Occupancy tax-also known as hotel tax, lodging tax, bed tax, or transient occupancy tax-is a required fee that short-term lodging providers must collect from guests on behalf of local and/or state governments. While often added quietly to the bottom of a hotel bill, this tax plays a significant role in public funding, tourism infrastructure, and hotel operations.
Whether you're running a boutique inn, a large resort, or a short-term rental, understanding occupancy tax is critical to staying compliant and competitive in the hospitality industry.
Hotel tax, or occupancy tax, is a percentage-based charge that guests pay when booking short-term accommodation. It applies to hotel stays, motels, vacation rentals (like Airbnb), inns, and sometimes even campgrounds, bed-and-breakfasts, and RV parks.
This tax is collected by the hotel or accommodation provider at the time of payment and remitted to the relevant tax authority-typically a state, city, or county. Though guests foot the bill, the responsibility for collection, accurate calculation, and timely remittance falls on you-the business owner.
Common names for occupancy tax:
The short answer: both-and sometimes more than both.
In the U.S., occupancy taxes are commonly levied by:
Each layer may apply its own rate, and they are usually stacked, meaning the final tax rate can be a sum of several different percentages. For example, hotel stays in Houston are subject to a 6% state tax, a 7% city tax, a 2% county tax, and a 2% sports authority tax-for a total of 17%.
Because rates and rules vary so widely, it’s essential to consult your local and state tax authorities to determine your exact obligations.
At first glance, hotel tax seems a lot like sales tax-they're both collected at the time of purchase and paid by the customer. But they serve different purposes and have distinct rules.
Most hotels charge both occupancy and sales tax on each guest bill, and it’s important to itemize these separately on receipts for compliance and clarity.
Hotel taxes often seem high because they include multiple stacked charges. In tourist-heavy regions, these taxes can reach 20% or more of the room rate.
Here’s a look at how different states and cities stack up:
These high rates are usually justified by the need to fund local tourism promotion, infrastructure maintenance, public services, and community development that supports the hospitality sector.
Calculating occupancy tax isn’t hard-as long as you have the right information.
You’ll need:
Example:
Tip: Always break down the taxes on the receipt to avoid confusion and provide transparency to guests.
When booking through an OTA (Online Travel Agency) like Expedia or Booking.com, guests often see charges like “tax recovery charges” or “service fees.” These opaque terms are used to bundle together taxes and OTA markups.
Here’s how it works:
This allows OTAs to hide their markup and avoid disclosing how much of the “fees” are actual tax vs profit.
Occupancy tax revenue is used for a wide range of public initiatives, especially those tied to tourism and infrastructure:
In other words, occupancy tax helps sustain the ecosystem that makes tourism possible, which ultimately benefits hotels and hospitality businesses.
Most states and municipalities include a list of exemptions, though the details vary by location. Common exemptions include:
Always check with local tax authorities to confirm which exemptions apply in your region-and make sure you collect proper documentation to avoid penalties.
To find the occupancy tax rates for your hotel:
Keep in mind, you may owe taxes to multiple jurisdictions, and failure to comply could result in interest charges, back taxes, or fines.
1. Understand your regional tax structure.
Rates and rules vary widely. Know whether you owe state, county, or city taxes-or all three.
2. File taxes on time.
Most tax authorities have monthly or quarterly filing requirements. Mark deadlines clearly and automate reports if possible.
3. Keep detailed records.
Guest invoices, tax calculations, exemption documentation, and remittance receipts should be stored securely and accessible.
4. Consult an accountant.
A local tax expert can help you navigate complex structures and stay compliant through regulatory changes.
5. Use hotel management software.
Platforms like Paypro or Little Hotelier can integrate taxes into booking systems, ensuring accurate and automated calculations across every transaction.
Occupancy tax might seem like an administrative burden, but it’s a vital part of the hospitality ecosystem. When managed correctly, it not only keeps your hotel compliant-it contributes to the tourism, infrastructure, and services that help attract guests in the first place.
Looking to simplify hotel tax and payroll management?
Talk to Paypro about tools that help streamline compliance, reporting, and operations for hotels and lodging providers.