For most people, being a host is the easy part of running a vacation rental business. It’s similar to welcoming people into your own living space where you clean before they arrive, make their room look homey, and turn up the hospitality.
What confuses people the most is the back office portion of the business. Figuring out the management and what taxes to pay can feel a bit overwhelming, especially when first starting out or opening a new rental location.
Let us help you make a part of your setup portion easier by telling you all you need to know about the transient occupancy tax in California. Once you master this, then that’s one less thing to worry about when tax season comes around.
What is transient occupancy tax?
Every state in the United States has some sort of occupancy or hotel tax. In California, this type of tax is called the transient occupancy tax, or “TOT” for short. In legal terms, transient occupancy means any person who rents a place to stay for less than 30 days per calendar month by reason of concession, permit, right of access, license, or other agreement.
So, it’s needless to say that short term rentals fall under this category. The percentage that needs to be paid, however, changes depending on where your vacation rental is located. Each city and county will have different amounts that need to be paid due to higher tourism levels or local housing requirements and necessities.
Who pays the transient occupancy tax?
The transient occupancy tax is charged to the people who stay in the place of occupancy. In the case of vacation rentals, that would be your guests. Once your guests pay the tax to you as a part of your taxes and fees section in check out, the owner or operator of the rental will then collect, report, and pay the tax to the government.
In some counties, this tax can be paid online in a special reporting section, but in other counties, you will pay the amount as a part of your quarterly taxes. Make sure to check what the payment standard is in your area.
Transient occupancy tax rates in California
The transient occupancy tax is exclusive to the state of California, even though similar taxes exist in other states. The best way to know for sure what your exact tax percentage is by researching the rates for your city or county.
California is a large and diverse state with many bustling cities, mountains, forests, and deserts, which also makes it a popular vacation destination for both domestic and international tourists. Let’s take a look at the TOT rates for some of the most popular tourist destinations in the state.
Los Angeles
As the biggest city in the state known for its sunshine and the entertainment industry, it’s safe to say that crowds of visitors come to LA during all times of the year.
The City of Los Angeles Office of Finance is in charge of the collection and administration of the TOT. Within the city of LA itself, the transient occupancy tax stands at 14% and applies to every property that is rented to transients.
As a host, you must register, collect, and remit this tax to the city. You must also apply for a Transient Occupancy Tax Registration Certificate within the first 30 days of starting your business.
If your LA rental is rented through Airbnb and located within the city, then the platform will collect and remit this tax on your behalf, so nothing needs to be done if you are only renting through Airbnb. If you are receiving direct bookings or bookings through any other website, then you will need to process TOT yourself.
San Francisco
Coined “the city by the bay” and known for its rolling hills, redwood forests, and the closeby Silicon Valley, San Francisco is a stop on the list for any California trip.
The transient occupancy tax rate in San Francisco is 14% and is remitted based on the month or year that the occupancy occurs, meaning if someone pays a month in advance, you will only pay the tax for the month that the guests are staying in the unit.
In order to pay the tax, hosts must obtain a Certificate of Authority from the Office of the Treasurer, which grants the right to collect the tax amount from guests. This certificate is issued per each “hotel”. Hosts must also have a current Business Registration Certificate to signify the state of their business in the city.
San Diego
Known for its miles of beautiful coastline, warm weather, and laid-back surfer vibes, San Diego is your typical Southern California experience.
The TOT in the city of San Diego is 8% of the rent and must be collected by the operator at the time of payment. This tax is collected quarterly by the government and needs to be paid within one calendar month of the end of the reporting period.
You must register and obtain a certificate from the Office of the Treasurer for your business in order to pay your transient occupancy tax. It’s important to note that when sending in your tax, your mail must be postmarked by the due date to avoid penalties.
San Jose
The third biggest city in California located in the heart of Silicon Valley with the most millionaires per capita, San Jose receives many work trip visitors each year.
