We are starting to hear that states are using vacation rental companies as a hub to get information both directly and indirectly that affect taxes, insurance and workmen’s comp issues.
Consider this. A state revenue agent knocks on your door. They require you to provide data of reservations and that you trust accounts are correct. In doing so, they capture owners who work with you. They then have the ability to monitor the owner’s income to see if they are including that for tax purposes. The Revenue Agent also ask you about how you do cleaning and property management, if they are in house staff, they look to see if you fall in or out of insurance guidelines. If cleaners and property managers are independent contracts, they know who they are (thanks to you) and they track them down to see if they are filing taxes and more importantly, if that independent provider is hiring assistants that may fall into insurance and workman’s comp issues.
State revenue agents are also looking what else you upsell. We have a client who sold firewood, he would pay the fire wood guy which included a sales tax. When the revenue agent looked into the records, he saw our client was not charging tax for the wood and hit our client with a penalty. The law in most states is that the consumer pay the tax. For a pass through service where there is a markup who owns that liability? Can you act as a consignment operator and not deal with the tax? The state also went over to the fire wood guy and did a review of his books to see if he not only paid the tax but to see if he has hired people and where that fit into tax, insurance and workman comp issues.
The bottom line is that states are hurting for money and you are a prime target. Typically you are a small business with a large transient work force. Over the next few years it will be interesting to see what type of lawsuits come out of this and how you will adjust your business to deal with subcontractor and 3rd party services.
Have you had any experiences with state revenue audits? What are your thoughts about this topic?