​Area Residents Who Rent Homes May Owe Hotel Tax

by Leslie Lytle, Messenger Staff Writer
Franklin County’s recent hotel-motel tax audit found individual property owners who might fall under the “Hotel, Motel, and Campground Transient Occupancy Tax” statute enacted in 1988.
Citing the opinion of county attorney Ben Lynch, County Trustee Randy Kelly said the statute “applies to any lodging used for sleeping purposes.”
The statute levies a 7 percent tax on property owners who rent lodgings, whether a home, room, or just a bed, for less than 90 days.
Following up on the audit findings, County Finance Director Andrea Smith compiled a list of property owners who might owe the tax by referencing VRBO (Vacation Rentals By Owners) and other websites advertising private homes for rent.
Charged with collecting the tax, Trustee Kelly sent notices to more than 130 homeowners.
Kelly concedes prior to his sending the notice, “There’s no way folks would have known about the tax.”
“The purpose of the notice was to let folks know the guidelines,” Kelly stressed. “This is not a bill.” He urged those who felt they fell under the guidelines outlined in the notice to contact the trustee’s office.
“There’s no way for us to know if those who received notices are still renting and if they do it for a day or month or year,” Kelly said.
This was the case with Sewanee resident Ed Hawkins. “I don’t rent short term anymore,” Hawkins said, “but when I did, I listed it on the Sewanee Gateway website, and in the Messenger.”
“I was surprised when I received the notice,” said Jerrie Lewallen. She and her husband Tom occasionally rent their home, but are careful to stay under the 14-day minimum set by the IRS, which exempts homeowners from reporting rental income. Tennessee’s personal income tax only applies to investment income.
Lewallen also pointed to the December 2015 opinion of Tennessee Attorney General Herbert H. Slatery III who said, “individuals who rent their homes on a short-term basis infrequently or irregularly or only once are not responsible for collecting or remitting the sales tax…[but] The statues authorizing localities to collect a hotel occupancy tax do not contain an exception for ‘occasional and isolated sales or transactions.’”
“My argument is if the 14-day rule applies for income tax, and sales tax has a frequency exemption, a frequency exemption should also apply for the Hotel Tax,” Lewallen said. “We’re going to stop renting.” Lewallen expressed concern reporting short-term rental income could open them up for complying with the American Disabilities Act and other regulations.
Lewallen also questioned the Hotel Tax provision that called for a 1 percent per month penalty for late payment, with the tax due on the 20th of each month.
“My suggestion is to just let people start from when they found out about the tax,” Kelly said. “The commissioners I talked to seemed to feel the same way.” According to Kelly, Finance Director Smith shares this position. Finally, though, the decision falls to the county commission.
Sewanee resident Susan Holmes and her husband Greg Maynard frequently rent their home. “Most of us who rent short-term do it to piece together an income in a company town,” Holmes said. “I knew about the Hotel Tax, but I didn’t think it applied to us.”
“In many places the local government has started enforcing the Hotel Tax because motels and hotels are upset about the competition,” Holmes said, “but competition isn’t an issue here.”
Lewallen agreed. “In our community, there’s no place for people to stay. It doesn’t hurt the motel industry.”
Holmes contended collecting the Hotel Tax from individual property owners “will cut the tax base rather than increase it.”
Like Lewallen, other area residents have decided to stop offering lodgings for rent. “I’m not going to rent my two rooms anymore,” said a resident, who chose to remain anonymous.
Winchester also levies a Hotel Tax. “Winchester collects the tax within the city limits, and the county collects the tax outside the city limits,” Kelly said. “All income generated by the county tax goes to rural fire departments and is split evenly regardless of size.”
A 1988 state law ended the practice of private acts authorizing a lodging tax where another local government already had one, but the General Assembly has authorized numerous exceptions allowing for overlapping taxes. In some areas, city and county hotel taxes combine with sales tax for a total tax rate exceeding 19 percent.
Typically the General Assembly caps the county tax at 5 percent, but the rate varies from 2 percent to 7.5 percent.
According to Carolyn Kilgore with the Grundy County Clerk’s office, Grundy County enacted a 5 percent Hotel Tax in 2016. The law applies to homeowners when their renters are not permanent residents.
Monteagle enacted a Hotel Tax more than 30 years ago. “The tax doesn’t apply to short-term house rental unless the owners rent on a regular basis,” said City Recorder Debbie Taylor.
“I knew when I sent the notices I’d create a monster among folks who didn’t have a clue about the tax,” Kelly said.