Avalara Tax Changes 2022: Hospitality tax trends

Adaptability will be key to the survival of hospitality and lodging businesses in 2022. On top of dealing with COVID-19 and its ongoing fallout, hotels and short-term rentals must track and comply with changing regulations and tax policies. Short-term rental and lodging marketplaces need to navigate growing local tax obligations, and hotel marketplaces need to unravel which taxes they’re responsible for. It’s a lot.

Two years into the pandemic, travel is all over the map. Though domestic leisure travel in the United States has rebounded and is expected to grow in 2022, domestic business travel and international travel may not fully recover until 2024. It makes sense. Many people still work remotely due to COVID-19, and although some in-person business events have resumed, others remain virtual or offer a virtual option. Plus, companies now know how much money they can save by not sending employees afield. As for international travel, many people simply aren’t ready yet.

Flexible bookings and COVID-19 tests can up cachet

When travel does happen, for any reason, hospitality businesses that offer guests flexibility tend to hold the most appeal. Remember late December 2021 and early January 2022, when thousands of flights were canceled due to a rise in COVID-19 cases, massive airline staffing issues, and normal winter-weather events? Some travelers had to cancel lodging reservations; others had to extend their stays. Hospitality businesses able to discount extended stays or waive last-minute cancellation fees likely gained a loyal following.

International travelers may gravitate to hotels that facilitate COVID-19 testing, since many countries require a negative COVID-19 test to enter the country. For example, “any person aged 12 and over entering French territory must present a negative PCR or antigen test less than 24 or 48 hours old, depending on the country of origin,” while “all air travelers to the United States age 2 and older, regardless of their vaccination status, will need a negative COVID test taken within the day before travel.”

It can be challenging for travelers to locate testing facilities in foreign countries and book the necessary tests in the allotted time frame, especially when they don’t speak the language. It’s tough enough to accomplish at home: Some parts of the U.S. have limited testing availability and don’t offer tests to anyone not experiencing symptoms. Hotels that offer qualifying COVID-19 testing services therefore have an edge over hotels that don’t.

Sofitel London Heathrow was among the first to offer COVID-19 tests to guests in 2020, and it didn’t take long for other hotels to catch on. Today, Marriott International Resorts in the Caribbean and Latin America offer “complimentary on-site COVID-19 testing” for guests staying at least three consecutive nights at certain locations; guests who can’t travel as planned due to test-related reasons may be eligible for a discounted rate on their unexpected extended stay. Krystal Hotels also offer complimentary rapid antigen testing for guests staying a minimum of three nights, and the hotel will help guests schedule a PCR if needed (for a fee). The spa of the Hotel Adlon Kempinski Berlin has a mobile test station, where guests can procure a rapid antigen test or a PCR test with same-day results (prices vary); guests may even be able to get a facial while they wait.

Of course, while providing flexibility and on-site COVID-19 testing may help keep guests happy in the year to come, short-term rentals, hotels, and lodging marketplaces face a host of other issues.

Short-term rentals face changing registration and tax requirements, higher fees, or temporary bans

Nationwide, short-term rental providers are facing additional regulations, higher operating costs, and even existential threats.

Let’s take the existential dilemma first. Some localities are putting temporary or permanent moratoriums on short-term rentals due to concerns over their impact on housing stock, neighborhoods, or both. For example, Aspen, Colorado, has placed a nine-month moratorium on new short-term rental permits to help ease the city’s affordable housing problem. Lincoln County, Oregon, will phase out short-term rentals from single-family residential zones in the coming years. Eventually, many localities may need to suffer through growing pains related to short-term rentals.

Elsewhere, short-term rentals are subject to new registration and tax requirements: There’s a new short-term rental license in Summit County, Colorado; new registration requirements for short-term rental operators in Rhode Island; and higher fees for short-term rental permits in Encinitas, California, as of January 2022. On the tax front, Honolulu has a new accommodations tax, as do several localities in Colorado.

Communities with a lot of short-term rentals are striving to find balance: They want the tax revenue short-term rentals provide, but they also want housing for locals and safe and quiet neighborhoods. Regulations can help. So can taxes on short-term rentals. To stay in business, short-term rental hosts will need to comply with all new requirements.

The same can be said for short-term rental marketplaces.

Short-term rental marketplaces must unravel — and comply with — local tax requirements

Marketplaces like Airbnb and Vrbo collect most applicable state taxes in most states. But local taxes are different. Some marketplaces may have agreements to collect and remit applicable local taxes on behalf of hosts in some jurisdictions, but not in others. For example, Airbnb collects transient occupancy tax for hosts in San Bernardino County, California, but Vrbo doesn’t. In other locations, Vrbo may collect where Airbnb doesn’t. This uneven application of taxes and regulations is understandably confusing for hosts who list their property on multiple marketplaces, and it can result in under- or overpayment of taxes owed.

Local tax obligations for short-term rental marketplaces are likely to increase in 2022 and beyond. Pamela Knudsen, senior director of Compliance Services at Avalara, expects many states to follow the example of Virginia, which now requires Expedia to collect and remit taxes for 200 local jurisdictions. 

It’s incumbent on hosts and marketplaces to know what’s required of them, where they’re responsible, and how to comply with those requirements. Avalara’s lodging tax blog can help you keep informed.

Lodging marketplaces must distinguish between lodging and hotel accommodations

The same paradigm exists for other lodging marketplaces (e.g., Expedia or Booking.com) and the businesses they support. Some states have made it clear that such marketplaces are responsible for collecting and remitting sales and/or occupation taxes on behalf of lodging businesses. That’s the case in Indiana.

Yet some state marketplace facilitator laws don’t extend to marketplaces that facilitate the rental of rooms, lodgings, or other accommodations. For example, in Washington, a business is not a marketplace facilitator if they “enable consumers to purchase lodging in a hotel or similar facility for a period of less than 30 days. The lodging provided cannot be a home, apartment, cabin, or other residential dwelling.”

In some states, it’s not quite clear who’s responsible for collecting and remitting applicable taxes, the marketplace or the host. And then there’s Kansas, where marketplace facilitators must collect and remit tax on third-party lodging, but not hotel accommodations.

As with short-term rentals, state and local governments expect the tax due to be paid. It falls to marketplace facilitators and lodging providers to understand what’s required of them and comply.

Of course, all such requirements are subject to change.

For example, West Virginia started requiring marketplace facilitators with a certain volume of sales in the state to collect and remit hotel occupancy on behalf of hotels or hotel operators on January 1, 2022. These taxes must be remitted to counties and municipalities rather than the West Virginia Department of Revenue.

Some lawmakers in New Jersey recently tried to make marketplace facilitators and online travel agencies responsible for the sales tax due on the lodging they facilitate. Governor Phil Murphy vetoed that provision.

No one ever said travel was easy. Some of the most rewarding trips include mishaps, mix-ups, and a good deal of tedium. The same can be said of the hospitality industry overall: Businesses need to be able to properly handle everything, including the bits that aren’t that fun, like tax compliance.

To learn more about the forces shaping the hospitality industry in 2022, see the hospitality section of our annual report, Avalara Tax Changes 2022.

Get the full report.

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