In a famous quote, Albert Einstein said, “The hardest thing in the world to understand is the income tax.” If he had ever run a hotel, he may have changed his tune, as hoteliers are taxed on almost everything involved with the operation of their properties.
“Hotels are responsible for a variety of taxes,” said Oliver Hoare, general manager for lodging at Avalara Inc., a provider of cloud-based tax-compliance automation software for businesses. “Commonly, hotel properties are required to collect, report and remit occupancy (or lodging) tax; sales tax; meals tax for restaurants on property; beverage alcohol tax, wherever alcohol is sold by the hotel; meetings, incentives, conferences & events (MICE) tax; parking tax; and communications/streaming tax on in-room entertainment.”
Perhaps one of the least understood hotel taxes, according to Hoare, is the tax associated with the extended or longer-term stay type, which was, until recently, generally defined as a guest remaining on a property consecutively for around 30 days or more.
“While hotels, in general, suffered throughout the pandemic, the extended-stay segment showed staying power for a variety of reasons, including housing corporate and first responder personnel who were still required to travel and needed longer-term accommodations,” he said. “During and after the first COVID lockdown, with newfound work-from-anywhere policies and the desire to be anywhere but home, all types of travelers ventured out to mostly out of the way locations for longer stays.”
He continued, “While many states and jurisdictions still use 30 days of uninterrupted occupancy as the guideline, some properties have changed to 60 days before a stay is exempt from occupancy tax, and others have extended out to 90 days. But note, the longer stays that are not eligible for occupancy tax are not exempt from other tax types, such as sales tax.”
Another factor is that for the entire stay to be occupancy-tax exempt, the guest must agree to an extended-stay contract or written agreement at the outset of the stay.
“Without that definitive document in place, the hotel would be responsible for collecting occupancy tax for the first 30, 60 or 90 days of that guest’s stay,” said Hoare. “Hotels need to track these one-off stay types, and accurately calculate, collect and remit these taxes. To the extent that this process is handled manually, hotels must devote human resources to the task and also factor in human error in tax compliance.”
In order to ease the burden on hoteliers, Avalara for Hospitality offers a solution to eliminate the time-consuming task of tax compliance, while also eliminating the chances of human mistakes when done manually.
“Continuing to do so [manually]is onerous, far too time-consuming and resource-intensive, and leaves lodging companies open to too much risk,” said Hoare. “Hotels are still operating using archaic systems, including using rate tables to calculate tax. Avalara for Hospitality offers a cloud-based, automated platform to handle all aspects of tax compliance, including multi-tax calculation, reporting, returns processing and remittance to taxing authorities. We offer hospitality businesses a very efficient, cost-effective way to manage their total compliance burden.”
Eliminating the risk factor will likely stave off audits. “As jurisdictions are looking to increase occupancy and other tax collection, hotels are squarely on their radar,” he said. “Our customers seek to reduce risk of time-consuming and expensive audits, so they have effectively outsourced their risk to Avalara. They’ve adopted our automated solutions in order to be more efficient as business ramps up again.”
Among its features, Avalara for Hospitality tracks lodging and related tax rates at the city, county and state level, and automates these tax calculations; streamlines reporting by integrating with a hotel’s existing hospitality marketplace, enterprise retail planning (ERP), property management system (PMS), point-of-sale and accounting platforms, delivering consistent rates and reporting across sales channels and internal systems; and improves process efficiency by allowing the offloading of returns preparation, filing and remitting to Avalara.
Avalara for Hospitality allows businesses to write a single remittance check, and Avalara distributes the funds based on what is owed to each jurisdiction, helping to reduce costs and increase efficiency and compliance. Another benefit is that “personnel previously tasked with handling tax compliance either manually or with outdated, on-premises software systems can now be allocated to higher-value functions,” Hoare said.
With the pandemic allowing hotels to focus on how to improve and streamline operations, including tax compliance, many properties and hotel companies have turned to Avalara for Hospitality. “We have been working with hospitality businesses during the pandemic to help them improve back-end processes and outsource increasingly complex hotel tax requirements,” said Hoare. “With hotels anticipating significant post-pandemic business and wanting to increase efficiencies wherever possible, the near- and long-term focus on leveraging cloud-based solutions like this is in line with addressing cumbersome, frequently changing and risk-intensive areas with the best available technology solutions.”
Future releases of the software will continue to address a number of things, such as “the mounting tax complexity needs of full-service hotels, including new and different tax types,” he said. “Avalara will continue to improve on the ability for hotels to file tax returns on a multi-tax level. Today, hotels want to improve their management of exemption certificates—considered a first stop for auditors looking for mistakes—and look to Avalara for exemption and other document-management solutions. And business license and registration management is becoming an area of greater complexity for hotel properties, and they’re looking to our solutions to address these jurisdiction-by-jurisdiction requirements.”