When a short-term rental broker's business office is in a different jurisdiction than the homes it rents out, which jurisdiction gets the local option sales tax -- the office's location or the property's location?

Plain-English summary

A business acted as a broker for short-term (under 30 days) rental of private homes, condominiums, and cabins near ski resorts, with properties spread across a city, a second city, and an unincorporated county, but the broker's own business office was located only in the unincorporated county. A dispute arose between the county and city over how to distribute local option sales tax revenue generated by these rentals: should it all go to the jurisdiction where the booking office sits, or be split among the jurisdictions where the individual rental properties are actually located? Both the county and the city jointly asked the Commission to rule on the correct point of sale.

The point of sale is each property's physical location, not the business office. Utah imposes state sales tax on short-term accommodations under § 59-12-103(1)(i), and the Local Sales and Use Tax Act (§ 59-12-204) imposes the local option tax on those same transactions. For a seller with no permanent place of business, or more than one, § 59-12-207(1) requires reporting sales and use tax based on where the transaction resulting in the tax is consummated. The Commission ruled that a short-term rental transaction is "consummated" where the real property is actually leased and occupied -- not where the contract is signed or where rent payments are mailed. Applying that rule here, the broker must report each rental sale based on the physical location of the specific home, condo, or cabin rented, meaning the point of sale exists in three separate jurisdictions (the two cities and the unincorporated county) rather than being consolidated into one.

The business office's location is irrelevant, and the allocation is dynamic. The Commission explicitly rejected using the business office's location as the point of sale -- it has no effect on which jurisdiction is credited. Because the broker's portfolio of managed properties can change over time, the point-of-sale allocation across jurisdictions shifts along with it as properties are added or removed. Local option sales tax revenue is then distributed among the jurisdictions under the § 59-12-205 formula (a mix of population-based and consummation-location-based shares), though jurisdictions remain free to voluntarily pool and share revenue with each other under the Interlocal Cooperation Act via § 59-12-203.

What this means for you

Short-term rental brokers and property management companies

If you manage short-term rentals across multiple cities or counties from a single office, you must source and report local option sales tax by each individual property's physical location, not by your office's location. This means splitting tax reporting across every jurisdiction where you have a managed property, and updating that allocation as your portfolio of managed properties changes.

County and city governments with short-term rental activity

This ruling establishes that your jurisdiction is entitled to local option sales tax revenue generated by any short-term rental physically located within your boundaries, even when the booking/management business is headquartered elsewhere. It's a useful reference for resolving inter-jurisdictional distribution disputes, and it parallels how transient room tax is typically sourced to the rental's physical location as well.

Accountants and tax professionals

This turns on § 59-12-207(1)'s "consummated" test for multi-location or no-fixed-location sellers -- the transaction is consummated where the real property is leased and occupied. That's a useful anchor point for any Utah business selling location-tied services (lodging, equipment rental at a job site, etc.) through a centralized office.

Common questions

Q: If a rental broker has one office but manages properties in several cities, does all the local sales tax go to the office's city?
A: No. The Commission ruled that the point of sale is each rented property's physical location, so tax revenue is split among every jurisdiction where a managed property sits.

Q: Does it matter where the rental contract is signed or where the rent check is mailed?
A: No. The transaction is consummated where the property is actually leased and occupied, not where paperwork is signed or payments are sent.

Q: What happens to the point-of-sale allocation as a broker's portfolio of properties changes?
A: It shifts accordingly -- the allocation across jurisdictions tracks the current physical locations of the properties being rented at any given time.

Q: Does this ruling apply to my short-term rental business or jurisdiction?
A: No. It binds the Commission only for the requesting county, city, and the specific facts described, and can't be relied on by another taxpayer or jurisdiction, though it illustrates how the Commission applies the point-of-sale rule to similar multi-location rental brokers.

Citations and references

Statutes and rules:

• § 59-12-103(1)(i) (state sales tax on short-term accommodations)
• § 59-12-204(1), (2) (local option tax on § 59-12-103(1) transactions)
• § 59-12-203 (local jurisdictions may levy local option tax; Interlocal Cooperation Act)
• § 59-12-205 (distribution formula for local option tax revenue)
• § 59-12-207(1) (point of sale for a seller with no permanent or multiple places of business)
• Utah Admin. Rule R865-19S-79A.1 (definition of accommodations)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/06-026.pdf

Original ruling text

REQUEST LETTERS

06-026

December 7, 2006

NAME
ADDRESS

Re: Request for Ruling

COUNTY #1 received local option sales tax revenue distributions based on point of sale
within CITY during the first months of that city’s incorporation in ####, until the Tax
Commission took over beginning with the September #### distribution. COUNTY and
CITY are not in the process of finally settling distribution of local sales taxes remitted to
the County where the point of sale was in the city of CITY, for filing periods from
January #### to June ####.

