Airbnb hosts and guests in Mississippi are now facing higher taxes due to an update in Mississippi Department of Revenue regulation.
Airbnb, which allows property owners to easily rent out rooms in their homes, helps many Mississippi residents generate extra income. Previously, most Mississippi Airbnb hosts only paid income tax, but the Mississippi Department of Revenue says they should have been paying sales tax, too.
On September 28, the Mississippi Department of Revenue updated its hotel sales tax regulation to clarify that Airbnb and other similar short term-lodging is subject to taxation because they fall under the official definition of a hotel.
“Our job is to make it more clear so that Mississippi residents are compliant,” Mississippi Department of Revenue representative Kathy Waterbury said. “So many people were not aware that their Airbnb involvement made them taxable for hotel sales tax. This has always been the case since we made the policy in 2007, but we just clarified it so people know.”
In response, on October 1, Airbnb started collecting a seven percent sales tax plus any applicable local taxes and remitting the funds to the state of Mississippi.
“Guests will be charged the appropriate taxes during their transaction on the Airbnb platform,” Crystal Davis from Airbnb said.
R.J. Morgan, an Airbnb host in Oxford, Mississippi, said that the requirement to pay income tax was always clear because Airbnb sends official tax information to its hosts in an official Internal Revenue Service document. However, he did not know about the sales tax requirement.
This lack of education seems to be a shortcoming of Airbnb’s education of their hosts.
Previously, Airbnb hosts were supposed to file their Airbnb-related income as income tax, which Airbnb clearly communicated to its hosts, and to file their Airbnb revenue as sales tax, which remained unmentioned. This was unclear to many of the involved parties.
Many hosts believed that when they registered with Airbnb, they had completed their registration as an entity that was subject to taxes. According to Waterbury, though, this is not the case. Airbnb hosts were supposed to file and pay sales tax on their Airbnb revenue just like any other private business. This was not clarified anywhere until the Department of Revenue updated its policy.
Now, to make the requirements more user-friendly for Airbnb guests and hosts, the appropriate sales tax will be collected by Airbnb directly at the time of payment.
The income that results, though, must still be filed by individual Airbnb hosts, as the regulation and Airbnb always indicated.
In a news release, Will Burns, Public Policy Director for Airbnb in Mississippi commented on the positive effects of this change.
“With 1,200 Airbnb hosts across the state of Mississippi, we look forward to the important economic benefits this new agreement will bring to local resources, communities and families,” said Burns. “Being able to collect and remit taxes on behalf of our hosts and guests will help Airbnb’s community pay their fair share, is a win-win for Mississippi’s growing popularity and will create an additional stream of revenue from the state’s tourism industry.”
Waterbury said she cannot comment on whether or not action will be taken in response to their realization that some Mississippians had unknowingly avoided paying taxes.
In 2016, Airbnb hosts provided lodging for 25,000 guests and earned $3.5 million in profit. With the clarification in regulation and Airbnb’s collection of the sales taxes, Mississippi looks to gain an extra $245,00 in state revenue.