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What is Lodging Tax?
A lodging tax, also known as an occupancy tax or transient tax, is a specific type of sales tax imposed on the charge for occupying a room or property for a short-term period. These taxes are set by local or state jurisdictions and apply to accommodations like vacation rentals, hotels, and B&Bs.
The tax is calculated as a percentage of the nightly rate and other mandatory fees. The vacation rental owner or manager is legally responsible for collecting this tax from guests and remitting it to the appropriate government agency.
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How it works
When a guest books a property, the lodging tax is added to their total bill. The host or property manager collects the full amount, including the tax, at the time of payment.
The host must then hold these tax funds separately and remit them to the designated tax authority on a regular schedule, which could be monthly, quarterly, or annually. In some regions, Online Travel Agencies (OTAs) have agreements to collect and remit these taxes on behalf of the host for bookings made through their platform, but hosts are ultimately responsible for ensuring compliance for all bookings, including direct ones.
Why it matters
Understanding and complying with lodging tax regulations is essential for legal operation and financial accuracy in the vacation rental industry. Failure to collect and remit the correct tax amount can result in significant fines, back taxes, and legal penalties.
Accurately accounting for these taxes is also crucial for pricing strategies and transparent communication with guests. For hosts managing direct bookings, using a vacation rental website builder with built-in tax settings, such as the one offered by Lodgify, ensures that the correct rates are applied automatically, reducing the risk of errors.
Examples
- A host in Miami Beach, Florida, must collect a 6% Tourist Development Tax and a 7% state sales tax on a 5-night booking, listing these taxes as separate line items on the guest's invoice.
- A property manager notices that for bookings through Vrbo, the platform automatically collects and remits the local Transient Occupancy Tax due to a marketplace facilitator law in their state.
- The owner of a cabin in the Smoky Mountains with a direct booking website must register for a tax permit with the state of Tennessee and Sevier County to collect and file combined sales and lodging taxes.
- During an audit, a vacation rental owner is found to have undercharged lodging tax for two years and is required to pay the shortfall plus penalties and interest.
Frequently asked questions
Who pays the lodging tax?+
How do I find out my local lodging tax rate?+
Is lodging tax different from income tax?+
What happens if I don't collect lodging tax?+
Related terms
Occupancy Tax
Occupancy tax is a tax levied on the rental of short-term accommodations, which hosts are legally required to collect from guests and remit to local or state…
Transient Occupancy Tax (TOT)
Transient Occupancy Tax (TOT) is a tax levied by local or state governments on the rental of short-term accommodations, such as vacation rentals, hotels, and…
Tourist Tax
A tourist tax is a levy imposed by local or regional governments on visitors staying in short-term accommodations. The revenue is typically used to fund…
Tax Collection
Tax collection is the process by which vacation rental hosts and managers charge, collect, and prepare to remit applicable taxes from guests to the appropriate…