Hotel Sales and Lodging Taxes Explained: 2025 Guide for U.S. Hoteliers

Introduction

The U.S. hotel industry enters 2025 with cautious optimism. Total travel spending is projected to reach $1.35 trillion, a modest 1.1% increase from 2024, driven largely by domestic leisure travel at $895 billion, while international inbound spending is expected to dip 3.2% to $173 billion amid economic headwinds and policy uncertainty.

For hoteliers, this rebound brings fuller occupancy rates but renewed scrutiny of one of the most overlooked operational costs: sales and lodging taxes. These levies fund everything from tourism boards to convention centers and now generate more than $4.1 billion annually across major U.S. markets. While this represents slight year-over-year growth, it also signals a slowdown as RevPAR plateaus.

With lodging tax revenues up 4% year-over-year and new regulations targeting short-term rentals extending into traditional hospitality, non-compliance in 2025 is a direct threat to profitability. Combined sales and lodging tax rates typically range between 10% and 15% in high-tourism states and can exceed 20% in cities such as New York once local add-ons apply. Missteps involving gross versus net receipts, extended-stay exemptions, or OTA remittance splits can result in audits, penalties of up to 25%, and severe cash-flow disruption at a time when supply growth continues to lag demand.

This guide, developed by Antravia Advisory, clarifies how hotel sales and lodging taxes work in 2025. From boutique inns to large city hotels, we examine the fundamentals, the latest regulatory changes, key application nuances, financial impacts, and compliance strategies. Antravia has streamlined tax processes for over 200 properties, recovering an average of $15,000 per client in overpaid taxes. Whether managing Airbnb integrations or keeping pace with IRS per diem updates, this guide will help ensure your 2025 financials remain as well-managed as your front desk.

Understanding Hotel Sales and Lodging Taxes

Hotel taxation in the United States falls into two primary categories: general sales tax and specialized lodging or occupancy tax.

Sales Tax:
Sales tax applies broadly to the sale of goods and services, including room rentals. Most states classify hotel stays as taxable “furnishings and services.” Average statewide rates are around 6–7%, but local governments frequently add surcharges—California’s 7.25% base is one example. The calculation is generally straightforward: the tax applies to gross receipts, including room rates and mandatory fees, less refunds or discounts. Exemptions are rare, though government and military stays often qualify.

The IRS 2025 per diem update increases the standard lodging rate to $110 per night (up $3 from 2024), which indirectly affects how reimbursements and taxable allowances are handled for business travelers.

Lodging Tax:
Lodging or occupancy taxes are imposed specifically on transient stays—typically under 30 days—to fund tourism, marketing, and public infrastructure. More than 40 states impose such taxes, usually between 1% and 15%, with additional flat fees of $1–5 per night in major cities. These taxes are generally calculated on the gross room charge, excluding OTA commissions, and vary by state in duration thresholds (for example, 90 days in Connecticut). Roughly 70% of the revenue collected is directed toward tourism promotion, indirectly supporting hotel demand.

Key distinctions:

• Base: Sales tax applies to taxable sales; lodging tax applies to the occupancy charge.

• Administration: Sales tax is usually collected by the state, while lodging taxes are often managed by local authorities.

• Remittance: Payments are typically due monthly or quarterly once nexus thresholds—commonly $100,000 in annual sales—are met.

• Penalties: Late filings incur fines of 5–10% plus interest, with mid-sized hotels averaging $10,000 in back-tax assessments when audited.

For a 200-room hotel operating at 70% occupancy and a $200 average daily rate, that translates to roughly $500,000 per year in taxes, a figure that can quickly grow if reconciliations are inaccurate. Automated tax-rate tools help prevent overcharges and maintain guest satisfaction.

The Evolution of Hotel Sales and Lodging Taxes and 2025 Updates

Hotel lodging taxes originated in the 1960s, when states such as Nevada sought to monetize tourism growth. By 2025, these levies generate more than $20 billion annually nationwide. Following the Wayfair decision in 2018, remote sellers, including online booking platforms, were brought under state nexus rules. Current enforcement now focuses on accuracy and remittance discipline.

