Not-So-Suite Dreams: Checking in on Lodging Taxes

Lodging taxes pose challenges to hotels, motels, online lodging marketplaces and other hospitality companies. Yet, lodging taxes also affect state and local budgets and, by extension, indirect tax policymaking.

These dual impacts make the 2025 HVS Lodging Tax Report a worthwhile read. The hefty document contains a ton of data on lodging and sales taxes imposed on hotel accommodations across all 50 states and 150 of the largest U.S. cities. This is the fifteenth annual study HVS has produced, and it tracks historical tax rates, collection data, and revenue distribution from 2019-2024.

Flattening Lodging Tax Revenue Growth

HVS’ analysis shows that the lodging industry is experiencing significant moderation following a strong period of post-pandemic recovery in 2022 and 2023. Room revenue growth slowed through 2024 and leveled off in early 2025, suggesting weakening travel demand. The 25 major markets analyzed saw lodging tax revenue increase only marginally from $4.05 billion to $4.19 billion, indicating revenue growth has stabilized following the post-pandemic recovery. (By comparison, lodging tax revenue totaled only $1.5 billion in 2021, when the pandemic brought travel to a near halt.)

Lodging tax compliance is challenging for companies with properties in multiple jurisdictions. At least two states impose no lodging tax, leaving taxation to municipalities. Other states combine dedicated lodging taxes with sales taxes. Plus, more than 20 states impose separate lodging taxes independent of sales tax systems. This patchwork of rates creates substantial compliance burdens for multi-jurisdiction hotel operators; and that’s before considering exemption rules and filing requirements.

From a broader tax policymaking perspective, lower lodging tax revenues do not have a huge impact on state general funds. In states with flourishing tourism, lodging tax revenues generally comprise less than 10% of general fund revenue. There’s a reason for this: lodging tax revenue is often earmarked for tourism, education, and local infrastructure improvements. Texas and Vermont are outliers in this sense, as larger portions of their general funds are seeded by lodging taxes compared to other states.

Ripple Effects Extend to Sales Tax Rates

Of course, state and local governments use tourism funds to promote tourism – investments designed to increase hotel visits and lodging tax revenue. When there are fewer marketing dollars available, hotel visits and lodging tax revenue can decline. When lodging tax revenue declines, state and local governments must look for ways to close those budget gaps and – stop me if you’ve heard this before – sales and use tax rate changes are among the most convenient levers to pull.

Many states already are dealing with budget constraints and state revenue decline, as my colleague, Vertex Chief Economist and Senior Tax Policy Director George L. Salis, notes in a post on Texas’s approach to taxing data processing services.

Despite their relatively small impact on many general funds, tax leaders shouldn’t sleep on lodging tax revenue and rate changes due to their indirect, and potentially larger, implications on sales tax rate changes.

For more information on how Vertex supports lodging and occupancy taxes, click here.