lodging tax

When a third-party intermediary is involved, who’s responsible for collecting sales tax?

Under most circumstances, the rental of living quarters in Maine is subject to Maine sales and use tax. Nowadays, it’s quite common for transient lodging to be booked through third-party intermediaries, such as Airbnb and HomeAway, or online travel companies like Expedia. While this may have simplified travel planning for the masses, it’s also complicated tax compliance for businesses in the lodging industry. When a third party is involved, who’s responsible for collecting and remitting the taxes owed: the intermediary or the operator?

Recognizing that this is an area ripe for confusion, Maine Revenue Services (MRS) has published a notice clarifying how to handle sales tax when lodging is booked by a third party.

Intermediary responsibilities

Intermediaries are required to register with MRS and “collect and remit sales tax on the total amount billed to the customer, exclusive of the sales tax.” In addition, the intermediary must provide the operator with a valid resale certificate.

Airbnb has been collecting sales tax on behalf of its Maine hosts since April 1, 2017.

Operator responsibilities

Operators are required to register with MRS and report the value of all rentals and related charges, including those booked through an intermediary, as gross sales on their sales tax returns.

For sales made through an intermediary, operators must obtain a resale certificate from the intermediary and report those transactions as exempt sales on sales tax returns.

The operator must collect and remit tax for any taxable transactions not handled by the intermediary, such as separate charges for room service or extra nights. However, the operator isn’t required to collect tax on charges for extra services considered part of the rental of living quarters (e.g., cleaning fees, pet fees, penalties for smoking in a nonsmoking room) when lodging is booked through an intermediary.

More details are available on this MRS notice.

Living quarters

Taxable rental properties in Maine are “any building or structure kept, used, maintained, advertised as, or held out to the public to be a place where living quarters are supplied for pay to transient or permanent guests or tenants.” They include everything from traditional hotels to vacation rentals and watercraft. Furthermore, MRS reminds, “A property does not have to be advertised or held out to the public at large in order for rentals of the property to be taxable.”

There are, however, exceptions to this rule. Sales tax does not apply to charges for:

  • Casual rentals for fewer than 15 days
  • Continuous occupancy of 28 days or more
  • Gratuities and service charges, when voluntary and separately stated from the sales price
  • On-site living quarters furnished to employees when credited toward the employee’s wages
  • Certain other rentals

MRS Bulletin 32 (updated Aug. 17, 2016) provides additional information regarding the taxability of lodging in Maine, as does this MRS webpage.

Tax automation software facilitates tax compliance for individuals and businesses in the lodging industry. Learn more.