Instructions on reporting advance payments and deposits.
Tax must be paid in the period for which it is collected.
If you do not collect tax on a deposit to reserve a rental, you would wait to pay the tax when the entire balance amount is collected after the guest’s stay.
If you collect tax on a deposit to reserve a rental and the guest cancels the reservation and forfeits the deposit, you will report that revenue and pay the tax during the period in which it was forfeited.
There are arguments for and against collecting and remitting tax on deposits. An argument for collecting tax on deposits is related to tax rate changes. If a guest reserves a room with a deposit without a tax charge, and the tax rate changes, you will have to collect additional tax from your guest or pay the difference in tax of your own pocket.
Example: You collect payment in August for a January rental and a tax rate increase goes into effect January 1. If you do not report the revenue until January, Avalara calculates the tax using the new January 1 tax rate, regardless of the tax rate you charged your guest. If you report the revenue in August, Avalara calculates the tax using the current tax rate. You need to evaluate how you want to record advance payments and deposits to determine the easiest way for you to report revenue.