2025 Highlights

• Revenue Trends: States saw an average 4% growth in lodging tax collections in 2024, but forecasts for 2025 indicate slower momentum amid a projected 8.2% decline in international arrivals and continued inflationary pressure. The average excise fee is now $2.74 per night, representing an effective 2% rate increase.

• Regulatory Shifts: New rules include Alabama’s mandate that intermediaries collect transient occupancy tax (TOT), Rhode Island’s requirement for platform registration, Colorado’s simplification of facilitator reporting, and Delaware’s new 4.5% short-term rental tax.

• Federal Alignment: IRS Notice 2024-68 raised per diem lodging rates, easing reimbursement processes while expanding audit exposure for taxable fringe benefits. Discussions in Congress continue around extending bonus depreciation for hotel construction and renovation.

• Local Adjustments: More than fifteen jurisdictions increased rates in 2024, with Austin’s total lodging tax reaching 11% and a further 2% surcharge for short-term rentals taking effect in 2025.

These developments aim to maintain tourism equity, ensuring that visitors contribute to local infrastructure, but they also tighten margins for operators. With luxury properties showing 7.1% RevPAR growth against 0.9% in the economy segment, careful tax budgeting is essential. Most properties should allocate 12–15% of gross revenue to total tax exposure and automate filings to avoid becoming part of the industry’s estimated $2 billion compliance gap.

Deep Dive: How Sales and Lodging Taxes apply to Hotels

Tax treatment hinges on whether a guest qualifies as transient (typically under 30 days) or permanent. In most states, short-term accommodations are taxable. The gross receipts rule applies: tax is charged on the full amount, including resort or amenity fees, excluding only the taxes themselves. Deducting commissions is rarely allowed.

OTA Interplay:

Online travel agencies such as Expedia and Booking.com remit taxes accurately on roughly 80% of transactions, but inconsistencies around local occupancy taxes still create exposure. Contracts should explicitly define which party is responsible for each tax component. Virginia’s 2022 rule change, which requires OTAs to remit tax on the full room rate, illustrates how quickly the obligations can shift.

Common Exemptions and Nuances:

• Extended stays: Stays exceeding thirty days (ninety in some states) are typically exempt from local occupancy taxes.

• Group bookings: Group and negotiated rates remain taxable in full, although complimentary rooms may qualify for exemption.

• Fees: Ancillary charges such as energy or facility fees are taxable in most states.

Case Example:

New York City’s 2025 bulletin imposes a $1.50 per-unit nightly fee, plus 5.875% sales tax and 5.875% occupancy tax on stays under ninety days. For a 100-room property, this totals roughly $150,000 per year, a 2% increase from 2024. An automated reconciliation system prevented one Antravia client from over-remitting by 15%, saving $22,000 in a single year.

Digital innovation introduces further complexity. Virtual reality viewings, hybrid bookings, and AI-driven pricing models all require transparent audit trails as tax authorities begin reviewing algorithmic pricing data.

Implications for U.S. Hoteliers: Risks and Opportunities

Taxes account for 10–20% of ADR in most major markets, placing heavy pressure on margins. With inbound travel projected to soften by $12.5 billion, maintaining compliance is critical.

Key Risks:

• Audit Frequency: Tax audits rose 30% in 2024, with average liabilities exceeding $5,000 per assessment.

• Cash Flow Impact: High combined rates can distort profitability if taxes are misclassified or misremitted.

• Guest Sensitivity: Total bill transparency matters; surcharges above 15% can generate negative feedback and impact ratings.

Opportunities:

• Tourism Funding: Roughly 70% of lodging-tax revenue supports convention and visitor bureaus, indirectly driving an estimated 15% increase in bookings.

• Financial Efficiency: Clear tax itemization improves guest trust and enables accurate deduction claims such as the 20% QBI deduction, reducing overall tax burdens.

• Strategic Pricing: High-end hotels can leverage tax transparency as part of rate justification, while economy brands benefit from automation to maintain competitive pricing.

Navigating State-by-State Variations

Lodging tax structures differ dramatically across the United States. Some states impose no statewide rate, relying on local ordinances, while others exceed 15% once local surcharges are added. Stay-length exemptions vary, so commonly thirty days but extending to ninety in states such as Connecticut, and nexus thresholds for registration often begin at $100,000 in annual sales.

