Tour Operator Accounting: Deposits, Client Money, and Revenue Recognition

Tour operators and DMCs manage financial structures that are far more complicated than most other travel businesses. You deal with supplier deposits, multi-currency pricing, seasonal booking cycles and payment flows that rarely move in a straight line. The result is a constant pressure on margins, cash flow and financial reporting. At Antravia, we work with operators, wholesalers and DMCs across global markets, and we see the same challenges appear every season. This series breaks down the financial issues that matter most and explains how to manage them with clearer reporting and stronger controls.
See our dedicataed page for Tour Operators here

Tour Operator Accounting: Deposits, Client Money, Revenue Recognition, Taxes and Compliance for US Companies in 2025

Are you a Travel Agent interested in Accounting for your business? Read - Master your Finances: The Essential Accounting Guide for Travel Agents

US tour operators in 2025 sit at the intersection of multiple rulebooks. On the accounting side there is ASC 606, Revenue from Contracts with Customers, which has applied since 2018 and now drives how revenue from tours and packages is recognized. Alongside that are federal income tax rules under the Internal Revenue Code, post-Wayfair state sales and use taxes, and state seller-of-travel regimes in fourteen jurisdictions that dictate how client money is protected.

Tour operators rarely sell simple, standalone services. More often they bundle transportation, lodging, guided excursions and add-ons into itineraries that can span months of planning and several days or weeks of delivery, with significant deposits paid well in advance. As domestic travel spending edges up (for example, US travel spend in 2025 is projected around 1.35 trillion dollars, with hotel occupancy forecasts in the low sixties and inflation in airfare and lodging in the three-percent range), operators are also under pressure from supplier prepayments, seasonal cash flows, multi-state tax nexus and workforce issues.

In this environment, getting deposits, client money, and revenue recognition right is no longer just a “compliance box.” It feeds directly into cash management, banking relationships, tax planning and regulatory risk. Missteps can trigger audit adjustments, penalties under state sales tax and seller-of-travel rules, or even financial statement restatements that damage lender or investor confidence.

This combined guide brings together two angles on the same topic into one long reference piece. It focuses on US-based tour operators dealing exclusively with US customers and companies and covers:

• ASC 606’s five-step model and how it applies to tour contracts

• Principal versus agent assessments and gross versus net revenue

• Accounting for customer deposits and contract liabilities

• Client money protection under state seller-of-travel laws and trust accounts

• Sales and use tax nexus for tour operators post-Wayfair

• Income tax planning, self-employment and QBI considerations

• Cash flow and seasonal working capital management

• Payroll and worker classification issues

• Regulatory and insurance requirements beyond pure accounting

• Common deductions and credits

• Disclosure requirements and a practical implementation checklist for 2025

The ASC 606 Framework: Core Principles for Tour Operators

ASC 606 replaces industry-specific legacy US GAAP with a single, principles-based model for revenue recognition. For tour operators, it applies to contracts that promise distinct or bundled services, such as multi-day itineraries that integrate airfare, accommodations and activities.

The standard requires entities to recognize revenue in a way that depicts the transfer of control of promised services to the customer, in an amount that reflects the consideration the operator expects to be entitled to. This can be over time, for example as a tour unfolds day by day, or at a point in time, for example when a discrete excursion is completed.

Scope and contract assessment

ASC 606 covers revenue from ordinary activities. It excludes non-exchange transactions, insurance contracts and financial instruments. For a tour operator this means:

• All revenue from selling tour packages, excursions and add-on services falls within ASC 606.

• Each customer contract must be evaluated for enforceability under applicable state law, commercial substance (it must change the operator’s economic position) and collectibility.

If those criteria are not met at inception, any cash received is recorded as a deposit liability under ASC 606-10-32-18 rather than revenue. That situation can arise where collectibility is uncertain, for example in periods of economic volatility or where historical default rates are particularly high. Reassessment takes place only when there is a significant change in facts, such as payment defaults or major contract modifications.

Disaggregation

ASC 606 also expects revenue to be disaggregated in the financial statements in a way that provides useful insight. For a tour operator that might mean:

• By tour type, for example adventure tours, cultural tours, corporate retreats

• By geography, for example Rockies, Alaska, national parks, Hawaiian islands

• By timing, for example high-season versus shoulder-season departures

Disaggregation helps users of the financial statements see seasonal patterns and concentration of risk.

Multi-element arrangements

Tour operators almost always encounter multi-element arrangements. A five thousand dollar seven-day national park or Alaskan cruise package may include:

• Transportation, for example ferry or domestic flights

• Lodging, for example hotels, lodges or cabins

• Guided excursions or daily activities

• Ancillary services or souvenirs

ASC 606 requires the operator to identify performance obligations within that package and then allocate the transaction price to those obligations based on relative standalone selling prices. That allocation then drives the pattern of revenue recognition.

