Short-term vacation rental lodging has gained popularity recently, and laws and regulations are beginning to catch up with this new form of lodging. For property owners considering this revenue stream, they must understand the various layers of rules and regulations involved—from the federal level, down to the local level.

Short-term rentals are not subject to state landlord-tenant laws and seem to fall outside traditional hotel and motel lodging regulation. Cities and local municipalities have taken the lead on filling the void of regulation for short-term rentals—and many cities, even small ones, now regulate short-term rentals.

At the federal level, homeowners must understand their obligations under federal fair housing law. Basing a decision of whether to rent to someone on that person’s status in a protected class will violate the law and could even potentially result in a federal law suit.

Minnesota Department of Revenue

Regulation at the state level primarily involves the state revenue department. In Minnesota, a lodging retailer must collect, report and remit sales and use taxes on the full sales price of lodging. Sales tax is due on lodging in Minnesota if the rental period is for one of the following periods:

• Less than 30 days
• 30 days or more if there is no enforceable written lease agreement that requires the customer give notice of their intention to end the lease

There are special rules for owners of short-term lodging that use an accommodations intermediary—an organization or platform that facilitates the sale of short term rentals of residential property. Under Minnesota law, any accommodations intermediary that facilitates the sale of short-term rentals located in the state is responsible for registration as a retailer. Rental platforms and websites like Airbnb and VRBO are accommodations intermediaries under state law. In Minnesota, a residential property owner does not need to register to collect sales and use taxes if either:

• It uses an accommodations intermediary to facilitate all sales of lodging at the owner’s property
• Rental of its residential property by the owner is an isolated incident, not made in the normal course of business

Local laws

Many Minnesota cities and towns have short-term rental laws. Property owners are typically required to obtain a rental license to rent out their property. The requirements necessary to obtain the license vary greatly based on different city law. The licenses ensure owners comply with local building and fire code. Owners must also review local zoning code to ensure short-term rentals are not prohibited in the property location.

The cities of St. Paul and Rochester appear to be the only Minnesota cities that impose a local sales tax on short-term lodging. Finally, don’t forget that if your property is subject to a homeowner’s association agreement, that will present another layer of regulation property owners must comply with before listing their property for AirBnB rental or other short-term rental.

Minneapolis & St. Paul

Property owners in the city of lakes who reside on the property they rent out are exempt from the Minneapolis code requirement for a short-term rental license. For owners that rent out their home and leave during a renter’s stay, Minneapolis requires a short-term rental property registration. For non-owner-occupied property that is rented out, Minneapolis requires owners obtain a full rental license.

In St. Paul, the license structure is simple: Every owner needs a short term rental host license to rent out their property to short-term guests. If the property is not owner-occupied, the city also requires the owner obtain a fire certificate of occupancy. St. Paul owners also must pay a 3 percent local lodging tax on all sales—a tax administered through the state.

The requirements for short-term rentals will vary greatly depending on the location of the property, for example:

• Duluth – non-owner occupied required to receive approval before the city council
• Rochester – non-owner-occupied required to obtain a rental license and pay lodging sales tax
• Bloomington – all owners must obtain rental license and city inspection
• Stillwater – requires some owners appear before the city planning commission to obtain a conditional use permit
• Roseville – all owners required to obtain a rental registration
• Grand Marais, Lutsen, and Cook County – no license required

Before a property owner decides to begin renting out their real property for short-term rentals, they should sit down with an experienced Minnesota real estate attorney who can provide advice before problems arise with their new business venture. For more information on this area, check out our overview of real estate laws.