For example, California applies no state-level lodging tax but authorizes municipalities to levy 10–15% transient occupancy taxes, while Nevada relies on local districts such as Clark County, where total rates reach 13.38%. Connecticut’s statewide rate of 15% applies to the first thirty days of a stay under ninety days, and New York City imposes combined rates exceeding 14% plus a flat nightly fee.

Every state and locality has its own filing cadence and enforcement approach. Penalties for underpayment generally range between 5% and 25% of tax due, plus interest. Multi-state operators should monitor nexus thresholds carefully, as crossing a state line can instantly trigger new registration duties. Automated tracking tools and quarterly reviews are the most reliable safeguards against misfiling.

Best Practices for Compliance in 2025

• Automate Calculations: Integrate property-management systems with tax-rate engines to distinguish between gross and net charges in real time, reducing manual errors by up to 40%.

• Audit OTA Reports: Review OTA remittance data quarterly and address discrepancies immediately.

• Track Exemptions: Maintain documented proof for long-stay, government, and military exemptions.

• Plan for Local Changes: Build a 2–5% contingency in budgets for unexpected local tax hikes and subscribe to trusted data sources such as the Tax Foundation for alerts.

• Train Staff: Conduct annual training on nexus thresholds and use per-diem tools for reimbursement compliance.

• Engage Specialists: Outsourcing multi-state filings often saves 20% or more compared with in-house processing costs.

Implementing these steps typically produces margin improvements of 10–15% through reduced penalties and over-remittance recovery.

How Antravia can help

Antravia’s 2025 services include customised lodging-tax audits, OTA reconciliation analysis, and per-diem modelling for multi-property groups. Contact info@antravia.com for a consultation.

Conclusion

The 2025 tax environment challenges every hotel operator to balance compliance, pricing, and profitability. Yet when managed strategically, taxes become a financial tool rather than a burden.

With Antravia Advisory, your property can stay compliant, protect margins, and transform tax management into a driver of sustainable growth.

References

• NYC Hotel Tax Bulletin 2025 - https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/hotel_and_motel_occupancy.htm

• Qualified Business Income (QBI) Deduction Under Section 199A - https://www.irs.gov/newsroom/qualified-business-income-deduction

• Brazos Valley Convention and Visitors Bureau Audit Report - https://www.cstx.gov/media/4sbd3202/11-01-convention-visitors-bureau-audit-report.pdf

• 2025 Lodging Tax Report - USA - https://www.hvs.com/article/10299-2025-lodging-tax-report-usa

• U.S. Economy Set To Lose $12.5BN In International Traveler Spend This Year - https://wttc.org/news/us-economy-set-to-lose-12-5bn-in-international-traveler-spend-this-year

• US Hospitality Directions: May 2025 - https://www.pwc.com/us/en/industries/consumer-markets/hospitality-leisure/us-hospitality-directions.html

• Notice 2024-68: 2024-2025 Special Per Diem Rates - https://www.irs.gov/pub/irs-drop/n-24-68.pdf

• Per Diem Rates - https://www.gsa.gov/travel/plan-a-trip/per-diem-rates

• 2025 Tax Reform for Restaurants and Hotels - https://www.cbh.com/insights/articles/2025-tax-reform-for-restaurants-and-hotels/

• 2025 Lodging Tax Report - USA - https://www.hotel-online.com/news/2025-lodging-tax-report-usa

• Hotel Occupancy Taxes - https://www.austintexas.gov/page/hotel-occupancy-taxes

• Travel Forecast (2025-10-01) - https://www.ustravel.org/research/travel-forecasts

• State Tax Changes Taking Effect July 1, 2025 - https://taxfoundation.org/research/all/state/2025-state-tax-changes-july-1/

• State-by-State Guide to Lodging Tax Requirements - https://www.avalara.com/mylodgetax/en/resources/state-lodging-tax-requirements.html

State-by-State Navigation Section References

• Alabama: https://www.revenue.alabama.gov/sales-use/lodging-tax/

• Alaska: https://www.commerce.alaska.gov/web/drs/RemoteSellerSalesTaxCommission.aspx

