By Cherie R. Wright, CPA, CGFM, Director
Sedona AZ (February 9, 2017) – This past year the state legislature adopted Senate Bill 1350, which prohibits local jurisdictions from banning the rental of residential properties for less than thirty days. SB 1350 became effective on January 1, 2017. Updates to the Sedona City Code have been made to remove the restrictions on these short-term rentals and to address regulatory issues concerned with the public’s health and safety.
Short-term rentals [also referred to as transient lodging] are business activities that are subject to the city tax code and business license ordinance. Transient lodging falls under the hotel category for tax purposes. In the tax code, the definition of ‘hotel’ includes structures such as houses, apartments, trailers, and other lodging places that the owner furnishes as lodging to any transient for compensation. The term ‘transient’ refers to any person who rents lodging space for less than thirty consecutive days. For exact definitions of these terms, refer to the tax code at SedonaAZ.gov/CityTaxCode.
The city’s total transaction privilege tax rate [also referred to as sales tax] on transient lodging is 6.5%, which is comprised of the 3% base sales tax rate plus the bed tax rate of 3.5%. Additional sales taxes are due to the appropriate county and the state.
Prior to conducting business as a transient lodging facility, business owners [typically property owners for short-term rentals] must obtain a business license if the business is physically located within the city limits. There are also criteria requiring a license for businesses with locations outside of the city limits that have an obligation to pay transaction privilege taxes to the city, but this would not be applicable for short-term rentals.
The fee for a new business license application is $50. Thereafter, the annual renewal fee for a business license is $25. The application form is available online at SedonaAZ.gov/BusinessLicense or in the Financial Services Department at City Hall, 102 Roadrunner Road in Building 106.
Business license applications for short-term rentals must include an emergency point of contact including a telephone number at which an immediate, 24-hour response may be obtained to address issues such as accidents, medical emergencies, natural disasters, law enforcement responses, or other serious incidents that require immediate attention at the premises. The emergency contact information must also be posted in a prominent and visible location inside the transient lodging establishment.
Business licenses are issued based on location. Business owners [generally property owners] with more than one short-term rental location must obtain a license for each separate location.
Some online lodging marketplaces such as AirBnB will be collecting and remitting the sales taxes, but property owners are responsible for obtaining the appropriate business licenses and the transaction privilege tax licenses required by the state. All sales taxes must now be remitted directly to the state, and the Arizona Department of Revenue will require business owners [property owners] to file a tax return even if the amount owed for a particular tax period is zero. If lodging is not rented through an online lodging marketplace that is remitting the tax on the business owners’ [property owners’] behalf, the business owners [property owners] will need to collect and remit the sales taxes as required.
With this significant change in the legislation, there are still issues being addressed both at the state level and at the city level. If you have questions about licensing or taxes, contact the Financial Services Department at 204-7185.