The free tax ride may be over for vacation rental owners listing their properties on sites such as VRBO and HomeAway.
The Town of Hilton Head Island has collected about $150,000 in back taxes and penalties since July from property owners who didn’t pay local accommodations taxes.
An effort to identify residential properties being used for short-term rentals without reporting proper taxes began in May when the town hired two summer interns to search for noncompliant rental properties.
The Accommodations-Tax Recovery Project team identified about 1,700 rental properties of interest by searching self-rental sites, primarily Vacation Rentals by Owner (VRBO.com), and checking Beaufort County property records. Property owners were then contacted by mail, e-mail or phone to ensure they were paying the required accommodations tax.
“We believe that there has always been some issues with not having complete compliance with A-tax rules, but with the onset of Internet rental sites, we think it’s become prevalent for (property owners) to do it on their own and to avoid paying property taxes,” said Susan Simmons, town finance director.
VRBO.com currently lists 3,198 rental properties on Hilton Head Island; HomeAway.com, a similar site, contains 1,594 listings on the island.
Simmons said there’s potential to work with companies like VRBO to increase compliance, but there hasn’t been significant correspondence about it between the town and the company.
The accommodations tax, commonly called an “A-tax” or “bed tax,” is a 3-percent local tax on overnight lodging. Two percent of it is used for beach preservation, and 1 percent is used by the town for additional public safety services for tourists.
Delinquent property owners are required to pay back taxes for the current year and up to two years prior, plus a 5-percent-per-month penalty on the taxed amount.
Property owners required to pay the bed tax include those who rent out a second home or rent out their primary home when they’re away.
Rental companies that oversee short-term rental properties often manage bed-tax payments for the property owners.
People who rent more than one home are required to register for a business license, whose fees start at $75.
The team targeted particular areas with many rental properties, including North and South Forest Beach, the South Beach area of Sea Pines Resort and the villas and oceanfront properties in Palmetto Dunes, said Simmons.
The interns, Eric Wooster, a junior at Clemson, and Kaitlin Gill, a junior at the University of South Carolina in Columbia, were paid a combined total of about $7,600, according to Simmons.
As of Friday, 262 new residences were registered with the town as bed-tax-paying, short-term rental properties, a 135-percent increase from 2011.
The amount will likely continue to rise, said Bruce Seeley, the town’s inspections, collection and audits manager.
“We’ve had so many responses that we haven’t had a chance to catch up yet,” he said.
Town officials are still pursuing about 800 of the 1,700 properties identified as being properties of interest.
The town also cracked down on bed-tax evasion in late 2010 and early 2011 and collected $110,000.
In addition to the town’s taxes, the state charges a 2-percent accommodations tax and a 5-percent sales tax on overnight stays. The town did not attempt to collect the state tax, but Simmons said that it notified property owners they might also owe it. She also said that the town will pass on the addresses and contact information of unpaid property owners to the state Department of Revenue.
“These efforts are helpful to the state and local governments to ensure equity in the payment of taxes,” said Samantha Cheek, a spokeswoman for the Department of Revenue. ___
Get breaking news, analysis and data from the week’s most important stories about short-term rentals, vacation rentals, housing, and real estate.
Have a confidential tip for Skift? Get in touch