• Arizona: https://azdor.gov/business/transaction-privilege-tax/hotel-motel-tax

• Arkansas: https://www.dfa.arkansas.gov/excise-tax/tourism/

• California: https://www.cdtfa.ca.gov/taxes-and-fees/tot.htm

• Colorado: https://tax.colorado.gov/sales-use-tax-topics-rooms-accommodations

• Connecticut: https://portal.ct.gov/DRS/Room-Occupancy-Tax

• Delaware: https://revenue.delaware.gov/taxes/lodging-tax/

• Florida: https://floridarevenue.com/taxes/taxesfees/Pages/discretionary_surtax.aspx

• Georgia: https://dor.georgia.gov/hotels-motels

• Hawaii: https://tax.hawaii.gov/geninfo/tat/

• Idaho: https://tax.idaho.gov/i-1005.cfm

• Illinois: https://tax.illinois.gov/programs/sales/hotel.html

• Indiana: https://www.in.gov/dor/files/sib11.pdf

• Iowa: https://tax.iowa.gov/hotel-motel-tax

• Kansas: https://www.ksrevenue.gov/salestax-transientguest.html

• Kentucky: https://revenue.ky.gov/Form41A720SIT.pdf

• Louisiana: https://revenue.louisiana.gov/TaxForms

• Maine: https://www.maine.gov/revenue/taxes/sales-use-tax/lodging-tax

• Maryland: https://www.marylandtaxes.gov/business/sales/lodging.php

• Massachusetts: https://www.mass.gov/room-occupancy-excise-tax

• Michigan: https://www.michigan.gov/treasury/taxes/business-taxes/sales-use/lodging-excise

• Minnesota: https://www.revenue.state.mn.us/lodging-taxes

• Mississippi: https://www.dor.ms.gov/sales-and-use-tax/tourism-tax

• Missouri: https://dor.mo.gov/taxation/business/tax-types/sales-use/lodging/

• Montana: https://mtrevenue.gov/taxes/lodging-facility-use-tax/

• Nebraska: https://revenue.nebraska.gov/businesses/lodging-tax

• Nevada: https://tax.nv.gov/TaxTypes/TRLT/

• New Hampshire: https://www.revenue.nh.gov/nh-dra/taxation/rooms-rentals-tax.htm

• New Jersey: https://www.state.nj.us/treasury/taxation/hotels.shtml

• New Mexico: https://www.tax.newmexico.gov/businesses/hotels-motels/

• New York: https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/hotel_and_motel_occupancy.htm

• North Carolina: https://www.ncdor.gov/taxes-forms/occupancy-tax

• North Dakota: https://www.tax.nd.gov/business/lodging-tax

• Ohio: https://tax.ohio.gov/business/ohio-business-taxes/sales-and-use/lodging

• Oklahoma: https://oklahoma.gov/tax/businesses/sales-tax/lodging-tax.html

• Oregon: https://www.oregon.gov/dor/programs/businesses/Pages/transient-lodging.aspx

• Pennsylvania: https://www.revenue.pa.gov/TaxTypes/SUT/Pages/Hotel-Occupancy.aspx

• Rhode Island: https://tax.ri.gov/taxes/hotel-tax

• South Carolina: https://dor.sc.gov/tax/sales/accommodations

• South Dakota: https://dor.sd.gov/businesses/sales-and-use-tax/lodging-tax/

• Tennessee: https://www.tn.gov/revenue/taxes/hotel-motel-tax.html

• Texas: https://comptroller.texas.gov/taxes/hotel/

• Utah: https://tax.utah.gov/sales/lodging

• Vermont: https://tax.vermont.gov/businesses/rooms-meals-tax

• Virginia: https://www.tax.virginia.gov/retail-sales-tax-accommodations

• Washington: https://dor.wa.gov/taxes-rates/retail-sales-tax/lodging

• West Virginia: https://tax.wv.gov/Business/SalesAndUseTax/HotelOccupancyTax/Pages/default.aspx

• Wisconsin: https://www.revenue.wi.gov/Pages/FAQS/pcs-lodging.aspx

• Wyoming: https://revenue.wyo.gov/lodging-tax

• District of Columbia: https://otr.cfo.dc.gov/page/hotel-occupancy-tax

Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.
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