Step 1: Identifying the Contract with the Customer

A contract exists when there is an approved, legally enforceable agreement between the customer and the operator that:

• Identifies the rights of each party

• Sets out payment terms

• Has commercial substance

• Meets the collectibility threshold

For tour operators this is typically the booking confirmation, whether electronic or written, that includes itinerary details, cancellation and refund rules and pricing.

Enforceability depends on state contract law. Non-refundable deposit clauses need to be clearly drafted and accepted to stand up in the event of a dispute. Commercial substance is usually straightforward in tour sales. Collectibility requires more judgment. Some operators use a guideline that if historical default rates for a particular customer segment exceed around ten per cent, they defer revenue until payments are received or risk reduces, treating initial receipts as refundable deposit liabilities.

Illustrative example

• The operator receives a one thousand dollar deposit for a summer European tour.

• If the booking form constitutes an enforceable contract, the customer has a history of paying on time and there is no obvious economic shock affecting that customer group, the operator proceeds to identify performance obligations and the remaining ASC 606 steps.

• If there are concerns about collectibility, the deposit is recorded as a liability. Revenue is not recognized until those concerns are resolved.

Contract modifications

Tour contracts are often modified: customers add extra nights, swap excursions, or extend stays. Under ASC 606:

• A price increase of around twenty per cent for additional distinct services (for example an extra two nights that could be sold separately) can be treated as a separate contract.

• If the modification does not add distinct services or materially changes the original package, it is treated as part of the existing contract, with cumulative catch-up adjustments to the transaction price and revenue profile.

Step 2: Identifying Performance Obligations

Performance obligations are promises in the contract to transfer distinct goods or services. A service is distinct if:

1. The customer can benefit from it on its own or together with other readily available resources, and

2. It is separately identifiable from other promises in the contract.

For tour operators this means dissecting packages into components such as airfare, lodging and guided excursions and then asking:

• Can the customer realistically obtain that component separately?

• Is the component integrated with others into a combined output, such as a seamless itinerary?

• Is there significant customization or interdependence between components?

Series of distinct services

Where a contract includes a series of distinct services that are substantially the same and have the same pattern of transfer, ASC 606 allows them to be treated as a single performance obligation satisfied over time. A common example would be daily guided walks or activities over the course of a week-long tour.

Implied promises and administrative tasks

Implied promises, such as post-tour support or credits for future bookings, may be performance obligations if they create a material right for the customer. Administrative activities such as issuing invoices or booking confirmations are not performance obligations unless they provide standalone value.

Typical tour elements and how they are treated

Although every operator is different, certain patterns are common:

• Airfare is usually a distinct element. The customer can buy flights independently, and the service is consumed at a point in time when the passenger boards and the airline begins transporting them. Revenue relating to flights is commonly recognized at that point, assuming the operator is principal for that element.

• Lodging is also typically distinct. Hotel stays offer standalone utility and are often priced separately. Revenue attributable to lodging is normally recognized over time, night by night, as the customer receives and consumes the benefit of sleeping in the room.

• Guided excursions may or may not be distinct. When an excursion is bundled tightly with transport and other services into a single combined itinerary where the customer is really purchasing the overall experience, the guided component and transport are often treated as one combined performance obligation. In that case revenue is recognized over time as the itinerary progresses.

• Add-on items like souvenirs or separately billed optional activities are generally distinct because the customer could buy them separately and they are not heavily integrated into the main tour. Revenue from these items is recognized at a point in time, usually when the item is handed over or the add-on service is delivered.

Some operators formalize this by documenting that airfare and lodging are usually treated as distinct obligations with point-in-time or over-time recognition as described, that bundled guided excursions are usually treated as part of a combined obligation recognized over the life of the tour, and that souvenirs and similar goods are handled as separate obligations with point-in-time recognition. These judgments and policies are important because auditors will often look closely at bundling decisions, particularly where they have the potential to accelerate revenue.

Step 3: Determining the Transaction Price

The transaction price is the amount of consideration the operator expects to receive in exchange for transferring promised services. For a tour operator this typically includes:

• Fixed prices for standard package components

• Variable consideration such as cancellation penalties, fuel surcharges, occupancy bonuses or performance incentives

• Non-cash consideration such as barter arrangements in exchange for marketing exposure

• Adjustments for any significant financing components where the timing of payments provides a financing benefit to either party

Estimating variable consideration

Variable consideration is estimated using either:

• An expected value method, which looks at a range of possible outcomes and their probabilities, or

• A most likely amount method, which is often more appropriate for single-event items such as a success fee.

In both cases ASC 606 requires operators to apply a constraint and only include amounts in the transaction price to the extent it is highly unlikely that there will be a significant reversal of revenue in the future. Some operators use internal guidelines such as not allowing variable estimates that could realistically cause reversals of more than around five per cent of the total transaction price based on past experience.

