AIRBNB home property tax reclassification to commercial

I’m in missouri and have a 2nd home on my property that is on AIRBNB, prior it was a rental home. Last year the henry county assessor reclasafied it as commercial. His argument is it is a business that we are making money from, it’s a short term rental business competing with hotels and motels, that he is trying to even the playing field.

We are a rural farm with no city amenities and we pay a handsome amount in occupancy tax to the county. This commercial reclassification for a residential property is flawed logic. Looking at missouri property discriptions and classification a residential property is a structure intended for human occupant living quarters, short term rental is mentioned as having occupancy tax. Many small businesses operate out of a residential property, look at all the rental properties that make up a business for landlords, they are not classified as commercial. Making money out of a residential property doesn’t make it a commercial property. This is all about an attempt to find other income sources. They attempted this at lake of the ozarks and it caused such a rucuss that the county removed the commercial classification. I think that sets a precedence. I’m fighting it and would like to hear from others regarding your thoughts and experiences with this.

My state made all the short term rentals pay occupancy tax as of a couple years ago. Airbnb collects it for us. If not, I think I would have reconsidered staying in business.

Sounds right to me. That’s why we’re paying the occupancy tax. A home share host situation feels different, and is.

Aren’t you competing with hotels and motels? Don’t you take business deductions on your tax return?

It’s not just a space you’re renting out; you’re a host. You’re cleaning the unit, providing amenities, maybe a guidebook. It’s different than a pure rental of space; hence all the references to ‘hospitality’ here. It’s as much of a service as it is a rental.

I don’t feel competent to evaluate all the considerations but the assessor’s position, on the surface of it, does not sound unreasonable to me. I understand that it might make a huge difference in the amount of real estate tax you pay.

I know that this off-the-cuff (and tentative) opinion might not be a popular one. I realize also that the legal answer might be highly technical and has nuances I’m not aware of. I’m just giving a layman’s first impression.

The real answer will depend on the law in your jurisdiction, which I am not qualified to evaluate.

2 Likes

Ask your insurance company. They will classify it as a business. Our local government does also, as does the IRS. We are a rural ranch with no city utilities. We are 12 miles from town. In order to get legal we went through applications with the county, inspections for health, fire, septic, parking, noise, roads, evacuation, plans, building permits, etc. We had public hearings. We have to have business insurance, including fire and public liability/injury. This is in addition to the policy we have already for our personal residence. There are provisions for noise, occupancy limits, public safety. If this is different for you, I’d be surprised. Again, check with your insurance company about business use of the property.

1 Like

Of course making money :yen: out of letting out a property means it’s commercial use.

You are providing a for profit accommodation service which guests pay for.

To be residential would mean you live in the property.

I live in the house and rent one wing with shared spaces. That means that when rented to guests it is commercial use of my residential property. It also means that my homeowners, liability and fire insurance coverage is not in effect when guests are here, paying me for the space.

I was replying to @Billybob in response to his initial comment @Kitty_Norris

This is not about occupancy tax. This is about property tax reclassification from residential to commercial.

FWIW I did have coursework on this stuff. The difference is, if you rent it out with a 1 year lease, say, it functions as a residence. You are the landlord and your occupant is a tenant, eligible to vote and send kids to the schools. Missouri has unusual laws on certain things but I’ll bet there is a statute somewhere protecting tenant’s rights. This is so communities can protect residents and keep them in housing.

When you do STR you are only granting the occupant a temporary license to occupy–it is not a leasehold. They do not have the rights of a tenant, they never become residents. They are just passing through.

It’s almost the same as if you’ve set up a pottery studio where you throw pots on a wheel in the kitchen and sell them out of the living room. From a tax perspective, there’s not much difference, except that most places like to tax tourists extra when they can, hence special occupancy tax.

Where we are, ABB collects occupancy taxes from our guests and sends that money straight to our city and county–just as if we were a hotel. Your county tax assessor is quite correct and this is how it is done everywhere in the world that I know of.

As for having “no city amenities,” that’s not strictly true. You and your guests drive to that city to shop, get a haircut, go to the dentist, and while you’re there you are protected by the fire and police departments, and you drink their water, and you walk on their nice cobblestone sidewalks and admire the pretty hanging baskets. If that city evaporated overnight you would certainly notice it.

I hope that helps.

Someone said taxes are the price we all pay to live in a civilized society. You are doing a public good by creating a business that brings tax revenues and helps create jobs in your community.

2 Likes

Almost everyone here seems to have misread the OP’s post, if I understand him correctly. As I read it, he is not objecting to having his Airbnb business considered to be a commercial enterprise and paying the appropriate occupancy taxes, etc. on it, he is objecting to having his entire property, a rural farm where he also lives in another dwelling, classified as commercial, which will put him in a higher property tax bracket.

Yes you’re right I thought he was talking about occupancy tax, but apparently it’s property tax. As we know from the news, Missouri has some peculiar, unusual laws.

Billybob says it’s a rural farm, which sounds like a money making enterprise, not sure. Possibly farm income plus the STR pushed them over some threshhold in local law, which might be something like the square footage of income producing property, or the amount of income generated on the property.

More information would clarify the situation perhaps.

Yes, more info would make it clearer. Even if it’s a working farm, though, properties with agricultural enterprises are often taxed lower than a property classified as commercial.