Hotel Tax Compliance: The Devil Is in the Details

When hoteliers ignore, are unaware of, or make mistakes with tax compliance laws, hefty penalties can be just the beginning of their problems. But software could be a Godsend.
Michal Christine Escobar
Senior Editor, Hotels
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When it comes to taxes, hoteliers are often all too familiar with how frustratingly detailed and pervasive they are. Consider this, hotels not only pay the nightly lodging tax but in some areas also have to pay a tax for the bottled water left on your nightstand or the Netflix service provided to your room or the airport shuttle service. (My personal favorite is the lease transaction tax where hotels have to pay for allowing guests to add a rollaway bed to their room or rent DVDs, video games from the hotel.) Add to this the fact that tax regulations on hotels are constantly changing and vary from city to city and from state to state. Monitoring these taxes and ensuring they’re paid in full and on time requires meticulous detail, hours of labor and a very astute level of tax law understanding.

To help hotels with this onerous task, Avalara, Inc., a provider of cloud-based tax compliance automation for businesses of all sizes, recently announced the debut of Avalara for Hospitality  -- a solution for hotel chains, resorts, online travel agencies, property management groups and short-term rental operators. This technology automates the most onerous and time-consuming aspects of tax compliance, including calculation and filing of sales and lodging tax returns. To learn more about this the problem facing hoteliers, HT spoke with Pam Knudsen, Senior Director of Compliance at Avalara MyLodgeTax.

What are some common tax compliance issues that hotels face?

The compliance issues range across multiple fronts.  In addition to lodging taxes, hotels may be subject to various other taxes such as Sales & Use, Meals, Beverage Alcohol, and even Communications taxes. Hotels need to understand what tax liability requirements they have, ensure they are registered appropriately for all the necessary tax types, and report and remit on a timely basis. With the legislation regarding these items changing frequently, staying informed and on top of these requirements is a challenge for many businesses. 

How costly can tax compliance mistakes be for hoteliers? 

Failure to collect, file and remit timely can have severe consequences. Penalty and interest generally start at 10% of the liability and continues to increase if the liability goes unpaid.  In addition to costly penalties and interest, continued compliance issues can cause registrations to be revoked, liens issued, and demands to cease business from the jurisdictions. 

What can an automated solution for tax compliance offer that more traditional means/methods cannot? 

Automated solutions can simplify the process and remove the manual, administrative burden from staff, allowing them to focus on areas that bring value to the business. Additionally, automated solutions are designed to keep track of the changing requirements in order to stay in compliance.  

How and why does this software integrate with other hotel software (PMS, reservations, housekeeping)?

A direct integration allows real time exchange of information including calculation based on the type of “item” being sold.  This also means the data is in the system in a timely fashion in order to meet the filing and funding deadlines without additional work by the hotel’s financial team. 

Any other comments?

Compliance regulations are an ever-changing landscape. As many cities across the US are increasing their lodging tax rates to make up for lost revenue due to the pandemic, hotels have to track and stay on top of these changing percentages. Another compliance regulation that is constantly evolving is the length of stay and what is considered a long term or short term stay. Some jurisdictions still use 30 days of uninterrupted occupancy as the rule of thumb; some have changed to 60 days before a stay is exempt from occupancy tax; and others have extended out to 90 days. Hotels are responsible for tracking and staying abreast of these length-of-stay terms for their region and collecting the tax properly.  By outsourcing the management of these requirements, resources can be focused on the areas that grow and improve the business instead of the administrative work involved in not only completing the filings but researching, understanding and adapting to the changing requirements. 




Pam Knudsen is Senior Director of Compliance at Avalara MyLodgeTax, leading the Lodging tax team and Returns Experience/Reconciliation team for Sales & Use. She serves as a leading voice in vacation rental tax compliance and regulation, in addition to bringing in-depth experience across software/SaaS technology as well as ERP systems. Pam joined Avalara in 2012.