Example

If a tour carries a fifteen per cent early-cancellation fee and historical data shows a consistent pattern of a small proportion of customers cancelling early, the operator estimates likely cancellation revenue based on those patterns. If past data is volatile and reversals are common, the operator reduces or excludes this amount from the transaction price until the uncertainty reduces.

Significant financing component

A significant financing component exists when there is a substantial difference between when the customer pays and when the operator performs. A common threshold is a gap of more than one year.

For example, if a customer pays a ten thousand dollar deposit in 2025 for a tour that takes place in 2026 and that early payment provides a financing benefit to the operator, part of the consideration may be treated as interest. The transaction price is discounted using the customer’s incremental borrowing rate, and the difference is recognized as interest income over time rather than tour revenue.

Payments to customers and reimbursable expenses

Payments made to customers, for example rebates to large corporate groups or loyalty credits, typically reduce the transaction price unless the customer is genuinely providing a separate service, such as marketing, in return.

Reimbursable expenses, such as meals or incidentals that are paid to vendors but passed on to customers, are included in the transaction price where the operator bears the risk for those costs.

Step 4: Allocating the Transaction Price to Performance Obligations

Once the transaction price is determined, it is allocated to the identified performance obligations on a relative standalone selling price basis. Standalone selling price is the price at which the operator would sell the good or service separately.

Hierarchy for estimating standalone selling prices

1. Observable standalone prices where the operator sells the component separately in similar circumstances.

2. Adjusted market assessment, which looks at what competitors charge and how the operator’s offering is positioned.

3. Expected cost plus a reasonable margin. For example, the operator might estimate the cost of running an excursion and then add a standard twenty per cent margin.

4. Residual approach, reserved for cases where the standalone selling price is highly variable or uncertain and other components have observable prices.

Illustrative allocation

Imagine a three thousand dollar tour package which, if sold separately, would be priced at:

• Airfare: 1,200 dollars

• Lodging: 1,000 dollars

• Excursion: 900 dollars

In one version of the analysis the operator allocates forty per cent of the transaction price to airfare, around one third to lodging and the balance to excursions, mirroring the relative standalone prices. In another example using slightly different inputs the allocation might be forty per cent, thirty-three per cent and around twenty-seven per cent respectively. The key point is that allocation follows the relative standalone selling prices.

Discounts are generally allocated proportionally across all performance obligations unless there is clear evidence that a discount relates entirely to a specific component, such as a promotion that only applies to lodging.

For series obligations, such as daily activities over a week, the allocation to that performance obligation may then be split evenly or based on standalone prices for each day and recognized over time. Changes in estimates of standalone selling prices or transaction price are dealt with through cumulative catch-up adjustments.

Step 5: Recognizing Revenue when or as Performance Obligations Are Satisfied

Revenue is recognized when control of the promised services transfers to the customer. For tour operators this can occur either over time or at a point in time.

Over-time recognition

A performance obligation is satisfied over time if:

• The customer simultaneously receives and consumes the benefits as the operator performs, for example daily access to guided activities or facilities.

• The operator’s performance creates or enhances an asset that the customer controls as it is created, which is less common in tour operations.

• The operator’s performance does not create an asset with an alternative use to the operator and the operator has an enforceable right to payment for performance completed to date, which is often the case for custom itineraries that cannot easily be resold.

For obligations satisfied over time, the operator selects a method to measure progress. Common approaches include:

• Time-based measures, such as recognizing revenue evenly over a ten-day tour.

• Input methods, such as cost-to-cost, where revenue is recognized in proportion to costs incurred.

• Output methods, such as milestones, for example recognizing revenue when “day three completed” or when particular key activities have taken place.

Point-in-time recognition

For discrete elements, control may transfer at a specific point. Indicators include:

• Transfer of legal title

• Physical possession by the customer

• Transfer of significant risks and rewards

• Explicit customer acceptance

• Unconditional right to payment

A one-day excursion that is sold as a separate item might be recognized when the excursion is completed and the customer has received the service.

Breakage

Breakage is the value of prepaid services the customer never uses, such as days missed or unused credits. If the operator expects a significant portion of customers to not fully use prepaid services, it estimates breakage based on historical patterns and recognizes breakage revenue proportionally over the period of service delivery, subject to the same constraint on significant reversals. For example, if historical data shows a consistent twenty per cent rate of no-shows on optional days, that is incorporated into revenue recognition.

Principal Versus Agent Considerations: Gross or Net Revenue

Tour operators often act as intermediaries between customers and third-party suppliers such as hotels and airlines. ASC 606 requires operators to assess whether they are acting as principal or agent in each arrangement, because this determines whether they present revenue on a gross or net basis.

An operator is principal when it controls the specified goods or services before they are transferred to the customer. Indicators include:

• Primary responsibility for fulfilling the promise to the customer, including handling complaints and providing remedies

• Inventory risk, for example non-cancellable hotel blocks or minimum seat guarantees

• Discretion in setting prices, including markups above supplier rates

If the operator is principal, revenue is presented on a gross basis and the related supplier costs are recorded separately.

