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A short guide to short-term rentals

​The sharing economy, also called “collaborative consumption,” lets consumers share access to products or services, rather than having individual ownership. Today’s most well-known collaborative options include Uber, Rideshare, Lyft, Airbnb and HomeAway.

The same concept, but with a different business model, was possible in the past by posting services or products for rent, in a newspaper or in magazine ads, and through internet posts. What’s changed is that transactions now take place through an app on smartphones allowing easier, more convenient and more frequent transactions. The frequency of these transactions creates regulatory and tax issues for the state and local governments.

South Carolina addressed the regulation of ride-booking services with the passage of “transportation network company” legislation in 2015. Now, the challenge is how to accommodate short-term residential rental services, such as Airbnb, Vacation Rentals by Owner, and similar services, while balancing traditional residential property owner and tenant rights, protecting quality of life, and collecting fees and taxes that are due on these business activities.

Since home sharing has the potential to alter the character of established neighborhoods, many communities are carefully considering the best way to accommodate the demand for these new types of lodging, while still protecting the safety of housing, neighborhood character and land planning goals.

Understanding South Carolina’s regulations and tax treatments for short-term residential rentals is an important step before developing sharing-economy rental policies.
For tax purposes, South Carolina has five general types of short-term rentals:

  • Hotels and motels. Owners of these commercial properties pay property taxes based on a 6 percent assessment of the value of the property. All taxes, including business license, state accommodations, sales and local accommodations, are owed.
  • Rentals of second homes and investment properties. Owners of these properties pay property taxes based on a 6 percent assessment of the value of the property. All taxes, including business license, state accommodations, sales and local accommodations are owed.
  • Rentals of primary residential homes between 15 and 72 days per year. The rental days can be consecutive or nonconsecutive. Property owners maintain their primary residential 4 percent property tax assessment. All taxes, including business license, state accommodations, sales and local accommodations are owed.
  • Rentals of primary residential homes for up to 14 days a year. Property owners maintain their primary residential 4 percent property tax assessment. Owner revenue from these rentals is exempt from all taxation, including business license, state accommodations, sales and local accommodations. However, a travel company, such as Airbnb, HomeAway and VRBO, through which a rental property is booked and paid, owes taxes including business license, state accommodations, sales and local accommodations. Examples include renting a primary residence during the Masters or RBC Heritage golf tournaments or  renting a home for seven college football weekends per year.
  • Rentals of six bedrooms or less in a residential home occupied by the home owner. Typically these are home owners who rent out a single bedroom or couch in their primary home through Airbnb or other internet platform. The homeowner maintains his 4 percent property tax assessment. Owner revenue from these rentals is exempt from sales taxes and state and local accommodations taxes. Business license taxes are not exempt under state law, therefore, the homeowner is responsible for paying the tax.

Regardless of the type of short-term rental, travel companies, such as Airbnb and Expedia, through which the rental is booked and paid, owe taxes, including business license, state accommodations, sales and local accommodations. Currently, the S.C. Department of Revenue collects state sales and accommodations taxes from Airbnb. Although travel companies owe these taxes, they are not consistently paying business license taxes or local accommodations taxes to local governments.