Are You Up to Speed?

Are you up to speed on the new tax on short-term, private home rentals?

A few months ago, the General Assembly approved a new tax in the Governor’s budget on short-term, private home rentals. Since July 1st, any homeowner or rental agent that rents all or part of a cottage, home or other residence for 30 days or less is required to apply for a sales tax permit with the Rhode Island Division of Taxation and pay a tax on the rental proceeds. Those who rent an entire home now owe an eight percent tax; those who rent part of a home – one or two rooms for example – owe 13 percent. Rentals of more than 30 days per tenant are not subject to the new tax, nor are month-to-month tenancies, nine-month rentals and one-year leases as long as there is a written rental agreement. In addition, any rental completed by December 31, 2015 is exempt if the rental contract was signed prior to July 1st of this year.
Property owners, landlords and rental agents should be aware that there is no minimum threshold for this tax to take effect. If a property is rented for one day per year, the taxes would apply. Once a property owner files with the State, returns must be filed monthly whether or not taxes are owed for that month unless the homeowner or rental agent has indicated on their tax permit application that they rent seasonally only. In that case, they need to file only during the seasonal months indicated on the permit. The taxes are due to the Division of Taxation by the 20th of the month following the collection of rental income.
To make matters a bit more complicated, only part of the tax is filed with the Rhode Island Division of Taxation. If a property owner owes the eight percent tax, seven percent goes to the State as sales tax, one percent is paid to the city or town as a local hotel tax. The same holds true for those who owe 13 percent for renting part of a home but they must also pay an additional five percent state hotel tax.
The Rhode Island Division of Taxation plans to check Craigslist and similar sites and cross check the rental income that taxpayers declare on the federal tax filings. Failure to submit the new taxes could result in up to one year imprisonment and/or financial penalties of up to $5000 per occurrence. Though the Rhode Island Department of Revenue announced publicly that there will be no criminal prosecutions for failure to comply for the first fiscal year which ends on June 30, 2016, it will impose late filing fees, fines, interest of 1.5% per month and other penalties.

Anyone looking for more information or answers to frequently asked questions can visit the Rhode Island Association of Realtors’ website at www.riliving.com/rentaltax.

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