An operator is an agent when it is arranging for another party (the principal) to provide goods or services. In that case the operator’s revenue is the net fee or commission.

Examples

• A travel company that purchases fixed-rate airline tickets, takes on the risk of unsold inventory and has discretion to set resale prices is acting as principal for those tickets and recognizes revenue on a gross basis.

• A tour operator that simply facilitates hotel bookings where the hotel sets all terms and bills the customer directly is acting as an agent and recognizes revenue equal only to its commission, often at the time of booking confirmation.

Mixed arrangements are common. An operator may be principal for its own tours and excursions and an agent for hotel bookings or third-party activities it resells. Each component needs its own principal-agent assessment and this can change over time if the operator assumes more risk or control.

Gross versus net presentation has a significant impact on reported revenue and margins. Principal presentation leads to higher top-line revenue but also higher cost of sales, so it is important that the conclusion is supported by a clear analysis of control.

Accounting for Customer Deposits

Customer deposits are a core part of tour operator cash flow. Under ASC 606 they are usually accounted for as contract liabilities rather than revenue until the related performance obligations are satisfied.

• On initial receipt, the deposit is recorded as a liability at its face value, unless there is a significant financing component requiring discounting.

• The liability is classified as current or non-current based on when the operator expects to deliver the services and satisfy the performance obligations.

• As the operator delivers the tour or other services, the deposit liability is unwound and revenue is recognized in line with the chosen over-time or point-in-time pattern.

Non-refundable deposits

Under legacy GAAP some non-refundable deposits were recognized as revenue when received. ASC 606 tightens this. Even non-refundable amounts are deferred if they relate to options or material rights for future services. Revenue recognition still follows the transfer of control concept, not simply non-refundability.

Example

A customer pays a two thousand five hundred dollar deposit for a ten-day fall foliage tour.

• On receipt, the operator records a contract liability for the full amount.

• If the tour is treated as a single performance obligation satisfied over time, the operator may recognize one tenth of the transaction price each day, including deposit amounts, as the tour progresses.

• If certain days or services are treated as separate obligations, revenue is recognized as each is delivered, and breakage for missed days is estimated and recognized based on historical patterns.

Impairment and tax implications

If collectibility deteriorates materially, the operator assesses whether any portion of the contract asset or recognized revenue is impaired, although reversals are limited to the original carrying amount. For tax purposes, cash-basis taxpayers often recognize income from deposits when received. Accrual-basis operators follow ASC 606 for book purposes but may be required to follow different timing rules for tax, leading to temporary book-tax differences.

Client Money Protection Under State Seller of Travel Laws

Also review - Seller of Travel Laws and Client Trust Accounts: What U.S. Travel Agents need to know
as well as our dedicated US Sales Tax page - Here.

At the federal level there is no comprehensive regime for protecting tour customer funds. However, fourteen states have seller-of-travel statutes or similar rules that require some combination of registration, bonding and trust accounts to protect deposits in the event of insolvency or fraud. These rules are commonly administered by state attorneys general or consumer protection agencies.

The requirements vary by state but the themes are consistent.

Key state requirements and protections

• California requires registration with its Seller of Travel Program and the display of a California Seller of Travel number (CST) in advertising. Operators must either maintain a bond starting at ten thousand dollars or pay an annual fee of around three hundred and thirty dollars into the state’s Travel Consumer Restitution Fund. A separate client trust account is optional if a bond is in place. Penalties can include fines of up to two thousand five hundred dollars per violation and restitution orders.

• Florida requires annual registration, typically with a fee around three hundred dollars, and proof of financial assurance. Operators generally provide a surety bond between twenty-five thousand and fifty thousand dollars, a letter of credit or a certificate of deposit. There is no mandatory trust account, but civil penalties can reach five thousand dollars and registration can be denied or revoked for non-compliance.

• Hawaii requires biennial registration with fees that usually fall between one hundred and forty-six and two hundred and fifteen dollars. It mandates a dedicated client trust account held with a bank insured in Hawaii, supported by a bank letter. Funds from that trust may only be used for specified purposes. Penalties include license revocation and fines up to one thousand dollars per day of violation.

• Illinois does not require a general seller-of-travel registration but its Travel Promotion Act requires funds received from Illinois residents to be held in trust, with clear disclosure of that trust status. Failure to comply can result in consumer lawsuits and enforcement action by the Attorney General.

• Washington requires registration and the prominent display of the registration number. Funds held for more than five business days must be placed in a trust account, and the operator must keep detailed records for at least two years. There are limited exceptions for prompt direct vendor payments. Violations can be prosecuted as misdemeanors with fines up to one thousand dollars and injunctions.

• Iowa requires registration backed by a bond that typically ranges between five thousand and twenty thousand dollars depending on sales volume. Trust accounts may be required for operators with sales above one hundred thousand dollars. Penalties include license suspension and fines between one hundred and five hundred dollars.

