Avalara Tax Content for Lodging improves hospitality tax compliance

In the dynamic world of hospitality, tax compliance is one of the most complex challenges hotels and online travel companies (OTCs) face. Managing occupancy tax, lodging taxes, and other special local levies, as well as complying with constantly evolving regulations - the process is anything but simple. Hotels, especially those operating across multiple jurisdictions, deal with the ongoing task of keeping tax calculations accurate, up to date, and compliant.

How to calculate lodging tax

Hotels and businesses across the industry employ several methods to calculate taxes, each with its own set of benefits and drawbacks. The method chosen often depends on the size of the hotel, its geographical reach, and the complexity of its operations.

For the most part, hotels and many OTCs rely on one of three lodging tax calculation processes: offline, online, or hybrid.

Offline lodging tax calculation

Offline tax calculation depends on local systems or manual processes, often in the form of on-premises software or even spreadsheets. These systems store tax rates and rules locally, requiring users to manually update the rates as tax changes occur.

Managing tax content across multiple jurisdictions can be particularly challenging, as each jurisdiction may have unique and frequently changing tax rules, making it difficult to keep systems current and compliant.

Benefits of offline calculation

Independence from internet connectivity. With offline systems, hotels don't need to rely on consistent internet access. This is especially useful for properties located in areas with unreliable connections.

Customizable. Hotels that have specific requirements for tax calculation, such as applying unique rules or rates for a niche jurisdiction, can configure these systems more easily.

Cost-effective for smaller operations. For smaller properties with limited geographic reach, offline systems are more affordable since many don't require subscriptions or complex integrations.

Challenges related to offline calculation

As with any method, offline tax calculation has its challenges, especially if you don't have the right system in place. Due to the manual updates required, offline tax calculation can be labor intensive and error prone. An increased likelihood of human error may lead to incorrect tax filings or underpayments that can result in costly penalties.

One of the many complexities of lodging and hospitality tax compliance is the ability to stay ahead of upcoming tax changes. Depending on your particular business model, you may need months to prepare for new requirements and having a head start can help ensure your team has time to thoroughly research the impact of the legislation.

Offline tax calculation can also be difficult to scale, since manually managing each location's tax rates can quickly become overwhelming and out of date.

Online lodging tax calculation

In contrast, online tax calculation relies on cloud-based platforms that automatically pull real-time tax rates and rules. Many OTCs, large hotel chains, or those operating across jurisdictions choose this method because it provides automatic updates in real time, improving accuracy.

Benefits of online calculation

Real-time updates. One of the biggest advantages of online tax calculation is real-time updates. Cloud-based systems automatically adjust for changes in tax rates, helping you to comply with the latest regulations.

Ease of use. Online systems are often integrated with other hotel management software, such as property management systems (PMS), for seamless automation of tax calculations across all departments.

Scalability. These systems are designed to scale with a business, making it easy for hotel groups operating in multiple states or countries to apply the correct tax rates at each property without needing manual intervention.

Challenges related to online calculation

A major challenge for online tax calculation is its dependence on internet connectivity; if a hotel experiences an outage, it may temporarily lose the ability to calculate taxes accurately. This could potentially cause a major disruption to their business and compromise compliance.

Hybrid lodging tax calculation

The hybrid approach is gaining popularity among mid-market to enterprise-level hotels because it combines the benefits of both offline and online systems. In a hybrid model, hotels use online platforms for real-time calculation but maintain an offline backup that can be used during internet outages or in regions where online connectivity is not reliable.

Benefits of the hybrid lodging tax calculation process

Flexibility. Hotels and OTCs can switch between online and offline modes depending on their connectivity or other situational needs, making the hybrid approach highly adaptable.

Redundancy. Having an offline system in place helps ensure that a company's tax calculations continue even if the primary online system is down.

Best of both worlds. Having offline and online systems that work together seamlessly can provide real-time updates when connected and allow for continued operations in offline mode, so there are no gaps in tax calculations or compliance.

The complexities of lodging and hospitality tax management

The hospitality industry, particularly hotels, must navigate the intricate world of lodging tax compliance. Lodging tax rates vary greatly from one jurisdiction to another. Even within the same state, a business may be subject to state, county, city, and special district taxes. These rates can change frequently, creating a regulatory labyrinth organizations must constantly monitor.

Certain states also impose special excise taxes, transient occupancy taxes (TOT), and other local levies specific to the lodging industry. Without an automated system that specializes in lodging and hospitality taxes to track these variables, hotels face significant risks of underpaying or overpaying taxes, both of which can result in costly audits or penalties.

