Short Term Residential Rentals in RI: Frequently Asked QuestionsJune 30, 2016
Are you renting out your summer home? There are some important tax considerations for you.
As covered in a blog I wrote last summer, Rhode Island Tax Now Applies to Short Term Residential Rentals, a tax introduced last June applies to short term rental periods beginning on or after July 1st, 2015. Now that this relatively new tax has had time to resonate with Rhode Islanders, some frequently asked questions and answers about the tax are included below. Make sure you read up on these requirements before you rent out your dwelling(s) during the summer months.
What Rentals are Subject to the Tax?
Taxes are required to be charged and collected from occupants of the following rentals:
- Rentals of homes, mobile homes, beach houses, cottages, condominiums and apartments for periods of less than 30 days will be subject to an 8% tax (7% sales tax and 1% local hotel tax).
- Rentals of rooms situated within a residence, condominium or apartment will be subject to a 13% tax (7% sales tax, 5% state hotel tax, and 1% local hotel tax).
What happens if I rent my property out to college students?
Let’s say you rent out your summer cottage by the week during the summer, then rent it out to URI students for the school year (September through May). In this case, there is no tax due for the rental during the school year, but you must register with the Division of Taxation and collect and remit the 7% sales and 1% hotel taxes for the weekly rental periods during the summer.
If you do not rent out a property that you own, but use it for the entire summer, and then rent it out each year to URI students (September through May), you are not required to register, collect and remit taxes.
What do I do if the law applies to me?
In order to comply with the rental rules, there are several things you must do:
- Register with the Rhode Island Division of Taxation for a sales tax permit, which requires you to fill out the “Business Application and Registration” form, or BAR, located on the Division of Taxation’s website. *Note that you do not have to fill out all parts of the form. (Check out a highlighted version which indicates what parts you must fill in.)
- Pay an annual $10 sales tax permit fee (renewals are due February 1st)
- Collect and remit the sales taxes and hotel taxes
How do I remit taxes to the Division of Taxation and how often do I have to do it?
The taxes you collect from any and all tenants must be remitted to the State of Rhode Island.
- If you provide short-term residential rentals throughout the year, you must file a monthly sales tax return and a monthly hotel tax return
- Do you rent out only seasonally? In this case, you are only required to file a monthly sales tax return and a monthly hotel tax return for the months during which you rent.
When are payments generally due?
Monthly sales and use tax returns and payments and monthly hotel tax returns and payments are due on or before the 20th day of the month after the rental.
Are there penalties for not registering?
The DOR announced publicly that there will be no criminal prosecutions for failure to comply with the taxes for the first fiscal year, which ends on June 30, 2016.
However, come July 1st, 2016 the DOR will impose late filing fees, fines, interest of 1.5% per month (18% per year) and other penalties.
As mentioned above, the BAR is essential in the short-term rental tax compliance process. This only has to be filed once. Besides that, here are some important links for you as you navigate through the process:
Form RI- 8478- Residential Dwelling/Room Rental Tax Return (filed each month, if applicable)
Form T-204M- Sales and use Tax Return Monthly (filed each month, if applicable)
Annual sales tax return- Form T-204R (filed annually in January for the prior year)
Sales permit renewal (due February 1st for the year beginning July 1st)
Renting out your summer home is often an easy way to make some extra money, but be mindful of your obligations to collect taxes and remit them to the state. Contact a member of our team for more guidance.