• Nevada requires registration and the filing of an annual report. Operators provide bonds between three thousand and ten thousand dollars and may also need a client trust account for deposits. Fines range from one thousand to ten thousand dollars and cease-and-desist orders can be issued.

• New Jersey does not impose a dedicated trust account requirement for all tour operators but focuses on accurate disclosures and general consumer protection rules. Some operators choose voluntary bonding. Violations are pursued under the state’s Consumer Fraud Act, with civil penalties and restitution.

• New York requires registration for sellers with annual sales above five hundred thousand dollars and proof of financial responsibility, commonly a ten thousand dollar bond or equivalent trust arrangement. Penalties include fines of up to five thousand dollars and revocation of registration.

• Pennsylvania does not have a single statewide seller-of-travel law, but some counties and municipalities have local bonding or registration requirements. Penalties and mechanisms vary by locality.

• Rhode Island requires registration supported by a bond of around fifteen thousand dollars or a qualifying trust account. Fines typically range from five hundred to one thousand dollars for non-compliance.

• Tennessee requires registration for sellers with more than five thousand dollars in annual sales and proof of a ten thousand dollar bond. Non-compliance can result in revocation and civil actions.

• Texas has no general seller-of-travel registration requirement and bonding is voluntary. However, tour operators are still exposed to claims under the state Deceptive Trade Practices Act if customer funds are mishandled.

• Virginia requires registration for out-of-state sellers targeting Virginia residents and a five thousand dollar bond. Fines range from one hundred to two thousand five hundred dollars.

Practical compliance measures

For operators doing business in multiple states, one practical approach is to adopt the strictest applicable standards across the board. Typical steps include:

• Registering annually or biennially wherever required and keeping registration numbers current in marketing materials.

• Setting up designated client trust accounts titled clearly as “Client Trust Account” and ensuring there is no commingling with operating funds.

• Keeping detailed ledgers for each client, recording deposits received, vendor payments, commissions taken and refunds issued.

• Limiting withdrawals from trust accounts to vendor payments, earned commissions after service delivery and client refunds.

• Retaining records for at least two to seven years depending on state rules.

Failing to comply can lead to restitution claims, license revocation and, in serious cases, criminal charges.

Common Challenges and Practical Examples in 2025

In 2025 tour operators face a number of recurring challenges in applying ASC 606 and related requirements.

Bundling judgments

Deciding whether to treat elements as distinct performance obligations or as a single combined obligation is often a source of debate. Over-aggregation can defer revenue recognition inappropriately, while over-disaggregation can accelerate revenue and heighten audit risk.

Variable consideration and inflation

After several years of elevated inflation and volatile travel demand, estimating variable consideration has become more challenging. Fuel surcharges, last-minute discounts and dynamic pricing formulas need to be incorporated into transaction price estimates without creating a high risk of future revenue reversals.

Loyalty programs and material rights

Many operators run loyalty or repeat-booking programs where customers earn points or credits for future tours. These programs often create material rights that need to be treated as separate performance obligations. For example, an operator might defer ten to twenty per cent of revenue associated with a booking to reflect the value of points that can be redeemed later, then recognize that revenue when the points are used or when breakage is recognized based on redemption patterns. If historical data suggests, for example, a thirty per cent non-redemption rate, that factor is built into the breakage estimate.

Practical examples

• A four thousand dollar Colorado ski tour that includes lift tickets, lodging and instruction, where the operator clearly controls the itinerary, is treated as a package. If standalone selling prices suggest a split of 1,500 dollars to lift tickets, 1,500 to lodging and 1,000 to instruction, those proportions drive the allocation of the four thousand dollar transaction price. If the tour lasts five days, the operator might recognize eight hundred dollars per day using a time-elapsed method, aligning revenue with the daily delivery of services.

• A third-party safari costing three thousand dollars where the operator simply earns a twelve per cent booking commission and the supplier controls the service is treated as an agency arrangement. The operator recognizes only the three hundred and sixty dollar commission as revenue, typically when the booking is confirmed and the operator’s obligation is fulfilled.

• A customer who adds a glacier hike for five hundred dollars mid-planning may trigger either a separate contract for a distinct add-on or a cumulative adjustment to the original contract price if the hike is integrated into the main itinerary.

Change fees of around one hundred dollars for rescheduling usually represent modifications to the transaction price for the original performance obligation rather than separate obligations.

Cyber and disclosure risks

By 2025, cyber risk and data protection around customer deposits and bookings are front of mind. Public operators, in particular, face increased scrutiny from regulators and investors over the quality of their revenue and risk disclosures.

Disclosure Requirements and Implementation Steps

ASC 606 requires both qualitative and quantitative disclosures about revenue and related balances. While non-public entities can use simplified requirements, consistency and clarity remain important. Typical disclosures for a tour operator include:

• Disaggregated revenue by product type, geography and timing, for example adventure packages, corporate retreats and cultural tours by region.

