Published: June 13, 2024

Challenges in the Lodging Industry

Hotel service bell on counter to show Lodging industry tax challenges

Complex Tax Challenges in the Lodging Industry

The lodging industry is a cornerstone of the travel sector. However it’s not without its challenges, particularly when it comes to taxation. Hoteliers must struggle with a complex web of tax impositions that vary by jurisdiction. Thus creating a compliance maze that can be difficult to navigate.

Multi-Level Taxation

Hotels are unique in that they encounter myriad transactional taxes at all levels – state, county, and/or city. Some states levy a sales tax on room rentals, while cities and counties may also levy an occupancy tax. In other jurisdictions, states impose an occupancy tax along with locally levied occupancy taxes. Occupancy/transient tax, often referred to as lodging tax, can vary significantly between counties and cities. The primary challenge for hoteliers is accurately calculating and collecting these taxes,. This requires a deep understanding of the varying rates, rules, and exemptions that exist across different jurisdictions

Manual and Paper-Intensive Processes

Hotels must manually file county and city returns, which is often a paper-intensive process. They need to carefully track occupancy data and tax rates for each location. This adds to the administrative burden. Determining if a property is located within city boundaries can be a challenge in itself. It’s crucial to figure out if the city rate applies, as this typically implies a lower county rate. Discrepancies in city and county assessments can result in applying incorrect tax rates. This then potentially exposes the business to financial risk. Small municipalities, often with limited staff, can make it challenging for hoteliers to obtain necessary tax rate information, complicating compliance efforts.

Additional Charges and Tax Complexity

Additional charges, such as room service and parking fees, add another layer of complexity. Determining the taxability of these charges requires careful consideration and clarity. The inclusion of cancellation fees in the taxable base is inconsistent across states, with some including them and others not. Certain states, like Alabama, have unique tax requirements, such as a separate tax on telecom services provided to guests.

Permits and Licenses

The hotel industry requires various permits and licenses, all of which come with their own set of renewal and compliance protocols. For example, food/beverage, elevator, and certificate of occupancy permits necessitate yearly inspections. The renewal dates for licenses can vary, with some based on the anniversary of the initial issuance and others aligned with the end of the calendar year, simplifying the process by having a common renewal date.

Legal Cases and Differentiation Between Providers and Facilitators

Recent legal cases have emphasized the difference between lodging providers (hotels) and facilitators (online platforms). The liability for sales and occupancy taxes can differ significantly depending on the state. For instance, the Mississippi Supreme Court ruled that online travel companies (“OTCs”) like and Expedia are not considered hotels for tax purposes, exempting them from certain taxes. Conversely, in Colorado, counties can impose a lodging tax on room rentals, which are also subject to state sales tax, affecting travelers who book through OTCs.

State-Specific Tax Laws and Long-Term Stays

Additional research is often required to comprehend the subtleties of tax laws specific to each state. The definition of a long-term stay, which is determined by the number of days, can also be problematic. It differs from state to state. The refund policies related to a transition from a short-term to a long-term stay are also not uniform and vary across states. 

New Jersey Lodging Industry Tax Challenges

In New Jersey, once continuous occupancy has reached 90 days, the fees/taxes are no longer imposed and the fees/taxes previously collected are refundable to the occupant. If there is a pre-existing written contract between the parties for a rental period of 90 consecutive days or longer, the property owner or manager isn’t obligated to charge the occupancy fees/taxes. However, if the tenant leaves the property before the 90-day period, the fees/taxes are applicable for the entire duration of the stay. 

Georgia Lodging Industry Tax Challenges

In contrast, Georgia states that any stay longer than 30 days is exempt. However, if the rental becomes an extended stay rental and the fee has been paid, no refund will be issued.

New Hampshire Lodging Industry Tax Challenges

In New Hampshire, a state without a sales tax, hoteliers must collect the meals and rooms (rental) tax on all occupancy that lasts for less than 185 consecutive days. Once a guest reaches the 185th consecutive day of their stay, the hotel operator must refund all the tax money collected from the guest.


In conclusion, the lodging industry’s tax landscape is full of challenges that require diligent attention to detail and an ongoing commitment to compliance. Clarus stands ready to assist businesses in navigating these complexities regarding the lodging industry tax challenges, ensuring they remain on the right side of tax regulations. For expert guidance and support, contact the Clarus team today.