What are hotel taxes?
Hotel taxes are fees that properties are required to charge guests. These are usually regulated at the state or local level, and rates may vary widely from one location to another - similar to how sales tax works. The tax is typically collected at check-in or check-out, and the hotel is responsible for passing it on to the appropriate local authorities.
What causes hotel tax to be so high?
Hotel tax rates often correlate with how touristic a destination is - but not always. For instance, California and New York, two of the most visited states in the US, don't impose a statewide hotel tax. Meanwhile, states like Hawaii, which rely heavily on tourism and have higher infrastructure costs due to their location, often apply higher rates.
Hotel tax differences across states
Hotel and occupancy taxes vary not just by state, but often by city or county. Let's take a few examples:
- Chicago, IL: Charges a city tax of 17.39%, which includes an occupancy tax of 4.5%.
- Columbus, GA: Some municipalities charge up to 22.7% of the room price.
- Texas: Has a statewide occupancy tax of 6% for rooms over $15 per night. Local jurisdictions can apply additional charges.
- Florida: Doesn't have a statewide hotel tax, but counties can levy taxes between 3-6%, along with a tourist impact tax in high-traffic areas.
- New York City: Guests pay an occupancy tax of around 6% plus a $1.50 per night hotel unit fee.
- Los Angeles, CA: Applies a 12% transient occupancy tax in LA County.
The takeaway? Location matters - and rates can differ even between neighboring towns or cities.
What is occupancy tax?
Occupancy tax, also known as hotel occupancy tax, bed tax, or transient occupancy tax, is a fee collected by local governments to offset the impact of tourism. It's typically reinvested into infrastructure, tourism promotion, and public services. The tax is collected at check-in or check-out and paid to the relevant tax authority.
What does occupancy mean on taxes?
Occupancy refers to the number of rooms booked at a property. For example, if your hotel has 20 rooms and all are occupied, your occupancy rate is 100%. It's a key performance metric in hospitality and plays a role in forecasting and financial planning.
In property terms, occupancy can also refer to the legal right to use or reside in a space, whether rented or owned. This can be proven with a lease, rental agreement, or property deed.
Who pays occupational taxes?
Hotel operators, bed and breakfast owners, and property managers are responsible for knowing and complying with local tax laws. They must collect occupancy taxes from guests - typically at checkout - and remit them to the appropriate authorities.
Ultimately, it's the guest - whether a tourist or business traveler - who pays the tax as part of their total accommodation cost.
What is the purpose of hotel occupancy tax?
As mentioned earlier, hotel occupancy tax helps counterbalance the effects of tourism. How it's spent can vary, but some of the most common uses include:
Services
High tourist traffic can strain local services. Occupancy tax revenue is often used to fund sanitation, waste management, emergency services, and public maintenance
Tourism promotion
Revenue from occupancy tax can also support destination marketing, events, and tourism campaigns to attract future travelers.
Development
Funds may be used to develop local businesses, improve attractions, or support the overall economy of a tourism-dependent area.
Infrastructure
Tourism requires strong infrastructure - public transport, roads, parks, and airports. Occupancy tax helps cities maintain and expand these services to keep up with visitor demand.
How to calculate hotel occupancy tax?
To calculate occupancy tax, you'll need:
- Your room rate
- The state, city, and county tax rates that apply
Example:
- Room rate: $200
- State tax: 6%
- City tax: 4%
- Total tax: 10%, or $20
- Final price charged to guest: $220
Guests are usually aware that the price they pay will include taxes and fees beyond the base room rate.
Key terms
Tax rate
The percentage of tax added to a guest's bill, based on state, city, or local regulations. This rate is typically applied to the room rate and can vary significantly depending on location. Hotels are responsible for collecting and remitting the correct amount.
Exemption
A tax exemption means a property or guest is not required to pay certain taxes under specific conditions. For example, government employees or long-term stays may qualify for exemption in some jurisdictions. These can lower operating costs or allow properties to offer more competitive pricing.
Short-term rental
A type of lodging that is rented out for a limited period - usually less than a year and often less than 30-90 days, depending on local laws. It must not be the guest's primary or habitual residence. Many states regulate short-term rentals separately from hotels, and tax obligations may differ accordingly.
Property tax
This is a separate tax from occupancy tax, charged annually based on the assessed value of real estate. It's paid by the property owner - not guests - and supports public services like schools, police, and fire departments.
Occupancy tax return
A form filed by hotels, short-term rentals, and other accommodation providers to report the amount of occupancy tax collected from guests. This must be submitted regularly (monthly, quarterly, or annually depending on local rules) and is remitted to the appropriate tax authority - not the same agency that handles income tax.
The broader impact of hotel occupancy taxes
On the positive side, occupancy taxes help fund improvements that benefit both tourists and residents - like better infrastructure, services, and attractions.
On the downside, these taxes increase the final cost of a stay, which may catch some guests by surprise. That's why it's best practice to clearly communicate any additional fees during the booking process.
Conclusion
Because occupancy tax laws vary so much across the US, it's essential for hoteliers to stay informed and compliant. Understanding your local tax codes ensures that you're collecting the right amount, reporting accurately, and avoiding penalties.
In the end, it's part of your responsibility as a hospitality provider - and a great way to contribute to the destinations your guests love.
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