Avalara MyLodgeTax > Blog > Lodging Taxes > Lodging taxes are a hot topic in communities around the U.S.

Lodging taxes are a hot topic in communities around the U.S.

  • Oct 24, 2017 | MyLodgeTax

town hall meeting

Lodging taxes got their start in the United States in the 1940s, and although they’re nothing new (contrary to some beliefs), they’ve only recently become a hot topic. In a tax-sensitive country, taxing those who are just passing through your town may be more politically favorable than taxing permanent residents whose votes must be won — because it’s those visiting guests who are actually paying the tax out of pocket.

At first, lodging-tax revenues were largely used to boost tourism, but that’s no longer strictly the case. And with state and local governments continually cash-strapped, levying lodging taxes (also known as occupancy taxes, hotel taxes, tourist taxes, bed taxes, transient taxes. and more) is a tempting option that many communities are considering.

With the changing times and the explosion of short-term rentals and platforms such as Airbnb, VRBO, HomeAway, and others, many communities are looking at lodging taxes as a way to grow tax revenue.

For example, in Nashville, Mayor Megan Barry recently proposed a higher hotel tax that, along with sales and other tax increases, would contribute to funding a proposed new $5.2 billion transit system. The current hotel tax is 6 percent — with half of the revenue dedicated to funding the Music City Center — but would increase to 6.25 percent in 2018 and to 6.375 percent in 2023 under the proposal. The combined sales and hotel tax rate would be among the highest in the U.S. if approved in a ballot referendum in May.

“This is a balanced funding proposal that will ensure visitors and out-of-county residents who may use our roads or transit system will pay their fair share along with residents who will have access to better jobs and transportation options as a result of this proposal,” Barry said in The Tennessean.

In Albemarle County, Virginia, officials recently expanded the lodging tax base by amending the law to require anyone who rents out rooms in their homes for fewer than 30 days to collect a 5 percent lodging tax from renters, obtain a business license, and pay business taxes.

Officials have also worked to “identify areas where the zoning ordinance might broaden opportunities for residents to engage in room rentals.” A proposed change would expand zoning regulations to include allowing short-term lodging in attached dwellings such as townhomes and condominiums, and permit rentals of whole houses or apartments. The current law only allows rentals in private homes if the owner or manager is also staying in the home. County officials held no fewer than nine public input sessions on the topic last month.

Meanwhile, in Hudson, Iowa, a public referendum on whether to adopt a 7 percent tax on overnight lodging stays in the city will appear on the Nov. 7 ballot — even though the town currently has no hotels or motels.

In Iowa, cities are required to use at least half of lodging tax revenue for tourism-boosting activities. Hudson proposes to use the other half of the revenues “for neighborhood housing and infrastructure revitalization, including road repairs, neighborhood stabilization and parkland or green space acquisition, maintenance and operation and for any other lawful purpose.”

City leaders in Decatur, Alabama, have suggested that one way to relieve the city’s budget woes would be to cap the amount of lodging tax revenues that could go to the Decatur-Morgan County Convention and Visitors Bureau, with the remainder going to the general fund. The proposal was tabled, but might be back.

Keeping up on lodging tax laws

These are but a few examples of how tax jurisdictions are looking to cash in and more closely regulate lodging tax collection. For owners of short-term and vacation rental properties, it’s important to be aware of changes in your local lodging tax laws. This information is essential to make sure that you are in full compliance — charging, collecting, and remitting the right lodging tax amount and avoiding the hassles (not to mention fines, penalties, and back taxes) that can result from getting them wrong — or neglecting to file at all. When your community starts talking about lodging taxes, it’s time to pay attention.

Lodging tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
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Avalara Author MyLodgeTax
At Avalara MyLodgeTax, we provide the fastest and easiest way for short-term and vacation rental property owners to comply with their lodging or occupancy tax requirements. We manage your lodging taxes so you don't have to and guarantee your compliance — period. If we make a mistake, we'll fix it at no cost to you. No contracts, no obligation, no worries. Never worry about lodging taxes again. Contact us at MyLodgeTax@Avalara.com.