Short-term rental owners who don't use a property management company have been on notice since 2010 that the Town of Hilton Head Island wants them to pay their share of local and state accommodations taxes.
They shouldn't be surprised when the town comes to collect unpaid taxes.
An enforcement effort this year netted Hilton Head about $150,000 in back taxes and penalties in local accommodations taxes, which total 3 percent. The town also plans to notify the state Department of Revenue, which collects a total of 7 percent in sales taxes on short-term rentals. That includes a 2 percent tax that helps pay for critical tourism industry marketing and provides money for local nonprofit tourism and arts groups.
The Accommodations-Tax Recovery Project team (two summer interns paid a total of about $7,600) 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, email or phone to ensure they were paying the required bed taxes.
As of last week, 262 new residences were registered with the town as bed-tax-paying, short-term rental properties, a 135-percent increase from 2011. Town officials are still pursuing about 800 of the 1,700 properties identified as being properties of interest.
"We believe that there have always been some issues with not having complete compliance with (bed 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 ... taxes," said Susan Simmons, the town's finance director.
The push to collect from rent-by-owner units is on top of efforts to collect from Internet travel sites.
In January 2011, the state Supreme Court ruled that the total amount online travel companies charge a person booking short-term lodging is the amount on which taxes are owed.
Companies, such as Travelscape, had argued that the room price they paid a hotel was the amount that the taxes should be applied to. The difference between that rate and the amount a customer paid for the room was a service charge and not subject to the tax.
But the court said no. Accommodations taxes apply to gross proceeds and the definition of gross proceeds does not allow for subtracting the cost of "materials, labor or service."
It's only fair, and these taxes are an important component of paying for key public safety services, such as police and fire and rescue protection, needed for the large number of visitors who travel here. On Hilton Head, it also pays for beach renourishment.
The town is right to seek out these property owners and get them to pay up.