Tax collector auditing my Airbnb: what to expect and how to prepare

Category: Legal & Regulations

By: James Wu

Posted: 2026-02-14T01:24:57.276Z

I got a letter from my city's Department of Revenue saying they're conducting an "occupancy tax compliance review" of my STR. They want 3 years of records. I've been collecting and remitting city taxes but I'm not 100% sure I've been doing it correctly. What should I expect? How do I prepare? Should I hire a tax professional?

Reply by Tyler Jackson:

**YES, hire a tax professional for the audit.** This is not the time to DIY. A CPA or tax attorney who knows your city's occupancy tax rules will identify any underpayments BEFORE the auditor does and can help negotiate if there are discrepancies. **What to expect from the compliance review:** Document requests (prepare these): - 3 years of Airbnb/VRBO earning statements (download from each platform) - 3 years of occupancy tax returns you filed - Receipts for tax payments made - Booking records (dates, guest count, nightly rate, fees charged) - Bank statements showing STR deposits - Your STR permit/registration documents **Common audit findings:** 1. **Underpayment due to not taxing total consideration.** Many hosts only tax the nightly rate but forget that cleaning fees, extra guest fees, and other charges are also taxable in many jurisdictions. 2. **Platform vs host collection confusion.** The auditor needs to see what Airbnb collected automatically vs what YOU were supposed to collect and remit separately. 3. **Off-platform bookings not reported.** If you took any direct bookings or cash payments, those are taxable too. 4. **Incorrect tax rate used.** Cities change rates periodically. If you used 4% in a year when it was actually 4.5%, you owe the difference. **How to prepare:** 1. Download all earning reports from every platform you've used 2. Cross-reference with your filed tax returns — identify any discrepancies yourself 3. If you find underpayments, consider filing amended returns BEFORE the audit (voluntary disclosure is treated more favorably) 4. Organize everything chronologically in a binder or digital folder 5. Hire a professional — $500-1,000 for audit representation is money well spent **Potential outcomes:** - Best case: full compliance, no changes, letter closing the review - Common case: small underpayment + interest (usually reasonable) - Worst case: significant underpayment + penalties (up to 25% of tax due) + interest Most audits result in a minor adjustment. If you've been generally compliant, don't panic. Just get organized and get professional help. For ongoing tax compliance, consider Avalara MyLodgeTax to automate filings going forward.

Reply by David Okafor:

Adding a practical tip: **set up a separate bank account for tax money RIGHT NOW if you don't have one.** Every booking: immediately transfer the tax percentage into your "tax hold" account. This way: - You always have the money when it's due - You have a clear paper trail for auditors - You earn interest on it in a high-yield savings account - You never accidentally spend tax money I use Marcus by Goldman Sachs (high-yield savings) for my tax hold account. Currently earning 4.5% APY on money that sits there until quarterly tax filing. Running the numbers at https://strspecialist.com/tools/cleaning-fee-calculator helps you model your per-booking economics including the tax set-aside.