• Opening and closing balances of contract assets and liabilities, especially deferred revenue from customer deposits. A five million dollar year-end deferred revenue balance, along with movements during the year, is a common focus.

• The amount and timing of revenue expected from remaining performance obligations, for example ten million dollars expected to be recognized over the next twelve months.

• Key judgments and estimates, such as methods used to determine standalone selling prices, principal versus agent conclusions and approaches to estimating variable consideration and breakage.

Implementation steps for 2025 typically include:

• Taking an inventory of all contract types and mapping each to the five steps of ASC 606.

• Documenting standalone selling price hierarchies and estimation models for each significant performance obligation.

• Implementing or refining trust account structures and reconciling them monthly.

• Automating progress measures where possible so that revenue recognition aligns with operational data, and reviewing breakage estimates at least annually.

• Preparing draft disclosures early and discussing them with auditors to reduce surprises at year-end.

Sales and Use Tax Nexus: Multi-State Compliance Post-Wayfair

The 2018 Wayfair decision significantly expanded state power to impose sales and use tax obligations on remote sellers. For tour operators, this means that even without a physical presence in a state, sufficient economic activity can create nexus and a duty to collect and remit tax.

Economic nexus thresholds

While details vary, many states use a threshold of around one hundred thousand dollars in annual sales into the state, or a certain number of transactions, commonly two hundred. Some examples in the context of tour operators include:

• California, where an economic nexus threshold of around five hundred thousand dollars of sales applies. Combined state and local rates can range roughly from seven and a quarter per cent up to just over ten per cent. Tourism-related sales are usually sourced to the destination.

• Florida, which uses a threshold of one hundred thousand dollars in remote sales. State and local combined rates tend to fall between six and seven and a half per cent. Transient rentals are generally taxed at six per cent statewide with additional local tourist development taxes.

• New York, which applies a threshold combining five hundred thousand dollars of sales and at least ten transactions. State and local hotel occupancy and sales tax rates together can range from around four per cent up to almost nine per cent.

• Texas, with a five hundred thousand dollar remote seller threshold and combined rates typically between six and a quarter and just over eight per cent. Use tax rules can catch certain intangible elements bundled into tour packages.

• Colorado, where a one hundred thousand dollar sales threshold applies, and combined rates can be as high as ten and three-quarters per cent in some jurisdictions. The state also has complex rules for marketplace facilitators, which can affect how platforms handle tour sales.

• Illinois, using a one hundred thousand dollar or two-hundred transaction threshold, with combined rates ranging from around six and a quarter to more than ten per cent. Bundled packages that mix taxable and exempt elements require careful sourcing.

• Washington, with a one hundred thousand dollar economic nexus threshold and combined rates around six and a half to ten and a half per cent. Some digital services and online bookings are taxable.

• Georgia, which applies a one hundred thousand dollar threshold and combined rates around four to eight per cent, with additional tourism assessments in some destinations.

• Arizona, with a one hundred thousand dollar threshold and combined transaction privilege tax rates that can range from five and a half to over ten per cent. Resort fees and similar charges are often taxable.

• Nevada, with a one hundred thousand dollar threshold and combined room and sales taxes that commonly sit between six and three-quarters and eight and three-eighths per cent, especially in resort destinations.

Bundled packages often mix taxable and non-taxable components such as lodging (typically taxable) and transport (often exempt). States differ on how they treat bundles and how they source tourism services, so operators need state-by-state analysis.

Business-to-business exemptions

For corporate clients, resale or exemption certificates can sometimes reduce or eliminate sales tax where the customer is reselling the tour as part of its own package. Documentation is critical, and misuse of resale certificates is a regular audit focus.

Practical approach

Many tour operators now adopt automated sales tax solutions such as integrated calculation engines and filing tools. These systems map ASC 606 allocations to tax bases, ensuring that the taxable portion of each package is correctly identified by state. For example, a ten thousand dollar Colorado retreat with sixty per cent of value in taxable lodging might attract around six hundred dollars of tax at a combined ten and three-quarters per cent rate on the taxable portion.

Penalties for under-collection can be significant, with some states applying penalties of twenty-five per cent of the underpaid tax plus interest. Data matching and marketplace audits are increasingly common in 2025.

Income Tax Strategies: Self-Employment, QBI and Estimated Payments

Beyond revenue recognition and sales tax, tour operators need to consider federal income and self-employment taxes. Many operators trade through pass-through entities such as LLCs taxed as partnerships or S-corporations.

Self-employment tax

Net earnings from self-employment are generally subject to self-employment tax at a combined rate of around fifteen and three-tenths per cent, covering Social Security and Medicare, in addition to regular federal income tax at marginal rates that can reach thirty-seven per cent.

