Airbnb and VRBO Rentals In Colorado - Sales Tax Issues
Do you pay sales tax on the entire invoice amount on Airbnb in Colorado? This is a question that comes up if a supplementary service is added to the Airbnb invoice. For instance, some Airbnb businesses have an amount they charge for the daily stay, but they also have a cleaning or janitorial service added to it. Are CO sales taxes supposed to be calculated on the Gross Amount of the invoice, or just the net rental portion, excluding the cleaning service?
There are may directions this can go. The short answer is that in the State of Colorado, the Airbnb and VRBO rental sales tax is assessed only on the net amount for the rent payment and not on the supplementary services, provided that they are shown as a separate line item on the invoice. Even if the payment of the cleaning fee is mandatory, the fact that it is shown as a separate line item will cause it to be exempt from taxes.
The concept is that this is simply a reimbursement for a service, and most services (with exceptions) aren't taxed in CO.
Here is a CO case example where a print center is located on a premises, and since their charges are shown as a separate line item, they are exempt from sales taxes.
Here is another revenue ruling that discusses a similar case, where additional services are added to a customer's charge but, since they are reimbursed and since they are stated separately from the rental charge, these additional services are not taxable.
Tax guidance from other states and municipalities generally does mention that cleaning fees should be stated separately,and being that VBRO goes as far as to determine tax compliance on the net amount only, we can be confident that sales tax will not be owed on the auxiliary service.
With all this being said, there are also quite a few revenue rulings and posters on airbnb blogs out there that assess sales tax on the amount of the entire listing:
With all this being said, I picked up the phone and did the unthinkable: I spoke with a live human being in the CO department of revenue. After being told to call several different numbers and ended up with (303) 205-8291, I was told that "as long as the separate services are shown as a separate line item, then they do not have to assess sales taxes on that portion, even if these charges are mandatory as part of the total bill amount. Even if the customer has no choice but to pay them."
Many other states have this cleaning fee as part of the total cost (specifically for airbnb) and therefore add it to the total and place a sales tax on the entire amount. Other states (including CO) treat is as a reimbursable expense for "services," and therefore it is not taxed.
I have actually had other clients with Airbnb rentals ask me this question before. The real issue here is that municipalities and revenue authorities in government are reactionary and generally far slower to respond to changes in consumer behavior and technology, especially when applied to new industries (such as the one virtually created overnight by Airbnb). For this reason, this is in many ways (and in many other states) a regulatory gray area, where direct absolute guidance is not spelled out properly yet. For this reason we see conflicting information about this all over the internet.
George Dimov, CPA has several clients in CO and the mountain states and is available to consult on CO tax-related issues at email@example.com