Additionally, the rise of short-term rentals (STRs) has further complicated the landscape, as many municipalities now require hotels and STR operators to adhere to similar lodging tax regulations. This evolving tax environment makes it even more critical for hotels to adopt flexible, accurate tax calculation systems that can handle these complexities.

On top of rate variations, staff scarcity, employee turnover, and rising wages continue to be areas of concern as they all impact a hotelier's ability to efficiently manage compliance processes. Finding staff with tax expertise is tough in a tight labor market. Staff shortages also negatively impact an organization's capacity to adequately train up staff, especially when new hires are needed quickly. For example, tax-exempt transactions require specific documentation and careful handling - skipping this training could lead to reporting mistakes. Though those transactions might not come up frequently, they're crucial for compliance.

Staff turnover exacerbates the training problem, particularly when someone knowledgeable about sales and use taxes leaves the organization. This issue becomes more critical for hotel managers or accounting staff responsible for month-end data aggregation and tax reporting. Unlike front-office teams, where multiple individuals are trained to cover shifts, hotels often rely on just one person to manage tax reporting to corporate or tax authorities.

How implementing the right tax technology can help your business

The challenges of navigating tax compliance in the lodging industry can seem overwhelming, but implementing the right technology can substantially lighten the burden. It's essential to partner with a company that can support you regardless of your preferred tax calculation methods.

Introducing Avalara Tax Content for Lodging

Avalara Tax Content for Lodging was specifically designed to simplify and improve the accuracy of tax compliance for hotels, online travel companies, property management companies, and other hospitality groups that need regularly updated tax content for offline calculations.

How it works

Real-time updates with offline flexibility. With Avalara Tax Content for Lodging, you can receive highly accurate, regularly updated tax content for all your properties while maintaining the flexibility of offline tax calculations. This is particularly valuable for hotels with multiple locations, as it helps to ensure that every property stays compliant, no matter where it's located.

Quick delivery and customization. Once you sign up, your team can access an extensive array of lodging tax content within minutes. Additionally, you can customize the delivery format and set up notification preferences to make sure your tax data is integrated smoothly into your company's existing systems. Whether you want your tax content delivered via SFTP or API, the process is seamless and straightforward.

Expertly researched and regularly updated. One of the biggest pain points in managing lodging tax is keeping up with the ever-changing tax regulations. Avalara Tax Content for Lodging provides you with expertly researched, regularly updated lodging tax content for each state, city, and jurisdiction. This significantly reduces the risk of errors and penalties, improving accuracy and helping you remain compliant with all local and state regulations.

Automation and efficiency. By using Avalara Tax Content for Lodging, businesses can automate their tax calculation processes, reducing the need for manual intervention. This not only frees up valuable resources but also supports more accurate tax filings and a streamlined workflow. The product supports the efficient use of business resources by arming you with full control over your tax data management, processing, and scheduling.

Avalara AvaTax for Hospitality

By partnering with Avalara, your company no longer has to choose between offline or real-time tax calculations - you get the flexibility to do both. If you prefer a cloud-based system for your lodging and hospitality tax calculations, Avalara AvaTax for Hospitality is the solution for you.

Uniquely designed for the hospitality industry, AvaTax for Hospitality is an established product trusted by some of the largest hospitality companies in the United States. It's able to simplify hospitality taxes by calculating sales and use taxes and occupancy taxes based on regularly maintained content, while providing a central location for storing hospitality tax compliance information. It also provides users with one source of data, removing the need to research and maintain multiple sources of rate and jurisdiction information.

Tax compliance in the hospitality industry doesn't have to be overwhelming. With Avalara, you can enjoy the peace of mind that comes with knowing your tax calculations are more accurate, up to date, and compliant, no matter how complex your operations may be. Whether you operate a single boutique hotel or manage a large portfolio of properties, our solution is designed to optimize your tax calculation process.

Together, Avalara AvaTax for Hospitality and Avalara Tax Content for Lodging offer a comprehensive solution for all your tax calculation needs, providing real-time accuracy and offline flexibility. These products are trusted by some of the largest travel brands in the world, ensuring reliable and efficient tax compliance. With proven expertise from Avalara, you can rest assured your tax processes are streamlined, more accurate, and regularly updated.

Let Avalara take the burden off your team so you can focus on what matters most - delivering exceptional guest experiences. Contact us today to see how Avalara can streamline your lodging tax compliance.