Nearly half of U.S. vacation rental operators admit they're only "somewhat confident" their businesses comply with lodging tax regulations - just as local governments nationwide accelerate enforcement efforts that have already resulted in penalties for nearly one in five hosts.
The findings, from a survey of 500 lodging operators released this week by tax compliance firm Avalara, highlight a major disconnect between the time spent on compliance and the confidence hosts have in their outcomes. Nearly two-thirds reported spending more than 50 hours per year on lodging tax compliance, and 23% report spending between 101 and 200 hours annually. But that effort hasn’t translated into certainty.
“We’re seeing a fundamental mismatch,” said Bruce Todd, Senior Principal of Indirect Tax Technology at KPMG LLP. “Operators are investing massive amounts of time but lack confidence in the outcome, while governments are simultaneously making it much easier to catch violations.”
Since 2024, at least seven states have introduced new short-term rental tax laws. Alabama now requires intermediaries to collect and remit occupancy taxes. Delaware added a 4.5% statewide tax on STR bookings. Rhode Island implemented mandatory registration for all STR listings. California, Minnesota, and Massachusetts introduced fee transparency laws requiring hosts to disclose all charges upfront.
At the same time, enforcement is intensifying across the board. While only 34% of STR operators have been audited in the past five years (compared to 60% of hotel operators), that gap is closing fast. Cities like Newark, New Jersey, are now using software to identify non-compliant properties and can impose fines up to $2,000 per violation. Portland, Oregon, recently launched a new permit system aimed specifically at increasing enforcement against unregistered operators.
The most common tax compliance headaches for operators include navigating local tax codes (37%), filing monthly or quarterly returns (37%), and managing different tax rates across multiple jurisdictions (35%).
Despite a growing market for AI-driven compliance tools, 65% of STR operators still rely on manual or partially automated processes. Just 44% use advanced software, with operators saying the top barriers are: concerns about accuracy (47%), lack of clarity on how the tools work (34%), and implementation costs (33%).
Even operators investing significant time and resources aren’t confident they’re keeping up. Nearly half say they’re only “somewhat prepared” to adapt to new tax requirements. Yet with 19% already penalized and more cities deploying enforcement software, the gray area many hosts have operated in is shrinking fast.
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