges(Avalara, Inc.)(Marcum LLP) (tax.ri.gov)
State Hotel Tax (5%)
Rhode Island imposes a hotel tax on facilities offering transient lodging, including hotels, motels, and short-term rentals. The tax applies to the first 30 days of each rental. There is a 6% hotel tax for room rentals and a 1% tax for whole house rentals. Entities, including room resellers and platforms like Airbnb, must register, collect, file monthly returns, and remit the tax. Additional local tax applies in Newport.
More details on filing and payment procedures are available on the RI Division of Taxation website, visit RI Hotel Tax.
Local Hotel Tax (1%)
All short-term rentals are also subject to a 1% local hotel tax, regardless of whether the rental is for an entire home or just a room(Avalara, Inc.)(Marcum LLP).
Total Tax Breakdown
If you are renting out a room in your home, guests will need to pay a total tax rate of 13%—7% for state sales tax, 5% for the state hotel tax, and 1% for the local hotel tax. For whole-home rentals, only the 7% sales tax and the 1% local hotel tax apply, resulting in an 8% total tax.
Tax Collection and Remittance
Platforms like Airbnb and Vrbo may automatically collect and remit these taxes on your behalf. However, if you manage your bookings outside of these platforms, it is your responsibility to collect and remit the taxes directly to the state.
Tax Exemptions and Special Cases
Properties rented for more than 30 days are exempt from both the sales and hotel taxes. Rentals that comply with the IRS’s "14-day rule" (i.e., properties rented out for 14 days or fewer within a year) may be exempt from income taxes, but are still subject to occupancy taxes.
Long-term leases and rentals exceeding 30 consecutive days are exempt from both the sales and hotel taxes, provided a formal lease is in place.
Avoiding Penalties
To avoid penalties, ensure you register your property with the Rhode Island Department of Business Regulation (DBR). As of 2023, all short-term rentals must be registered with the state, and failure to do so can result in fines ranging from $250 to $1,000.
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