San Jose has a TOT of 8% of your property’s rental price and must be paid on or before the start of the next month. You are required to register your business within the first 30 days of your first rental and can pay the TOT either by mail or in person.
Lake Tahoe
Straddled on the border of California and Nevada, Lake Tahoe is a large freshwater lake in the Sierra Nevada Mountains and home of the 1960 winter Olympics. It remains a popular tourist destination for outdoor activities, such as skiing, hiking, and swimming. Properties located on the California side of the area will be expected to comply with transient occupancy tax rules.
The transient occupancy tax is 10% of the rent, and in the case of specific redeveloped properties, it is 12% of the rent. Tax reporting forms are remitted to the city by the 15th of each month.
Palm Springs
A desert city known for its hot springs, golf courses, spas, and proximity to the Coachella Valley, Palm Springs attracts campers and outdoor enthusiasts as well as those who want to soak up the desert heat by the pool.
There are two transient occupancy taxes in the city of Palm Springs. For group meeting hotels, the rate is 13.5%, and for all other hotels, vacation rentals, and agencies, the TOT rate is 11.5%.
Your TOT return must be provided each month, even if your rental did not have any guests for the entire month. You can submit your TOT payment online, so there is no worry about postage.
California transient occupancy tax exemption
Finding the pricing sweet spot of maximizing both profits and bookings can be a hard task. Of course, you have to follow the rules and tax regulations when running your vacation rental, but there’s always a concern that too many fees on top of your nightly rate can discourage a potential guest from booking with you.
The average traveler will have to pay the TOT to stay at your California rental, but there are some guests who might qualify for a tax exemption in your area. Each city and county can have its own exemption rules, so be sure to read the fine print for your specific location.
Most transient occupancy tax ordinances have the exemption for “any person as to whom, or any occupation as to which, is beyond the power of the city to impose the tax.” Because it is written so broadly, who qualifies for this exemption will depend on your city.
Many cities will also include the exemption for “any federal or state employee when on official business”. Some cities, however, do not include state employees in this exemption, so if you are hosting a state employee, be sure to check if they will have to pay the tax or not.
Summing up, the California transient occupancy applies to most guests and travelers throughout the state of California. If you want to know exactly which guests are exempt from paying the tax, then you will have to look into the tax code for your city.
What is the transient occupancy tax used for?
Originally, the transient occupancy tax was used to compensate the local government for the increased need for public services that come with an influx of tourists. The city must provide visitors with public transportation, street cleaning, garbage collection and so forth.
Today, the TOT is a stable source of general fund monies for the state of California. Cities can choose what percentage to levy on visitors through a vote and can also specify where to allegate their funds from the tax.
If you are the host or manager of a vacation rental in California, you will be responsible for collecting the tax from your guests and paying it on time to the local government. It’s important to carefully read the TOT rules for your city to make sure that you are charging the correct amount to your guests.
Additional FAQs about the TOT in California
As with all tax and legal information, the language and wording can be a bit tricky to understand. Let’s go over the terms to break down the basics of what you’ll need to truly comprehend the meaning of the TOT.
What is the definition of “hotel”?
The transient occupancy tax is sometimes referred to as a “hotel tax” because traditionally it only applied to hotels. In the eyes of the law, a hotel in this case is any structure that is built to house transient guests, which includes vacation rentals.
The establishments that are considered hotels are: hotels, motels, inns, tourist homes, studio hotels, bachelor hotels, lodging houses, rooming houses, apartments, dormitories, public or private clubs, mobile homes, or any similar type of structure.
What happens if you rent your home for more than 30 days?
TOT is applied to people who rent a place to stay for less than 30 days, so do you still have to charge guests for staying more than 30 days? The short answer is no.
If there is a written rental agreement between the guest and the homeowner made within the first 30 days of the stay that states the stay will last longer than 30 days, then TOT doesn’t apply. Only under this circumstance are you exempt from paying the tax, otherwise, you have to pay.
