Checking in on the Hospitality Industry’s Tax Challenges

Whether you’re a bed and breakfast, an online travel agency (OTA) or a hotel chain, accurate tax calculation is critical. While these calculations have always been complex, the ramifications of non-compliance have never been higher.

Companies in the hospitality industry -- especially hotels and other lodging businesses – face intense challenges in light of a spike in litigation over lodging and occupancy taxes. Headlines from business pages and digital publications throughout the country demonstrate this surge:

• “Judge: Online Travel Agencies not Paying Enough Chicago Taxes” (Chicago Tribune)
• “Judge Lets District’s Online Hotel Tax Lawsuit Proceed” (Washington Business Journal)
• “Haywood Threatens Lawsuits against Lodging Owners over Room Tax” (Smoky Mountain News)
• “Two Hotels Sued over Lancaster County Room Tax” (Lancaster Online)

Currently, more than a dozen separate legal battles over unpaid transient occupancy taxes are playing out among numerous state and local jurisdictions and travel companies. This litigation already is especially painful for OTAs, some of which are keeping more than $100 million in reserve to be prepared to address negative litigation outcomes.

Although there is no silver-bullet solution that guarantees tax compliance, lodging companies can limit their legal risk by:

1. Reexamining existing tax-data management efforts to see where potential risks exist;
2. Leveraging technology and tax solutions to automate time-consuming, error prone tax rate and rule collection and application;
3. Prioritizing greater collaboration between the tax and information technology (IT) functions for the purpose of facilitating faster and more convenient access to tax and tax-compliance data; and
4. Considering a tax data management tool that collects and consolidates tax data in a single, warehouse, a structure that supports reporting, planning, and audit needs.

These steps also can lower the likelihood that your lodging company winds up in the headlines for the wrong reasons.

*For more information about how Vertex is helping the hospitality industry with these types of tax issues, please click here.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.