Do Airbnb rentals pay occupancy taxes? The answer appears to be complicated

Anyone who has ever used Airbnb knows that there’s a degree of mutual trust to every transaction made through this popular alternative to conventional hotels and motels.

But the honor system that forms the very backbone of online listing services like Airbnb, Expedia, and VRBO isn’t just limited to travelers who book rooms through these companies or the private property owners who offer up the accommodations that these wayfarers seek.

These services also demand a certain degree of faith from the cities and counties that imposes taxes on travel accommodations in order to raise funds for their tourism-related endeavors.

In theory, the short-term rentals listed through Airbnb are subject to the same “room occupancy taxes” that many localities in North Carolina receive from hotels and motels. But the actual collection of these levies is apparently a bit of a crap shoot, according to Chris Mclaughlin, an expert on tax policy with UNC’s School of Government.

In 2022, Mclaughlin addressed some of the complexities surrounding the taxation of short-term rentals in an installment of Coates’ Canon, the School of Government’s running blog on local government issues.

“The good news is that many short-term rental websites and rental agents are sending monthly occupancy tax checks to North Carolina local governments,” Mclaughlin explains in his post. “The bad news is that those checks are often lump-sum payments with no way to identify the rental properties to which they relate.  This lack of detail makes it almost impossible to know if these third parties are satisfying their occupancy tax obligations.”

Mclaughlin goes on to stress that, under current state law, most short-term rentals are, indeed, subject to local occupancy taxes as long as they’re leased out for more than 15 days a year and the duration of a particular lease doesn’t extend beyond a 90-day period.

“This is true regardless of whether the rental is a hotel room, an oceanfront mansion, or simply a spare bedroom,” he adds, “and regardless of whether the rental is booked through a third-party such as a [short-term rental] website or rental agent or directly with the property owner.”

Mclaughlin nevertheless notes that, for tax purposes, the law treats accommodations differently if they’re leased by their owners directly or if the transaction is mediated by a third-party “facilitator” such as a rental agent or a website like Airbnb.

Mclaughlin adds that, in 2015, Airbnb signed an agreement with the N.C. Department of Revenue in which it promised to collect state sales taxes across North Carolina – as well as occupancy tax proceeds from short term rentals in the state’s four largest counties.

By 2019, the San Francisco-based firm was supposedly passing along occupancy tax revenue from all of North Carolina’s 100 counties. According to Alamance County’s attorney Rik Stevens, these lump sum payments are indeed making their way into Alamance County’s coffers.

Mclaughlin concedes that VRBO and Expedia have also adopted similar policies of lump-sum occupancy tax payments – albeit without the advantage of any formal agreements with either state or local authorities.  In either case, he cautions that all of these payments are made in the aggregate and lack supporting details about individual rentals.

“The bottom line,” he adds, “is that the party that collects payment for an STR is responsible for occupancy taxes on that rental.  This could be an on-line STR platform, a local rental agency, or the property owner.  If it is unclear who is collecting payment for a particular STR, then a local occupancy tax collector may send estimated occupancy bills to the property owner or the rental agency with which the property is listed and thereby put the burden of disputing that tax bill on that party.”