Short-Term Solution

VRBO recently started paying taxes directly to South Carolina and local governments on behalf of the property owners who list through them. Competitor Airbnb has been handling state taxes since 2016, but its property owners are responsible for paying local taxes themselves.

Short-term rental rates in the Lowcountry include an 11% accommodations tax; 8% goes to the state and the municipality gets 3%.

Property owners must pay a penalty for late payments.

Tyson and Marie Zahner, who have an Airbnb Plus vacation rental in Shipyard Plantation on Hilton Head Island, said it is beneficial to both the homeowners and municipalities when the marketplaces handle the taxes.

“These platforms are doing us a service,” Marie Zahner said.

The short-term rental industry has ballooned in recent years thanks to web-based marketplaces like VRBO and Airbnb, said Rob Stephens, general manager and co-founder of Avalara MyLodgeTax, which developed the tax software used by the marketplaces.

According to Airbnb, the number of Lowcountry visitors staying in short-term rentals has almost doubled in recent years. Last year, the website said, Beaufort County property owners collected $15.4 million in rental fees from 86,000 guests — up from 46,000 guests in 2017.

“Short-term vacation rentals have reached a point of ubiquity in the U.S., and tax regulation is beginning to catch up,” Stephens said. “As each state figures out how it plans to tax these properties — and what constitutes a short-term rental — VRBO and Airbnb are working with them to put in place a system for tax collection and remittance.”

The popularity of these rental marketplaces has caused a shakeup in the hospitality industry — and a lot of tax confusion.

“Collecting and remitting hotel taxes can be incredibly complicated,” said Airbnb spokesman Sam Randall. “The rules were designed for traditional hospitality providers and large hotel corporations with teams of lawyers and accountants.”

To help navigate those tax laws, Airbnb partners with more than 400 local governments to collect and pay taxes on its rentals, he said.

Locally, VRBO’s move could be significant for Hilton Head, where tracking vacation rentals is tough. The island has thousands of rentals that constantly change hands or whose use changes, said Town of Hilton Head Island finance director John Troyer. Making sure people are in compliance with tax law is difficult, he acknowledged.

“We have a vast majority of owners who want to comply,” he said, “and (who) want to get it right.”

The best way for owners to do that, the experts said, is to work with their short-term rentals marketplace to understand its processes.

“Homeowners must absolutely be diligent about knowing what their tax liabilities are and ensuring they have a system in place to collect and remit those taxes,” Stephens said.

Of course, taxes aren’t the only legality to be considered. Short-term-rental hosts in the town of Bluffton, Town of Hilton Head Island and unincorporated Beaufort County also need to have business licenses.

In Bluffton, 64 business licenses have been issued for short-term rentals, according to town spokeswoman Debbie Szpanka. A portion of those property owners pay accommodation tax on gross receipts on those rentals, she said. The exceptions are property owners who live on the premises or who have fewer than six bedrooms.

And some Lowcountry communities — including Leamington, Port Royal Plantation and Hilton Head Plantation — forbid short-term rentals, so owners should check with their homeowners associations before listing their properties.