Technology — including tax automation — is changing lodging at all levels

Lockdowns and travel restrictions related to COVID-19 brought huge portions of the hospitality industry to a sudden stop, but at the same time accelerated the pace of technology adoption over the past two years in all segments of the industry.

That’s according to a range of industry experts, including Avalara’s own Oliver Hoare, who is the company’s general manager for Lodging.

“You have to be more efficient with your business in a post-COVID world,” Hoare says. “A lot of this technology change was going to happen before COVID; COVID just drove it faster.”

Hoare and other industry experts identify four major technology trends that were accelerated by the pandemic:

• As the virus spread, industry players responded with steps to reduce the amount of in-person contact guests need to have with hotel staff.
• Many properties closed temporarily, but those pandemic-related closures gave industry players time and space to update outdated technology, including reservation systems.
• Staffing shortages exacerbated by the pandemic — and the Great Resignation that followed ​​— led companies to automate more processes.
• The growth in remote work arrangements has led to increased bookings for multi-week vacation rentals at the expense of traditional hotels and resorts, which has had knock-on effects for everything from marketing to tax compliance.

The last thing anyone wanted to do in 2020 was stand in line at a hotel front desk to hand over a credit card and pick up a room key, with everybody breathing on each other and sometimes even touching.

That’s led to a number of technology-driven innovations, Hoare said. Cutting-edge lodging brands now offer guests the chance to download QR (or quick-response) codes to their phones, which they can then use to unlock their rooms, without having to talk with anyone.

Some vacation rental operators and managers offer a version of this, having installed electronic locks on the doors to their properties. When a guest arrives at the property, the host or manager then texts them a security code that allows entry.

“That’s very, very different from five years ago, when Bob and Margaret would leave the key under the flowerpot,” Hoare said.

Contactless payments — either made from a customer’s personal device or from smartphone apps — are becoming industry standards, experts say.

Online travel agencies — think Expedia, Priceline, Booking.com — have revolutionized the travel industry. But, while most major lodging brands have modern websites, they’ve also relied on 20^th-century computer systems to handle reservations and guest-room inventory, Hoare said. They used old-school mainframes. “They were really clunky old systems.”

Updating those systems was long seen as something that was important, but lodging brand managers just didn’t have bandwidth to do it, according to Hoare. But when properties started shutting down during the pandemic, that changed, he explained..

There’s a second factor at play here, Hoare said: Private equity groups have been busy buying up major travel brands and combining them into super-groups that are more efficient to operate. As part of that, they’re automating and outsourcing as many functions as they can, to reduce the corporate administrative overhead of the properties to support and increase profitability.

As a result of these two factors, many major industry players have adopted technology upgrades in the past couple of years, while others are exploring it, Hoare said.

Tax compliance software is one area that major brands are investing in, he said. With more brands extending across more state and local jurisdictions, companies are finding it easier to automate lodging tax registration, compliance, and remittance, instead of maintaining large teams of accountants to handle this kind of routine work.

During the height of the pandemic, the hospitality industry struggled mightily with staffing. Major chains laid off thousands of workers as local economies shut down, then found that many of them wouldn’t come back when businesses were allowed to reopen.

The industry has had difficulty attracting and retaining workers in tight labor markets all around the globe, according to Wouter Geerts, the director of Research at Skift, one of the world’s leading sources for travel and tourism research.

To address that, companies have experimented with robots to provide some basic services, Hoare said.

In Las Vegas, for example, hotel brands have experimented with having robots deliver room service meals or take luggage to a room, he said. The robots can do simple tasks that humans aren’t available to do, while also providing an extra layer of hygiene during the pandemic.

“These days, we don’t want anyone breathing on our food,” Hoare said.

This was another trend that hotel brands were experimenting with before the pandemic that has taken off since, he said. “They’re really accelerating those contracts.”

While COVID cratered business travel, it boosted properties that could cater to remote workers and their families, Hoare said.

That’s led to huge growth in the number of long-term stays at short-term rental properties, particularly in attractive rural destinations. In fact, almost a quarter of all Airbnb stays are now booked for 28 days or more.

That’s dramatically tipped the scale in the battle between traditional hotels and short-term vacation rentals, Hoare said. Short-term rentals snagged an extra 5% of the market share during the pandemic, and it’s easy to see why, “Can you imagine how many hotel bookings that one big Airbnb booking can vacuum up?”

In fact, the biggest problem for major brands like Airbnb and Vrbo is finding enough properties in the right locations to meet demand. The companies lose business when someone wanting to spend a winter month working in Arizona isn’t able to find a house or apartment to rent.

To combat that, they’ve adopted new technology that — among other things — suggests similar locations to would-be travelers. If there’s nothing in Tucson, for example, the brands’ websites will recommend looking at places like St. George, Utah, that provide a similar dry-climate experience.

Similarly, the upgrades allow flexible travelers to look for other dates in a specific community, if they’re set on traveling to a certain spot, but freedom to travel at a different time. 

With the upgrades, Airbnb is “trying to unlock more supply so they can get that booking, rather than lose it to somewhere else,” Hoare said.

The growth in the short-term rental industry is attracting an increasing number of property management companies that are taking on tasks formerly done by the owners of vacation rentals.

However, this growth also has attracted the attention of state and local tax collectors.

According to Hoare, mom-and-pop operators haven’t had a good record of complying with state and local tourism taxes. One 2019 report found that 75% of short-term rentals in one city were out of compliance.

Both Airbnb and Vrbo have programs in place to help, by calculating, collecting, and remitting lodging taxes on behalf of their hosts. However, the brands don’t have agreements with every local jurisdiction that collects lodging taxes, and some cities may have an agreement with one marketplace, but not all others. This means that even well-intended hosts can find themselves with a compliance issue.

Professional property managers have a better understanding of what’s involved, Hoare continues. But as their portfolios of rental properties grow, they find themselves handling more registrations, filings, and remittances across an expanding number of local jurisdictions and states. For them, automating their lodging tax compliance function could bring the same kinds of benefits private equity groups have experienced with their growing hotel and resort portfolios.

Hoare and Geerts will talk about technology adoption, tax compliance automation, and other hospitality industry issues during Avalara CRUSH Global, May 17–18. Click here for more information and to register for this tax and technology virtual event.