One on One with Rob Stephens: Service Caters to Owners of Vacation Rentals
Rob Stephens, co-founder and general manger of Avalara MyLodgeTax, is a finance expert for the rapidly growing short-term lodging marketplace. He founded his own company out of his necessity to understand and manage compliance with his rental property. Stephens tax know-how in the vacation rental industry serves property owners managing their own vacation rentals and collecting and remiting lodging tax.
Q: How did you become an expert at vacation rentals?
A: Early on in my career I purchased a three-bedroom condo in Vale. As a lifelong skier, owning mountain property was a goal in life and I was thrilled to have it, but needed to make income on it. At that time, in the late ‘90s, it was a different world. There were no online rental websites. What my wife and I did was use a not very well known property management company at the time, VRBO, that posted our photos online for about $120 a year. It connected us pretty quickly all over the world. But I still had to talk and book the guest, deal with cleaning services, handle credit cards and checks. Today, AirBnB, VRBO and other online rental sites make it so much easier. With our lodge tax company, we have had many vacation rental customers over the years so my knowledge has really expanded. Our company basically focuses on the tax side, which is my lens of the world.
Q: When did you start your company?
A: We started in 2003. We recognized that despite the powerful online rental sites, the tax piece was a blind spot for them. For the most part, five years ago nobody was talking about these platforms. Today the tax issues have become a big concern. And not because the vacation rental owners were consciously trying to escape the terms and conditions that make them compliant to the law. It’s been my experience that the majority is simply not aware or unsure what they need to do, or it basically sits on their to-do list. About 3 ½ years ago we were acquired by Avalara Inc., a provider of cloud-based software delivering compliance solutions related to transactional taxes. Our company became part of their product lineup.
Q: What about short –term lodging? Is it necessary to pay lodging taxes?
A: Generally, it is a requirement and is part of the issue. Millions of people in the U.S. with short-term rentals on vacation rental sites, be it hotel, house or condo need to be compliant with the tax lodging laws. So by and large, you do have to collect and pay. Historically, despite the headlines, it has been a challenge for a lot of these communities due to how the world has changed in product and workflow. You may have one person in a city office responsible for occupancy tax and in the past handled about 100 customers. Now there are thousands of these rentals and it has become a daunting task for them. It is based on an honor system and enforcement hasn’t been super strong, but it is changing.
Q: What are the repercussions?
A: Problem is, if you do have very pro-active tax auditors, they are going to take you on, making you subject to back taxes, penalties, and interest. I always tell people your guest pays the tax and it is your obligation to collect it. There really is no benefit from not paying taxes since it’s not coming out of your pocket. The online vacation rental industry has a long way to go to get compliant so it is the individuals that have to manage their own compliance. All the big players, vacation rental platforms, certainly want their customer base to be compliant because for them to be a real industry they need to pay the taxes. It is going to take time and the rules are not always well known and some not easy to do. But about five years from now, everyone will have to pay their lodging taxes and follow the regulations.
Q: How does your compliance system help residents with their rentals?
A: Our product is very simple to use and is a very economical. We tell them the tax rate and register them. Depending on the city or state’s tax laws, we manage all the tax form filings and pay the taxes monthly or quarterly. Our company is largely driven by technology making it efficient and easy to use. At the website you sign up, give us some info on the property and we do the rest. We electronically debit the customers’ account for the appropriate tax requirements. It’s very reassuring to know the taxes are going to be filed each month. These tax issues were not well-known years ago. Before starting our company we did do market research. There were about 10,000 listings on VRBO. Now AirBnb has 5 million worldwide. We had no concept at the time it would become so big but did realize its growth potential. It has really become the mainstream of the travel industry.
Q: I take it lodging tax isn’t straightforward, meaning there are ways to reduce it?
A: Actually it is very different from that. It is just like a sales transaction, gross receipts tax with no deductions. We don’t get involved in income tax. The benefit of our site is you know you are compliant and won’t face any penalties. We also manage licenses and renew them when necessary while we continually stay on top of vacation rental rules.
Q: What’s your customer base?
A: Our roots are in the vacation rental space and the majority on our sites is rent-by-owners. I’d say about 55% of our customers manage their own rentals without help from professionals. Because I came from the same environment I know about the challenges and started targeting that type of user. The other 45% are real estate management companies. The majority of tax we handle is short-term rentals, basically 30 days. Some states have longer than 30 days, such as Hawaii with 185 days for short-term. The longer the window, the more tax revenue and is part of the complexity found in this arena.
Q: Does your company have customer service or a live person to speak with for questions?
A: Since it is a somewhat complicated issue, we are a huge believer of support for our customers. Explaining things over the phone has been one of our keys to success. We find the older segment want to talk directly to us whereas the younger segment is satisfied with working their way through the site.
Q: Name some key points a homeowner needs to determine if it is beneficial for them to rent out their home to summer tourists.
A: For me, that’s a personal decision. Most locations if you want to put on the websites and generate rent require preparation first. It’s a commitment to the process – generate photos, place listing, charge rent and taxes. I don’t see it really as an economic decision; basically just to make some extra money on rent. There are costs such as commissions from the listing site. Cleaning is the biggest expense. For Vale it is about $175 each time. But I do generate about $3,000 to $3,500 a week during ski season. You need the disposition for the effort required to accommodate the customers such as installing a good TV, good WiFi, etc.
Q: Any cautionary tales and tips?
A: I’m very positive about the vacation rental industry, and the online vacation rental sites. I’ve been doing it for close to 20 years now. I know some people worry about unruly guests. My broader message is this is very doable for anybody and you’ll have a better guest interaction than you worry about. I encourage people if they are interested or intrigued with the industry to give it a try. As for tips, short-term rentals are not covered under the standard homeowner insurance policy since it doesn’t cover business activities. Go to a specialty insurance company that has developed support for short-term rentals. Since they understand the market, it is certainly less. They know the risks and how to underwrite it.
Rob Stephens, CPA
Co-Founder and General Manager
6465 Greenwood Plaza Blvd Suite 760
Centennial, Colo. 80111
By Gina Dostler