Qualified business income deduction

The qualified business income (QBI) deduction under section 199A can reduce the effective tax rate on pass-through income by allowing a deduction of up to twenty per cent of qualifying business income. Tour operation is typically treated as a non-specified service trade or business, which is favorable compared to certain professional services. However, income thresholds apply and phaseouts start above certain levels, for example around 197,300 dollars for single filers and 394,600 dollars for joint filers in 2025, with potential adjustment by future legislation such as any “One Big Beautiful Bill Act” type reforms that affect the permanence of QBI.

Example

A sole proprietor tour operator with gross revenue of two hundred and fifty thousand dollars and net income of one hundred and fifty thousand dollars:

• Faces self-employment tax of around 22,950 dollars.

• May have qualified business income of around 150,000 dollars, yielding a potential QBI deduction of up to 30,000 dollars, subject to thresholds and wage and property tests.

• Can reduce taxable income further through retirement contributions, for example a SEP-IRA contribution of up to twenty-five per cent of compensation where affordable.

Estimated payments and seasonality

Tour businesses are highly seasonal. Many operators find that seventy per cent or more of their profit is generated during the main travel season. Using the annualized income installment method for quarterly estimated tax payments can better match tax payments to cash flow.

Sole proprietors file Schedule C and may also deduct reasonable home office expenses and business mileage, for example at a standard rate such as around seventy cents per mile if using the IRS standard mileage rate, provided contemporaneous records are kept.

Book-tax timing differences

ASC 606 often defers revenue recognition relative to cash receipts from deposits. For tax, the timing may differ, especially for cash-basis taxpayers, so careful tracking of book-tax differences is essential to avoid surprises.

Operational Accounting: Cash Flow in Seasonal Tours

Tour operators often pay suppliers well before tours depart. It is common for fifty to seventy per cent of supplier costs to be due pre-departure, especially for hotel blocks and transport. With inflation running in the three per cent range for core travel inputs, working capital management is critical.

Key cash flow practices

• Monitoring receivables aging and targeting an average collection period of less than sixty days where possible.

• Negotiating extended payment terms with key suppliers, for example net-sixty days for large hotel or transport contracts.

• Using deposits as much as possible to finance supplier prepayments, while still complying with trust account rules.

• Maintaining rolling cash flow forecasts, updated weekly, using tools such as QuickBooks or other cloud accounting systems.

Example

An operator with five hundred thousand dollars of annual revenue and a forty per cent gross margin that has a thirty-day gap between cash collections and supplier payments may have around two hundred thousand dollars of capital tied up in the cycle. Forecasting and managing that gap is central to liquidity.

Payroll and HR Accounting: Employee Classification Risks

Guides, drivers and tour hosts can be difficult to classify. Misclassifying employees as independent contractors can lead to back taxes, penalties and interest.

The IRS uses a common-law test, historically summarized in twenty factors, to distinguish employees from contractors. These factors focus on behavioral control, financial control and the nature of the relationship. States such as California add their own stricter tests, such as the “ABC” test.

In May 2025 the Department of Labor reverted at federal level to an approach closer to the pre-2021 rules, emphasizing the economic reality of the relationship rather than a narrow two-factor test. However, this does not override stricter state rules.

Key payroll considerations

• If guides are employees, the operator must withhold and match Social Security and Medicare taxes (total around 15.3 per cent split between employer and employee), pay federal and state unemployment taxes and provide workers’ compensation coverage.

• Misclassification can lead to assessments of forty per cent or more of unpaid employment taxes, plus penalties. For example, reclassifying a guide earning fifty thousand dollars from contractor to employee could trigger additional tax and penalties in the nineteen thousand dollar range depending on circumstances.

• Where classification is uncertain, some operators request an IRS determination using Form SS-8.

Employer reporting for health coverage, such as Forms 1094 and 1095 under the Affordable Care Act, also needs to be considered once headcount thresholds are reached.

Regulatory and Insurance Mandates: Beyond Seller of Travel

Tour operators face a broader regulatory environment beyond accounting standards and state seller-of-travel rules.

• The Federal Trade Commission enforces truth-in-advertising standards. Misleading claims about “guaranteed departures,” “fully refundable deposits” or “all-inclusive” offerings can lead to enforcement actions, with civil penalties that can exceed fifty thousand dollars per violation in some circumstances.

• The Department of Transportation requires charter operators and public charter programs to meet bonding and disclosure requirements, with minimum bond levels often starting around ten thousand dollars for certain operations.

• Cyber insurance is increasingly important where operators hold significant personal and payment data. Policies may cover notification costs, forensic investigations and business interruption following a breach.

• Errors and omissions insurance remains a key protection against claims arising from itinerary changes, cancellations and alleged failures to deliver promised services. Surveys suggest that cancellation and disruption risks are among the main concerns of both operators and customers.

Common Deductions and Credits: Maximizing Legitimate Write-Offs

Within the bounds of substantiation and ordinary and necessary business expense rules, tour operators can legitimately deduct a range of costs, including:

• Vehicle expenses, either at actual cost (fuel, maintenance, depreciation) or using the standard mileage rate, for example around seventy cents per mile where allowed.

