Business is vacation rentals. Homes/condos versus a hotel room. Part of the rental includes a security deposit.
I have a client in North Carolina who wants to tax the security deposits she collects. Refundable charges are almost never taxable so is this just a NC thing?
Couldn’t find anything definitive online so was wondering if any tax attorneys or accountants out there might know specifically to North Carolina or could give me some good online resources.
Do you mean that the client wants to collect sales tax on a security deposit?
I don’t deal in NC, but I’ve worked with landlord/rental issues and sales tax laws in other states and that sounds ludicrous.
The only reason I could see applying tax to it is if the security deposit is applied against the rental cost at the end of the period. For example, if you put $200 down, rent a condo for a month, and then owe $1000 in rent less the $200 security deposit. If the $1000 is taxable, then a taxpayer reporting sales tax on a cash basis might have to pay sales tax when the $200 is collected. Even then, it doesn’t sound right for a situation that isn’t comparable to a hotel.
Yes. I agree it is ridiculous. You collect the SD plus tax but you don’t distribute the tax to the tax entity because you have to refund the guest the tax if you don’t charge against the SD anyway. So why collect a tax you have to refund anyway?
And if you do charge against the SD you tax that charge anyway.
Ugh. Well despite my pointing out that no one anywhere else does that she is insisting. I mean it isn’t that big a deal. Change the SD to $540 instead of $500. It will just end up causing her – meaning me-- to do extra steps to move the money to the proper tax accounts.