What OTAs need to know about maintaining accommodation tax rates
The downside to any vacation is footing the bill. Travelers can get especially grumpy when they budget for their airfare and hotel, only to get hit with surprisingly high taxes at checkout.
For example, Anaheim shares the highest lodging tax rate of major U.S. cities at 17%. For some overnight visitors, that’s enough of an expense to make the Happiest Place on Earth a bit less so.
But sales and accommodation taxes aren’t just a challenge for the jet-set crowd; they can also be a pain for online travel agencies (OTAs) to manage.
Tax compliance for the hospitality industry in general is layered and complex. But for marketplaces that help travelers book their trips, we often hear a few common questions about assessing taxes:
Are OTAs responsible for collecting lodging taxes?
The same marketplace facilitator laws that apply to platforms selling digital products and physical goods also apply to service providers, like online travel agencies. Which means platforms are required to handle tax on behalf of the property owners using their site.
Naturally, states have their own sales tax rules. But travel booking sites are responsible for understanding regulations, thresholds, and rates for the state and local jurisdictions where they do business. For instance, some states require the marketplace to collect taxes on the full amount of the sale. Others exempt travel marketplaces from collecting taxes on the net amount, but still require them to assess and remit taxes on the markup.
You’ll need to register to collect taxes in the state you’re based in, as well as with each state where your transactions or sales establish a tax obligation, or nexus. And because most accommodation taxes are assessed at a local level, you have to make sure you’re complying with county and city regulations as well.
Who determines accommodation tax rates?
If there’s a theme when it comes to taxes, it’s that jurisdictions set the rules. It’s also the case that each state, and in many cases, local jurisdictions, determine their own sales and lodging tax rates.
For instance, Connecticut has a 15% lodging tax rate, making it the highest state rate in the country. However, local jurisdictions are not allowed to apply a local accommodation tax rate.
Whereas, California leaves it to up local jurisdictions and doesn’t impose a state lodging tax rate at all. (Of course, that’s little comfort for those folks paying 17% in Anaheim.)
There are over 13,000 sales and use tax jurisdictions in the United States. The more locations a travel marketplace has listings for, the more likely they are to have to follow multiple iterations of state and local tax laws. And tax jurisdictions don’t always line up with ZIP codes or municipal borders, so you may have to follow different rules, even if all your listings are in the same state or county.
How can OTAs calculate lodging tax rates?
Figuring out and applying the correct tax rate for a single hotel or short-term rental can be quick and easy. However, if you’re facilitating bookings in multiple jurisdictions, staying on top of rates can be a lot more difficult.
You can manually research and input rates for the jurisdictions your platform has properties in, but if you have more than a handful of locations in different jurisdictions, ensuring accuracy can easily become a never-ending process. Rates can and do change frequently based on local ordinances and legislation.
Uploading tax rate tables is one way to take on the process. But note that rates can become outdated and don’t update automatically.
Tax calculation software uses updated rates, reducing the level of effort and improving the accuracy of rates applied.
Avalara can help you with accommodation taxes
Avalara Tax Content can help determine both lodging and sales tax calculation for online travel agencies. It’s regularly updated with rates at the state, county, and city levels. So you can spend less time on taxes and more time growing your business.
There are prebuilt integrations for many of the top ERP, CRM, ecommerce, and other business systems, plus a robust API if you want to tailor Avalara Tax Content to your technology environment.
To find out if Avalara is right for your platform, schedule a call today.
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