United States Tax Exempt Guide

WHAT DO WE MEAN BY "TAX EXEMPT"?

In the United States, there are several scenarios in which a guest’s hotel/lodging stay may be exempt from taxes that would otherwise be assessed. These are:

When presenting a Government Issued Personal Tax Exemption Card on check-in, for a booking that otherwise would have taxes assessed.
When charging certain third party online booking partners for a guest’s room charge (such as Expedia Virtual Card Reservations) in jurisdictions where tax law dictates it should not be assessed against these booking partners (varies by state).
When the length of stay exempts a guest from specific lodging taxes based on local occupancy laws, such as when a guest stays X number of nights or more, certain lodging taxes (such as occupancy/tourist taxes, etc.) should not be assessed (varies by state).

Below we will go into greater detail on each of these points before explaining how best to reconcile information from the system to aid in reporting on taxes and tax exemption.

1. GOVERNMENT-ISSUED PERSONAL TAX EXEMPTION CARD ON CHECK-IN

What is a personal tax exemption? The below is taken from https://www.state.gov/hotel-tax-exemption/.

Personal Tax Exemptions

Personal tax exemption cards are issued for the sole benefit of the individual identified and pictured on the card. OFM considers personal lodging expenses to be exempt from taxation when:

the individual holds a valid Personal Tax Exemption Card that allows for the relief of such taxes;
the room(s) are registered in the name of the individual identified on the Personal Tax Exemption Card; and
the lodging expenses are paid for by the individual identified on the Personal Tax Exemption Card, using any form of payment.

If a hotel or other vendor wishes to verify the eligibility for a tax exemption, foreign missions and their members should request that the vendor use the Department’s online tax card verification system at https://ofmapps.state.gov/tecv/ or call OFM during normal business hours. Questions or concerns may also be directed to OFM in Washington, D.C. at OFM-FMS@state.gov.

How to process a personal tax exemption:

First, ensure TAX EXEMPT TYPES are configured correctly for your property to allow the exemption of the relevant taxes: https://stayntouch.freshdesk.com/support/solutions/articles/24000028880-tax-exempt-feature

As mentioned in the article, enabling or disabling tax exemption on a stay card will not remove or add tax postings on charges already on the bill for that reservation. The functionality will only impact future postings.

If a group should be exempt from taxes in this manner, the group can be marked as Tax Exempt in a similar way as shown in this article: https://stayntouch.freshdesk.com/support/solutions/articles/24000041054-setting-a-group-as-tax-exempt

Considerations: Taxes marked as exempt on the stay card will not post for any charge code on which they would normally be assessed (such as outlet/restaurant postings). This means that not only the room charge may be exempt for taxes. Taxes normally assessed on incidental charges may also be exempt.

2. HANDLING OF ROOM RATES WHERE NO TAXES ARE ASSESSED (SUCH AS EXPEDIA VIRTUAL CARD RESERVATIONS)

Due to some tax laws, certain jurisdictions are required to not assess taxes on room charges that are being settled by a third party vendor, such as Expedia Collect Reservations, and where payment is made on a virtual credit card. Please note, this requirement varies by jurisdiction, so this will not apply to all hotels.

Given these room charges should never be taxed, but the guest should be taxed for any incidental charges, instead of marking these reservations as TAX EXEMPT (see point 1 above), we instead recommend selecting a charge code on the room rate configuration screen, which is not set to charge taxes at all.

In this first example, we see a charge code for room charge that is calculating taxes:

In this second example of an Expedia Collect rate, we have chosen the Room Charge Tax Exempt CHARGE CODE, which we see has no taxes referenced in the TAX box:

By using a charge code in the rate that does not have any tax calculation built in, the room charges will simply post the base amount.

As these charges are not postings that normally post tax, but are exempted based on the guest/stay card or group tax exempt toggle, the totals for a given date or date range can easily be calculated using the Journal and searching for the relevant tax exempt room charge code, or by referencing that line item on any of the financial reports. The below example shows how to quickly gather a month total of Tax Exempt Room Charge postings:

3. HANDLING OF LENGTH OF STAY EXCEPTIONS

Many jurisdictions have laws that dictate specific tax rules for specific durations of stay. In this example, we have an occupancy tax of 5% that we will add to the Room Charge charge code. We have set this tax to calculate 0%.

There are two methods of handling these taxes. The first is NIGHTS RANGE, which will post taxes until the first exempt night is met. This is useful for properties that wish to post and adjust the taxes for reconciliation reasons, and it also ensures that a guest who shortens their stay to a length no longer exempt already has taxes posted for consumed nights. This screenshot shows this set up, and this will cause taxes to stop posting from the 28th night and all subsequent nights between 28-999.

Our Rate Query details show that taxes will be assessed through nights 1-27 and will no longer post as of the 28th night.

Our second option is to use “LOS” (length of stay). By invoking this option and selecting the same night range, the system will prevent taxes from posting from the first night. This avoids users having to later adjust taxes, but as referenced in our first option, should the guest shorten their stay, those taxes would need to be manually posted.

No taxes assessed from the first night of stay:

If you do not see the option for Enable LOS and Enable Nights Range on your tax setup, this can be enabled under Settings > Financials > Financial Settings by toggling on TAX RULES.

OTHER TAX RULE OPTIONS & NOTES (TAX BY ROOM TYPE & GOVERNMENT-ISSUED TAX RATE CHANGES

If your property needs to make changes to certain taxes based on upcoming rate changes or the ability to charge different tax amounts by room type, you can find more information by referring to the following article: https://stayntouch.freshdesk.com/support/solutions/articles/24000057368-government-issued-change-of-vat-percentage