Exemptions don’t need to complicate hotel tax compliance

Navigating the nuances of collecting and reporting lodging tax is vital for anyone in the hospitality industry. If you’ve been keeping up with our series, you’re already aware of the complexities of hospitality sales tax compliance and how ongoing staffing shortages complicate maintaining these standards. Now, let’s delve deeper into a particularly thorny issue: exemptions.

Understanding who is exempt from paying room tax involves more than just knowing the rules — it’s about accurately applying them in busy, real-world situations. This can be challenging, particularly since each exemption requires specific documentation and verification to ensure all is handled properly.

In the world of room rentals and inn management, every guest matters — and so does every exemption. Here’s how to handle these without letting them become overwhelming.

Exemption rules in the hospitality sector aren’t one-size-fits-all — they change depending on who’s staying and why. Imagine you’re running an inn where your guests include everyone from weekend tourists to government officials. Each type of guest follows different tax rules, which affect your tax compliance efforts.

So, who is exempt from hotel occupancy tax? Let’s explore the specifics. Typical travelers at your inn might pay a total of 13% in taxes, combining state sales and local occupancy taxes. However, government officials might not pay these taxes at all. Here’s how it breaks down:

• Typical travelers: 6% state sales tax + 7% local occupancy tax = 13% total taxes assessed
• State government officials (with official ID): No taxes assessed
• State Forestry Service (state agency): Only the 7% local occupancy tax is applied
• Church (located outside county): They’re also only subject to the 7% local occupancy tax
• Church (located in county): Completely exempt from taxes

It’s a good practice for hotels to check all tax data and documentation every day by keeping track of who stays and their reason. This quick daily check helps catch and fix any mistakes right away, at the point of check-in. By staying proactive about tax exemptions, you ensure a transparent and hassle-free experience for every visitor instead of your guests being unpleasantly surprised by their bills.

Understanding the specifics of long-term stays can become complex, especially with the increasing popularity of short-term rentals and the diverse needs of guests. The stakes are high because missteps can lead to overcharging your guests and compliance issues.

For many travelers, staying more than 30 days in one place shifts their stay from short-term to long-term, which can change how their taxes are filed. Most places exempt these long-term guests from certain taxes once they hit this 30-day mark. It sounds straightforward, but the reality is more involved. For the initial 30 days, you’re still on the hook for posting taxes to the guest’s account. When day 31 rolls around, not only do you need to stop charging these taxes, but you also have to issue credits for the taxes you collected during the past month.

This manual adjustment extends to return filings — especially when stays overlap months. You’ll need to make special adjustments in your return filings to reflect the correct taxes. This often requires manual inputs, which leaves room for error.

To keep on top of these rules and ensure you’re handling long-term stays correctly, it’s helpful to have a solid understanding of the tax laws and lodging tax requirements that apply to your hotel locations in each state.

When guests check in, collecting and managing exemption certificates is key, but let’s be honest — it can really slow things down. Each guest claiming exemption must provide a hotel tax exempt form upon check-in, documenting their eligibility for tax relief. If you’re not careful, any small oversight can spiral into bigger issues, complicating tax filings and audits down the line. Documentation and management of these certificates during a guest’s arrival needs to be spot on to prevent these complications and avoid less-than-ideal experiences for both the front desk staff and guests. Exemption certificates validate a guest’s right to a tax waiver based on criteria like government or nonprofit status, and each needs to be accurately processed to ensure compliance.

This is where leveraging technology can make a significant difference. Automating the capture, documentation, and management of exemption certificates not only streamlines the process but also prepares the hotel better for monthly tax filings. By digitizing and managing these critical compliance documents electronically, hotels can dramatically reduce the effort and risk associated with exemption management and sales tax return filing.

While managing exemptions can be a significant challenge, it doesn’t have to be a deal-breaker with the right solutions in place. Utilizing software and automation can equip staff and property managers and all whose roles involve the exemption management process, by decreasing the risk of errors, and ultimately protecting your business while improving the guest experience.

By adopting technology solutions like Avalara for Hospitality, hotels can automate the capture and documentation of exemption certificates and tax return filing, which streamlines their overall tax compliance processes, freeing up hospitality businesses to devote more time to enhancing guest experiences and less time entangled in administrative tasks.

Ready to simplify your tax compliance? Check out our 5-step guide to managing sales tax compliance for hospitality businesses, complete with a practical checklist to streamline every step of the process. As the hospitality industry evolves, leveraging these technologies will be crucial for hotels aiming to maintain a competitive edge and operational resilience amid ongoing lodging tax changes and challenges.

With these tools and strategies, hotels can transcend typical compliance headaches, feeling rest assured that their hotel operations are both effective and compliant.