Lodging tax insanity — Wacky Tax Wednesday

It recently dawned on me that although I enjoy traveling, I dislike finding places to stay. Takes me ages and makes me grumpy. Still, whatever discomfort I experience when booking a room has nothing on what lodging platforms have to endure to comply with the multitude of lodging tax requirements in the United States.

We talk a lot about how complicated sales tax compliance is at the Avalara Tax Desk, and it is. 

Yet lodging tax compliance can be even more onerous, at least for the online travel agencies (OTAs), marketplaces, and other accommodation platforms that facilitate bookings for millions of accommodation providers nationwide. This is because there are a myriad of state and/or local lodging tax requirements on top of (or in place of) state and/or local sales taxes on accommodations. 

OK, 525,600 may be a slight exaggeration, but Seasons of Love popped into my head as I was researching the different ways to tax accommodations in the U.S. Sometimes you just have to go with it.

States typically take one of five different approaches to taxing accommodations:

• A single, statewide tax on accommodations but no additional local taxes (e.g., Connecticut, Maine, New Hampshire)
• A combined state/local sales tax on accommodations and local jurisdictions can impose an additional local accommodations tax (e.g., Indiana, Minnesota, Tennessee, Virginia Wisconsin)
• Three separate taxes on accommodations: the general state and local sales tax, a state accommodations tax, and local accommodations taxes (e.g., Georgia, Hawaii, Idaho, Kentucky, Utah, South Carolina)
• No state/local retail sales tax on accommodations but a state tax on accommodations and local jurisidictions can impose local accommodations taxes (e.g., Delaware, Illinois, Oregon, Pennsylvania, Texas)
• No state/local retail sales tax on accommodations or a statewide accommodations tax but local jurisdictions levy local accommodations taxes (e.g., Alaska, California, Nevada)

But don’t let that little number 5 fool you: The taxing scenarios listed above amount to roughly 4,000+/- locally administered accommodations taxes across 30+/- states, according to the State Tax Research Institute (STRI). Not 525,600, perhaps, but still an awful lot for businesses to keep track of — because every state is different, and localities within each state are different too.

First, accommodation platforms need to figure out where they’re on the hook for accommodations taxes. More on that below. 

Then, where they are liable, accommodation platforms need to figure out which of their bookings are subject to what taxes. Some accommodations are subject to some taxes but not others. State and local tax obligations can be affected by the length of the stay, for one, and there can be an astonishing lack of conformity between the state and localities in the state. 

For example:

• Georgia’s $5 state hotel/motel per-night fee applies to the first 30 (uninterrupted) days of a rental
• Georgia’s state and local sales tax applies to accommodations lasting less than 90 continuous days  
• Local hotel/motel excise taxes apply to accommodations lasting up to 10 consecutive days in some jurisdictions in Georgia (e.g., Dekalb County), but apply to accommodations lasting 30 consecutive days or less in others (e.g., Chatham County)

The situation is similar in The Empire State. New York state/local sales tax and the state’s $1.50 hotel unit fee apply to accommodation stays of less than 90 consecutive days in most parts of the state. The 90-day cap also applies to the $1.50 unit fee in New York City. However, the local sales tax on hotel occupancy in New York City applies to a person who occupies a room for up to 180 days. Thus, a hotel room rented for 110 days in New York City would be subject to the city’s local sales tax on occupancy, but not state sales tax or the state’s hotel unit fee.

To make matters more complicated, tax rates can vary depending on the type or size of the lodging facility. The local hotel tax in Erie County, New York, is 3% for rooms in a hotel with 30 or less rooms, but 5% for rooms in a hotel with more than 30 rooms. You can’t make this stuff up.

There are dozens of accommodation platforms operating today. Some, like Airbnb, Expedia, Hotels.com, or Vrbo, have become household names. Others cater to more niche markets, such as glamping or tiny houses. These platforms are increasingly responsible for collecting and remitting the taxes due on the accommodations they facilitate.

Every state with a sales tax now requires marketplace facilitators to collect and remit the tax due on third-party sales of tangible personal property, provided the marketplace itself has a physical presence in the state, does enough business in the state to establish economic nexus (e.g., $100,000 in sales or 200 transactions during a calendar year), or has other ties to the state substantial enough to create a sales tax obligation. 

States are starting to clarify whether and to what extent their marketplace facilitator laws apply to accommodation providers. But when it comes to lodging taxes, marketplace facilitator laws can be confoundingly … confounding. 

For example:

Kansas requires marketplace facilitators to collect the tax due on rooms, lodgings, and sleeping accommodations booked through the platform, except “if such rooms, lodgings or sleeping accommodations are provided by a hotel.”

West Virginia requires marketplaces to collect and remit hotel occupancy tax on behalf of hotels or hotel operators. However, the West Virginia Tax Division doesn’t administer hotel occupancy tax, so marketplaces must register with and remit to each county or municipality. The state tax department does provide contact information for each local tax authority, but confesses “the list may not be complete.”

Wisconsin requires marketplace providers to collect and remit sales tax and applicable resort area or local exposition taxes on the entire amount charged to a purchaser, including any facilitation fees charged by the marketplace. These taxes are administered by the Wisconsin Department of Revenue. 

Marketplaces are also responsible for applicable municipal room taxes in Wisconsin. The Department of Revenue has created a uniform Marketplace Provider Municipal Room Tax Return to help ease the burden on marketplaces, but marketplaces must contact each municipality to determine whether local registration is required, and remit/report to each municipality. The department’s list of jurisdictions with a room tax is 66 pages long, and it may not account for every jurisdiction with a municipal room tax.

It’s hard to get an exact count of taxing jurisdictions from states that don’t administer the taxes. While California and Ohio each have “over 400 municipalities imposing locally administered accommodations taxes,” according to the STRI study, that number doesn’t represent “precise counts.” And the Texas Comptroller’s Office admitted in a report that “there is no comprehensive list of local rates, or even of jurisdictions within the state that levy a local accommodations tax.”

You start to see how complicated lodging tax compliance can be for marketplaces and similar accommodation platforms. They may be required to register with and remit both to the state and to various local taxing authorities within the state, and to deal with compliance and enforcement requirements from state and local authorities. Where local registration/remittance is required, they often have to hunt down the information needed for compliance, such as what rate to charge and which transactions are exempt. They may be liable for all of the taxes due on accommodations, or only some of them. And so on.

No matter how big an accommodation platform provider is, complying with state and local accommodation tax requirements can quickly become a burden. In fact, one platform estimates it takes one full-time employee at least 175 hours per month to comply with local accommodations tax obligations in just five states, according to the STRI study. 

Noncompliance isn’t a viable option. For one, it’s against the law. Secondly, the STRI study found that state and local tax authorities are showing “considerable interest in ensuring compliance” with accommodations tax requirements because the industry has changed so much over the past 25 to 30 years.

I find myself wondering why on earth I get so disgruntled when booking one simple hotel room.

For more remarkable tales of lodging tax compliance, see the lodging tax section of the 2023 Avalara Tax Changes report.