Short Term Rentals: New Virginia Local Requirements and Tax Considerations

By Terry Barrett, CPA, Senior Tax Manager | State and Local Tax Team

City of Richmond and Henrico County adopt new requirements for AirBnb, VRBO, and other short term rentals

A few years ago the Virginia General Assembly passed legislation giving localities the authority to regulate AirBnB, VRBO, and other short term rentals. Both the City of Richmond and Henrico County recently adopted different rules effective July 1, 2020, to govern the operation of such. Herein we offer a summary of those rules as well as some state and federal tax requirements to consider.

City of Richmond Short Term Rental Requirements

AirBnB and similar type short term rentals will be allowed in certain parts of the City provided the rentals are registered with the City and are the operator’s primary residence. The primary residence requirement means the operator must reside at the property at least one-half of the year. The inclusion of the primary residence requirement was designed to curb rentals by operators who purchased several properties in residential districts to rent out much like hotels. While not all agree with the primary residency requirement, the City views the restriction as a starting point and has agreed to revisit the issue in a year to determine if changes are necessary.

Operators must obtain a biennial permit from the City at a cost of 300 dollars. The permit allows operators to rent out property for less than 30 days at a time. The properties must also be reviewed for compliance with zoning regulations. The City currently is not requiring the rental operators to collect the local transient occupancy tax or be subject to business license and personal property taxes.

Additional information regarding the City’s Short Term Rental Policies may be found on the Richmond Government website.

Henrico County Short Term Rental Requirements

Homeowners desiring to rent space in their homes to guests for stays of less than 30 days must register with Henrico County prior to offering space for rental. This includes rentals listed through various online platforms such as VRBO, HomeAway, AirBnB and others. The registration process includes both online registration and zoning approval.

Registration with the County is not required if:

• More than 10 rooms are available for rental as this activity is subject to the business license tax requirement; or
• Any of the following statements are correct:
  • The homeowner has a business license to operate a hotel, motel, campground, or real property management business;
  • The rental is operated by or through a licensed real estate agent;
  • The rental is a timeshare; or
  • The homeowner has a Virginia Department of Health license or registration for providing room space or lodging

The County requires an annual registration fee of 200 dollars for short-term residential rental permits. Homeowners must also collect and report the County’s transient occupancy tax of eight percent on the rental receipts which is also required of hotels, motels, campgrounds, bed and breakfast locations, and others offering transient accommodations in the County.

Operating without having first registered with the County may result in civil and criminal penalties for homeowners.

Additional information regarding the County’s registration requirements may be found on the County’s website.

Other Virginia Tax Considerations for Short Term Rentals

Retail Sales Tax

Virginia’s retail sales/use tax is required to be collected on the gross proceeds derived from the sale or charges for rooms, lodging or accommodations furnished to transients for a period of less than 90 days.  This includes charges by hotels, motels, campgrounds, bed and breakfast inns, and similar places.  Accordingly, any person offering transient accommodations, including the short-term rental of rooms in homes, are required to register for and collect Virginia sales tax on such rentals. The retail sales tax is in addition to any transient accommodation taxes imposed by the localities.

Income Tax

Homeowners offering short-term rentals are also subject to federal and state income tax on their receipts from the short term rental activity. The receipts or income may be offset by expenses incurred in providing the rentals, including, but not limited to advertising, cleaning, supplies provided with the rentals, etc. The income and expenses must be properly documented in order to be claimed.

Other Local Tax Requirements

Homeowners offering short term rentals in other localities in Virginia may be subject to different local registration and tax requirements which should be researched prior to engaging in rental activities.

If you have questions about these requirements, please reach out to your Keiter advisor or Email | Call: 804.747.0000. We are here to help.

Additional Resources

Keiter Virginia State and Local Tax Library