During the settlement process, there has been a question about the correct point of sale
location for a particular business. After talking this issue over with TP REP 1 and TP
REP 2, we determined that there were conflicting rules that could apply to the business in
question. Both COUNTY and the City of CITY are requesting a ruling to answer the
following questions related to distribution of local option sales tax revenues from
BUSINESS:

       Background

    BUSINESS acts as a broker for short-term rental of several private homes,

condominiums, and cabins that are located within COUNTY. The properties are
conveniently located for access to ski resorts in CANYONS, and so are marketed to
skiers. The current properties are located in CITY, COUNTY #2, and the unincorporated
county, with the majority of the properties in CITY. The company’s place of business,
however, is located in the unincorporated county. In summary, we have a place of
business in the unincorporated county that pays sales taxes based on income from rental
units in three different municipalities, the bulk of which currently comes from CITY.

Questions:

    1.      Is the point of sale in one jurisdiction, or three?
    2.      If the point of sale is deemed to be in one jurisdiction, is the point of sale to be
          based on the location of the sales transaction, or is it to be based on some
          threshold for where the bulk of the service was delivered? If the latter, what is
          the threshold?

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    3.      Does the fluid nature of this business serve as a differentiating factor? The
          portfolio of properties that are brokered can and likely will change over time,
          potentially changing the mix of jurisdictions where the income is generated.

We respectively request that the Tax Commission rule where the point of sale is for the
purpose of distributing local option sales taxes.

Sincerely,

REQUESTOR NAME

Cc: NAME 2
NAME 3
NAME 4
NAME 5

November 28, 2006

NAME
ADDRESS

Re: Request for Private Letter Ruling – Allocation of Local Option Sales Taxes on
Short Term Rentals

The city of CITY has a concern regarding allocation of local option sales taxes collected
by either property owners or off-site property management companies for short term (less
than 30 days) rentals of homes or condominiums located in the city, primarily during the
winter ski season. We have been asked by TP REP 1, Manager of Sales Tax Collections,
to request a private letter ruling to resolve the issues in a questions.

Our questions is this: When the “business office” effecting the short term rental of a
home or condo is located in a different jurisdiction than the physical location of such
property, which jurisdiction should be credited with the local option sales tax
resulting from such rental? Many, if not most, of these transactions are accomplished
via the Internet with a credit card purchase. Many of these homes have a lock box or
coded entry system that allows the guests to access the home. Consequently, in most
situations, the rental is accomplished without the renter ever physically visiting any
“business office” location in Utah.

Due to its strategic location between CANYONS, CITY has a large concentration of
these private residences that are offered for short-term rental. The city requires each
rental home to have a business license with the city. Additionally, these short-term
rentals are required to collect a one percent transient room tax imposed by the city, in
addition to other similar taxes that have been levied. We believe that both local option

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sales taxes and the transient room taxes should be reported to the same jurisdictional
city/county code. Requiring local option sales taxes to be remitted differently than the
transient room tax associated with the same rental transaction will, we believe, create
confusion and mistakes concerning appropriate collection rates and appropriate division
of those funds among the various local jurisdiction that may be involved.

Obviously, the services being purchased by the customer are the physical home or condo
lodgings. The jurisdiction where those lodgings are located has disproportionate
responsibility to manage all of the issues related to regulation, including business
licensing administration and public safety and code enforcement issues arising from
location of the rentals in residential neighborhoods. The local option sales taxes
generated by these rentals are needed to help offset the local jurisdiction’s additional
costs. In our experience, these short-term rental units do require extraordinary oversight
to bring them into compliance, not only with city ordinances, but also general sales and
transient room tax collections.

We feel strongly that the jurisdiction of the physical location of short term rentals
should be credited with the point of sale distribution for local option sales taxes
collected from such rentals, thereby providing for direct use of those revenues for
their intended purposes, rather than providing a windfall for another jurisdiction
whose only tie to the transaction is as the (remote) location of the “business office”
booking the rental transaction.

Thank you for addressing this issue. We welcome your questions and response.

Sincerely,

REQUESTOR NAME
DEPT

cc: TP REP 1, TITLE

#3

                             RESPONSE LETTER

February 26, 2007

REQUESTOR NAME
REQUESTOR NAME

RE: Private Letter Ruling 06-026
Local option sales tax on short-term rentals

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Gentlemen:

    We have received your letter requesting a ruling regarding the correct point of

sale for sales tax on short-term (less than 30 days) rentals of private homes,
condominiums and cabins with physical locations in three separate jurisdictions within
1ST COUNTY. You also noted that 1ST COUNTY and the City of CITY are in the process
of finally settling distribution of local sales taxes remitted to the County where the point
of sale was in the city of CITY, for filing periods from January #### to June ####.

    It should be noted that the ruling in this letter is not intended to be a statement of

broad Tax Commission Policy. It is an interpretation of the tax law as it relates to the
facts presented in your request letter and the assumptions stated in this ruling. If the facts
or assumptions are not correctly described in this ruling, please let us know so we can
assure a more accurate response to your circumstances.

