Lodgify
Finance

What is Tax Collection?

Updated 2026-05-28

In the vacation rental industry, tax collection refers to the mandatory process of adding taxes—such as occupancy, lodging, tourist, sales, or value-added tax (VAT)—to a guest's booking total. The specific taxes and rates are determined by local, state, and national laws where the property is located.

It is the property owner's or manager's responsibility to accurately calculate and collect these funds from the guest at the time of payment.

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How it works

First, a host must research and identify all applicable tax types and rates for their rental's specific address. Next, they configure their booking systems to automatically apply these taxes to guest invoices.

For direct bookings, property management software like Lodgify can automate this by allowing hosts to set custom tax rules. When a guest pays for their reservation, the collected tax amount is included in the total payment.

The host then holds these funds separately until they are due to be paid to the respective tax agencies.

Why it matters

Proper tax collection is crucial for legal compliance, helping hosts avoid significant fines, penalties, and interest on unpaid taxes. It ensures financial transparency with guests and contributes to the public services and infrastructure that support tourism in the local community.

For the business, it represents a key aspect of professional financial management and helps maintain a good standing with local authorities.

Examples

  • A host in Scottsdale, Arizona, configures their direct booking website to add the state, county, and city transaction privilege (sales) tax and transient lodging tax to each reservation total.
  • A property manager in Europe ensures their system correctly applies the Value Added Tax (VAT) rate for accommodation services to all invoices for their serviced apartments.
  • In a jurisdiction where Airbnb automatically collects and remits state-level occupancy tax, a host must still manually add and collect the separate city-mandated tourist tax for their bookings.
  • A cabin owner in the Great Smoky Mountains uses their property management software to set up different tax rules for their properties in Tennessee and North Carolina, reflecting each state and county's specific requirements.

Frequently asked questions

What is the difference between tax collection and tax remittance?+
Tax collection is the process of charging and receiving tax payments from guests as part of their booking fee. Tax remittance is the separate, subsequent process of paying those collected funds to the appropriate government tax agencies.
Do OTAs like Airbnb and Vrbo handle all tax collection for hosts?+
Not always. While major OTAs often collect and remit certain taxes in many popular jurisdictions, they may not handle all of them (e.g., local or city taxes). Hosts are ultimately responsible for verifying which taxes are managed by the platform and which they must collect themselves.
How do I determine the correct tax rates for my vacation rental?+
You can find your local tax rates by visiting the official websites for your city, county, and state's department of revenue or finance. Due to the complexity and frequent changes in regulations, consulting with a local accountant or tax professional is also highly recommended.
What happens if I fail to collect taxes from my guests?+
Failing to collect and remit required lodging taxes can result in serious consequences, including significant fines, audits, payment of back taxes with interest, and other legal penalties imposed by the tax authorities.
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