A new report by Avalara, Inc., a maker of agentic tax and compliance solutions, has found that 44% of polled U.S. lodging operators say they only feel “somewhat confident” their business is compliant with lodging tax rules, suggesting an industry stretched thin by growing regulation and low preparedness for future tax changes.
The report, “Checked In, Taxed Out: Benchmarking Tax Compliance in the U.S Lodging Industry,” is based on a U.S. survey of 250 hotel operators and 250 short-term rental hosts who are responsible for their organization’s or business’s finance operation. It finds that across both sectors:
- 45% say they feel only “somewhat prepared” to adapt to new or updated lodging tax requirements moving forward
- 65% of short-term rental operators and 54% of hotel operators spending more than 50 staff hours per year on compliance strategies
- The most time consuming and challenging aspects of compliance are understanding local tax codes (37%), filing monthly/quarterly returns (37%), and managing different rates across locations (35%)
Operators Overwhelmed by Growing Regulation
A recent surge of state and federal legislation aimed at the industry has only further complicated compliance. Since 2024, states such as Alabama, Colorado, and Delaware have introduced significant changes to their lodging and occupancy tax rules. Meanwhile, other states, including California and Minnesota, are enacting or proposing laws to increase pricing transparency for consumers. These measures require lodging operators to quickly and accurately calculate all fees across jurisdictions and ensure taxes are properly remitted.
Bruce Todd, Senior Principal of Indirect Tax Technology at KPMG LLP, noted,“This push in legislation is adding yet another layer to an already incredibly complex tax environment. Hotels and short-term rental operators now need to ensure that every price and line item presented to a traveler accurately reflects all applicable taxes and fees in real time.That’s a significant operational burden when rates, rules and fee structures vary so widely across jurisdictions, and with additional legislation on the horizon, that complexity will only continue to increase.”
Both sectors are now feeling the impact of these changes and uneven preparedness. Nearly two-thirds (64%) of hotel respondents reported receiving a penalty notice or fine for non-compliance within the past five years, while nearly one-fifth (19%) of short-term rental operators experienced the same.
Smart Tech Strategies Face Slow Adoption
Despite these challenges pointing to the benefits of automated strategies, nearly half (44%) of respondents in the hotel industry said their approach to tax compliance still involves manual or semi-manual processes, even as intelligent technology becomes more readily available. The survey shows less than half of respondents are currently using AI-powered software for tax compliance purposes (44%). Barriers to adoption include concerns about accuracy or reliability of AI (47%), uncertainty about how the technology works (34%) and costs of software (33%).
“Unnecessary tax complexity shouldn’t be seen as the price of doing business for the lodging industry,” said Nicole Rogers, General Manager of Lodging for Avalara. “This report highlights just how urgent the need is for purpose-built, trusted tools that can help both short-term rentals and hotels keep up with evolving rules, without losing valuable time, revenue, or peace of mind.”
As the lodging sector navigates these growing complexities, Avalara remains committed to delivering innovative, AI-powered compliance that simplifies tax, reduces manual effort, and gives operators the confidence to focus on what matters most: serving their guests.
Download the full report here. More about Avalara’s agentic tax and compliance solutions for the lodging sector is a65% of short-term rental operators and 54% of hotel operators spending more than 50 staff hours per year on compliance strategies: https://www.avalara.com/us/en/products/lodging-tax.html.
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Tags: hotel tax, hotels, lodging tax, short term rentals, Small Business, Taxes
