October 16, 2015
Dear *****:
This is in response to your request for clarification on the application of the Retail Sales and Use Tax to vacation home rentals. You contend that the tax does not apply to these transactions because: 1) vacation home renters are not transients within the meaning of the statute; 2) the statute applies only to rentals of less than an entire house; 3) the statute is aimed at entities fully engaged in renting, rather than individuals; and 4) the statute does not specifically enumerate vacation home rentals as subject to the sales and use tax. You also ask whether an accommodations provider who furnishes vacation homes for rental on a seasonal basis (i.e., six months out of the year) would be exempt from the sales and use tax collection requirements.
ANALYSIS
Code of Virginia § 58.1-603 imposes an obligation to collect the Retail Sales and Use Tax upon any person who "engages in the business of selling at retail or distributing tangible personal property in this Commonwealth, or who rents or furnishes any of the things or services taxable under this chapter." The sales and use tax is imposed on the "gross proceeds derived from the sale or charges for rooms, lodgings, or accommodations furnished to transients as set out in the definition of ‘retail sale.’” Va. Code § 58.1-602 defines ‘retail sale’ to specifically include "the sale or charges for any room or rooms, lodgings, or accommodations furnished to transients for less than 90 continuous days by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place in which rooms, lodging, space, or accommodations, are regularly furnished to transients for a consideration."Emphasis added. The term "transient" is defined to specifically exclude "purchasers of camping memberships, time-shares, condominiums, or other similar contract interests that permit the use of, or constitute an interest in, real estate.
The Department of Taxation has long held that this statutory language imposes an obligation upon renters of vacation residences to collect the sales and use tax on transactions in which the rental accommodations are furnished to transients for fewer than 90 continuous days, and the transient has not obtained an interest in the property. For example, in Public Document ("PD") 08-37 (April 10, 2008), a real estate company engaged in the rental of vacation beach homes in Virginia was required to collect the Retail Sales and Use Tax on vacation rental transactions, but not on separately stated charges for travel protection insurance. While the ruling was intended to address the taxability of the separately stated insurance charges, the Tax Commissioner began his analysis from the premise that the vacation home rental constituted a taxable accommodation, for which the taxpayer would be required to collect the sales and use tax. Similarly, in PD 13-103 (June 13, 2013), the Department's Guidelines issued to explain the 2013 sales and use tax rate increase, the Department used an example of a taxable summer home rental transaction in Virginia Beach to demonstrate when taxpayers should apply the 5% rate and when the new 6% rate should be applied. Additionally, the Department has rejected the contention that the term "transient" is limited to those people without a permanent place of residence. The Department has interpreted the term "transient" as "passing through or by a place with only a brief stay or sojourn, and thus refers to the length of time someone is at a particular location, and not whether they have another place of residence. See PD 85-198 (October 15, 1985).
Furthermore, nothing in the statute limits the application of the tax to property rentals that are not houses, property rentals that are furnished only by businesses, or only those properties that are specifically enumerated in the statute. Instead, the statute applies to the rental of any "room, rooms, lodgings or accommodations... by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place," which appears to contemplate the broad inclusion of any rental space by any persons or businesses engaged in the rental of any such accommodations for a period of 90 days or less.
Finally, with respect to your question regarding an exemption for seasonal home renters, there is no such exemption from sales and use taxes in Virginia under current law. As set forth in PD 87-222 (October 14, 1987), it is not necessary that the accommodations offered by a taxpayer be provided on a continuous basis in order for them to be considered furnished "regularly" within the meaning of the statute. Rather, such accommodations need only be offered with some frequency, such as on a weekly, monthly, seasonal, or some other recurring basis to be considered furnished regularly.
CONCLUSION
I hope this has responded to your questions as to the sales and use tax implications of vacation home rentals. The Code of Virginia provisions and Public Documents cited, along with other reference materials are available online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's website. If you have any questions about this determination, you may contact ***** in the Department's Policy Development Division at *****.
Sincerely,
Craig M. Burns
Tax Commissioner