                                       FACTS

    According to the information in both requests, BUSINESS, acts as a broker for

short-term rental of several private homes, condominiums and cabins located in three
different municipalities—CITY, 2ND CITY, and unincorporated COUNTY. The bulk of
the properties are located in CITY. The Company’s main office, on the other hand, is
located in unincorporated COUNTY. Given these facts, your letters request a ruling in
regards to the correct point of sale location for the purpose of distributing revenue from
local option sales tax by asking the following questions:

1.      Is the point of sale in one jurisdiction, or three?

2.      If the point of sale is deemed to be in one jurisdiction, is the point of sale to be
       based on the location of the sales transaction, or is it to be based on some
       threshold for where the bulk of the service was delivered? If the latter, what is
       the threshold?

3.      Does the fluid nature of this business serve as a differentiating factor? The
       portfolio of properties that are brokered can and likely will change over time,
       potentially changing the mix of jurisdictions where the income is generated.

4.      When the “business office” effecting the short-term rental of a home or condo
       is located in a different jurisdiction than the physical location of such
       property, which jurisdiction should be credited with the local option sales tax
       resulting from such rental?

                               APPLICABLE LAW

    Utah Code Ann. § 59-12-103(1)(i) imposes state sales tax on amounts paid and

charged for tourist home, hotel, motel, or trailer court accommodations and services that
are regularly rented for less than 30 consecutive days. Tax Commission Administrative

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Rule R865-19S-79A.1. further defines accommodations as “any place having room,
apartments, or units to rent….” (Emphasis added.) Part 2 of Title 59 of the Code
comprises The Local Sales and Use Tax Act, commonly referred to as the local option
sales tax. Subsection 59-12-204(1) states that the tax ordinance adopted pursuant to this
part shall impose a tax on the transactions listed in Subsection 59-12-103(1). Therefore,
amounts paid or charged for tourist home, hotel, motel or trailer court accommodations
and services that are regularly rented for less than 30 consecutive days are subject to the
local option sales tax.

     Subsection 59-12-204(2) states that the tax ordinance under subsection (1) shall

include a provision imposing a tax upon every transaction listed in Subsection 59-12-
103(1) made within a county, including areas contained within the cities and towns
located in the county: (i) at the rate of 1% of the purchase price paid or charged; and (ii)
if the transaction is consummated within the county in accordance with Section 59-12-
205.

    Section 59-12-203 states that any county, city, or town may levy sales and use tax

under this part. It allows any county, city, or town which elects to levy such sales and
use tax to use any or all of the revenues for the mutual benefit of local governments
which elect to contract with one another pursuant to the Interlocal Cooperation Act.

    Section 59-12-205 provides for the distribution of the local option sales and use

tax and thereby requires that 50% of each dollar collected be paid to each county, city,
and town on the basis of the percentage that the population of the county, city, or town
bears to the total population of all counties, cities, and towns in the state; and 50% of
each dollar collected be paid to each county, city, and town on the basis of the location
where the transaction is consummated as determined under § 59-12-207. Section 205
goes on to say that for fiscal years beginning with 1983-84 and ending with fiscal year

-##, a county, city, or town may not receive a tax revenue distribution less than .75%

of the taxable sales within the boundaries of the county, city or town.

    Finally, § 59-12-207(1) provides for the point of sale when a retailer (seller) has

no permanent, or more than one, place of business. It states that sales and use tax
collected under this part shall be reported to the commission based on where the
transaction resulting in a tax is consummated.

                                    ANALYSIS

    The business (seller) charged with collecting the local option sales tax is required

to report the short-term rental sale transactions for the homes and condominiums based
on the physical location of the properties, pursuant to Section 59-12-207. The transaction
is consummated where the real property is actually leased and occupied; not where the
contract is signed or the location to where rent is mailed. It is also our understanding that
the local option sales tax from those transactions is to be distributed pursuant to the
formula set forth in Section 59-12-205. Therefore, the answer to question 1 is that the
point of sale is in three separate jurisdictions based on the stated physical locations of the

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properties. Question 2 then becomes moot.

    As for question 3, the point of sale remains that of the physical location of the

property being rented. Therefore, as the portfolio of the properties changes over time, the
point of sale changes according to the physical location of the property.

    In response to question 4, the location of the business office should have no effect

on the point of sale for the short-term rental transactions associated with the properties
being rented, as the point of sale is the physical location of the properties themselves and
not the business office.

    As noted above, the distribution of the local option sales tax should be handled

according to Section 59-12-205. However, we note that Section 59-12-203 allows the
jurisdictions imposing the tax to use the revenues for the mutual benefit of local
governments, which elect to contract with one another pursuant to the Interlocal
Cooperation Act.

                                  CONCLUSION

    It follows from the foregoing analysis that the distribution of the local option sales

tax on rentals of properties should be based on the location of the properties that are
being rented. Hence, the Tax Commission rules that

    1. The point of sale is in three separate jurisdictions: CITY 1, CITY 2 and the
      unincorporated County.

    2. As the portfolio of properties changes over time, the point of sale (as
      determined in 1) will change accordingly.

    3. The location of the business should have no effect on the point of sale, as the
      point of sale is the physical location of the property being rented.


   Our conclusion is based on the facts you presented. Should the facts be different

from those represented in this letter, our opinion may change accordingly. Thank you for
you inquiry into this matter.

For the Commission,

Marc B. Johnson
Commissioner

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MBJ/BA
06-026