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South Carolina Has a New Law Targeting Unpaid Taxes on Vacation Rentals

Jun 23, 2014 2:30 pm

Skift Take

Renters should expect to see a small bump in prices as owners seek to pay what’s due and avoid penalties by the state.

— Jason Clampet

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Lee Coursey  / Flickr

A vacation home in Hilton Head, SC. Lee Coursey / Flickr


South Carolina has a new law aiming to crack down on homeowners who rent their properties to tourists but don’t collect accommodations and sales taxes, a problem local tourism leaders say has grown since the Great Recession.

The Fairness in Lodging Act, introduced by Sen. Ray Cleary and signed by Gov. Nikki Haley earlier this month, gives cities and counties more means to go after homeowners they suspect aren’t collecting the required taxes by sharing info on them with the S.C. Department of Revenue, giving notice in property tax bills, assessing fines and asking “rental by owner” websites to post that the rentals must include local and state taxes.

Supporters of the law say it will help local and state governments collect taxes they are owed. It also could take away an advantage homeowners who don’t collect the taxes have over rental companies in price, they say. Horry County officials don’t know how much money the county might be missing out on, and a county committee plans to talk about the new law in early August.

“Because tax avoiders don’t identify themselves, it’s difficult to quantify the impact but we estimate there are several million dollars of taxes owed but not paid,” said Brad Dean, president of the Myrtle Beach Area Chamber of Commerce, which supports the new law. “The Fairness in Lodging Act won’t end tax avoidance, but it will enhance the ability of local and state government to enforce the law and collect taxes owed by commercial property owners.”

The Grand Strand, which gets 15 million visitors annually, is a hub of all kinds of lodging properties, from traditional hotels and condotels to campgrounds and vacation home rentals. The vacation rentals segment has grown in recent years as more homeowners have started renting their properties to tourists to help cover costs or make extra money, and the growth of online booking sites such as VRBO.com have given them a means to do it.

“The recession prompted a lot of property owners to look for alternative methods to promote property rentals, including VRBO, and this is only problematic when they choose to avoid paying taxes owed,” Dean said. “The Fairness in Lodging Act addresses an issue of tax avoidance that has grown progressively worse in recent years and creates a very unfair situation.”

Horry County Treasurer Roddy Dickinson said he doesn’t know how much the county is losing in revenue because of the uncollected taxes. The county’s Administration Committee is set to discuss the Fairness in Lodging Act on Aug. 1, he said.

“It was important that S.C. Legislature recognize the loss of tax revenues from this segment of our economy and pass legislation that enhances our ability to collect this revenue,” Dickinson said. “Anytime you have coordination between state and local governments, this benefits us all.”

Many homeowners who rent properties use websites such as VRBO.com and HomeAway.com to connect with renters looking for a place to stay. Myrtle Beach has pages and pages of vacation rental homes featured.

Owners or property managers who advertise on HomeAway websites agree to abide by the laws and rules that apply where they are renting, said Carl Shepherd, cofounder and chief strategy and development officer with HomeAway, which operates HomeAway.com, VRBO.com, vacactionrentals.com and several other websites. HomeAway is not a party in any of the transactions that occur between the owner and the renter, Shepherd said.

“Regulations vary from city to city, therefore making it impossible for HomeAway to track and share them with our owners and property managers in every market,” Shepherd said. “We cannot monitor whether or not taxes are being collected and remitted and we will not violate our privacy policy by sharing personal information about our customers.”

Dennis McElveen, broker in charge at vacation rental company Garden City Realty, said homeowners who don’t collect the taxes have an immediate advantage over companies like his and he welcomed any action that would help stop it.

“Then at least we are all playing by the same rules,” he said. “It is a huge problem around the state. We’ve got millions of dollars in taxes not being collected.”

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