• Marketing and software costs, including website hosting, booking platforms and customer relationship management tools. These are generally fully deductible in the year incurred if they are ordinary and necessary for the business.

• Permits, park fees, and trade show costs where the primary purpose is business.

• Depreciation and credits on qualifying vehicles, including electric or plug-in hybrid vans or buses, which may qualify for federal credits such as the section 30D electric vehicle credit, subject to vehicle and income limits. A seven thousand five hundred dollar credit can materially offset the cost of a qualifying vehicle.

As a simple illustration, five thousand dollars of fully deductible marketing spend saves around 1,200 dollars in federal income tax at a twenty-four per cent marginal rate.

Implementation Checklist for 2025

Pulling the various strands together, many operators find it helpful to work with a practical checklist. Typical ongoing actions include:

• Mapping all contract types, including standard packages and custom itineraries, to the ASC 606 model at least annually, and updating accounting policies when products change. This often involves a structured review of contracts and an internal “ERP audit” to make sure systems support the policy.

• Reconciling client trust accounts monthly, ensuring that bank balances match underlying client ledgers and that any transfers to operating accounts are properly supported by earned commissions or completed services.

• Filing sales and use tax returns on a quarterly or monthly basis depending on state rules and using an automated tax engine such as Avalara or other tools where the volume and complexity justify it.

• Estimating qualified business income and quarterly tax payments every quarter using tax software or advisors, adjusting for seasonality rather than assuming income is uniform across the year.

• Reviewing worker classification at each hire, documenting the rationale for treating guides or drivers as employees or contractors, and using IRS Form SS-8 where necessary to seek clarity.

• Updating short-term cash flow forecasts weekly to reflect new bookings, cancellations, supplier invoices and tax obligations, ideally directly from the accounting system.

Conclusion

By 2025 tour operators are expected to integrate revenue recognition under ASC 606 with tax, cash flow and regulatory requirements rather than treating each area in isolation. Handling deposits as contract liabilities, protecting client money under state seller-of-travel laws, making sound principal versus agent judgments and staying ahead of multi-state tax and payroll rules all feed into a single picture of financial health.

The operators that document their judgments, invest in systems that tie bookings to accounting entries, and revisit their assumptions regularly are better placed to withstand audit scrutiny, manage cash in a seasonal business and build stable, profitable tour operations in a market that is growing, but where margins and compliance expectations are tightening year by year.

References

• Revenue from Contracts with Customers (Topic 606): https://asc.fasb.org/topic/606

• Revenue Recognition Handbook (KPMG, December 2024): https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/handbook-revenue-recognition-1224.pdf

• Technical Line: How the New Revenue Standard Affects Airlines (EY, July 2020): https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-tl04049-171us-07-10-2020.pdf

• Principal Versus Agent Framework (PwC Viewpoint): https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/revenue_from_contrac/revenue_from_contrac_US/chapter_10_principa_US/10_2_principal_versus.html

• Seller of Travel FAQs (California Department of Justice): https://oag.ca.gov/travel/faqs

• Chapter 19.138 RCW: Sellers of Travel (Washington State Legislature): https://app.leg.wa.gov/rcw/default.aspx?cite=19.138&full=true

• U.S. Travel Forecast 2025: Modest Growth but Decline in International Visitors: https://www.ustravel.org/press/us-travel-forecast-2025-modest-growth-decline-international-visitors-threatens-economy-and-jobs

• 2025 Travel Industry Outlook: https://www.deloitte.com/us/en/Industries/consumer/articles/travel-hospitality-industry-outlook.html

• Travel Inflation Report: October 2025: https://www.nerdwallet.com/travel/learn/travel-price-tracker

• Qualified Business Income Deduction: Overview and FAQs: https://tax.thomsonreuters.com/en/glossary/qualified-business-income-deduction

• Section 199A Deduction OBBBA Changes: https://www.barnesdennig.com/obbba-impacts-qbi/

• Standard Mileage Rates: https://www.irs.gov/tax-professionals/standard-mileage-rates

• 2025 Standard Mileage Rates (IRS Notice 2025-5): https://www.irs.gov/pub/irs-drop/n-25-05.pdf

• Beneficial Ownership Information Reporting: https://www.fincen.gov/boi

• US Department of Labor Issues Guidance on Independent Contractor Classification: https://www.dol.gov/newsroom/releases/whd/whd20250501

• DOL Retracts Biden-Era Independent Contractor Classification Rule: https://www.laboremploymentlawblog.com/2025/05/articles/department-of-labor/doj-retracts-biden-era-independent-contractor-classification-rule/

• Sales Tax for Travel and Hospitality: https://www.avalara.com/us/en/industries/travel-hospitality.html

• Publication 334: Tax Guide for Small Business: https://www.irs.gov/publications/p334

• Publication 15-A: Employer's Supplemental Tax Guide: https://www.irs.gov/publications/p15a

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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