Reform Guidance: Changes to Hotel/Motel Excise Tax
Beginning January 1, 2019, Iowa Code chapter 423A changed regarding how Iowa’s state and local hotel and motel excise tax is administered and imposes new collection obligations on persons who facilitate the sales of lodging on a platform. The Department has further amended and condensed its prior administrative rules relating to this excise tax, which can be found in Chapter 103 of the rules.
Effective January 1, 2019
The sales price in a lodging transaction is the price that is ultimately charged to the customer. This price represents all consideration charged for renting or facilitating the renting of lodging (before taxes). The following are examples of charges that are included in the sales price and therefore subject to hotel and motel tax:
- Cleaning fees
- Linen/towel fees
- Nonrefundable deposits
- Facilitation fees
- Any other direct or indirect charge made in connection with the sale
Rentals directly by hotels and property owners
Direct rentals by hotels and property owners remain largely the same as they did prior to January 1, 2019. The person renting the property must collect and remit applicable state and local hotel and motel taxes on the entire price charged for the rental.
Example: A hotel located in Iowa offers rooms to rent. Customers can book rooms directly with the hotel, either in person, by phone, or through the hotel’s website. The hotel must collect all applicable hotel and motel taxes on the total price of its room rentals that is charged to the customers, and must remit those taxes to the Department.
Hotels and property owners who make direct rentals in this manner must obtain a sales tax permit and remit to the Department the hotel and motel tax and applicable local hotel and motel tax on a quarterly basis.
Lodging rental marketplaces
When a property owner lists and rents their property through a marketplace, such as Airbnb or VRBO, that marketplace is responsible for the collection and remittance of all applicable hotel and motel taxes. The sales price includes all fees the marketplace directly charges the customer for facilitating the rental.
Example: Bob owns a cabin in Iowa that he lists for rent on BNB Mania, an online lodging rental marketplace. Bob offers the cabin for rent for a three-day weekend for $900. When listing the cabin, Bob also requires customers to pay a $20 towel fee and a $50 cleaning fee on top of the base $900 rental fee. BNB Mania also imposes a $30 service charge on the customers for processing the transaction.
- A customer reserves and pays for renting Bob’s cabin using BNB Mania. The total sales price is $1,000:
- $900 - Lake home rental
- $20 - Towel fee
- $50 - Cleaning fee
- $30 - Service charge
- Bob’s cabin is located in a jurisdiction that imposes a 7 percent local hotel and motel tax. BNB Mania must charge the customer $1,120:
- $1000 - Sales price of the rental ($900 + $20 + $50 + $30)
- $50 - State hotel and motel tax (5% of sales price)
- $70 - Local hotel and motel tax (7% of sales price)
BNB Mania must add the $50 state-imposed tax as separate and apart from the sales price and separate and apart from the locally imposed tax, and add the $70 locally imposed tax as separate and apart from the sales price and separate and apart from the state-imposed tax. BNB Mania must then remit the $120 in tax to the Department.
If a property owner only makes rentals through such lodging rental marketplaces, the property owner does not need to collect hotel and motel taxes or file returns. However, if a property owner makes some rentals on a marketplace and some rentals directly to customers not through a marketplace, then the property owner must collect and remit all applicable hotel and motel taxes for those direct rentals not made through a marketplace.
Online rentals and online travel companies
Online travel companies that rent hotel rooms are responsible for collecting from the customer all applicable hotel and motel taxes. The online travel company must transmit to the property owner any applicable taxes collected on that portion of the sales price transmitted to the property owner, who must then remit that tax to the Department. The online travel company is separately responsible for remitting to the Department the amount of tax that is collected on the portion of the sales price it keeps in exchange for facilitating the rental of the property. These obligations apply to other travel businesses that operate in the same manner.
Example: A customer books a hotel room through an online travel company’s (OTC) website. The total sales price charged to the customer is $100. The $100 sales price includes a $20 fee that is retained by the OTC. In exchange for listing the room for rent on its website, the hotel charges the OTC a discount room charge of $80. The hotel is also located in an Iowa jurisdiction that imposes a local hotel and motel tax of 7 percent.
- The total price the OTC must charge to the customer is $112:
- $100 - Sales price of the rental ($80 discounted room charge + OTC’s facilitation fee)
- $5 - State hotel and motel tax (5% of sales price) $7 - Local hotel and motel tax (7% of sales price)
The OTC must add the $5 state-imposed tax as separate and apart from the sales price and separate and apart from the locally imposed tax, and add the $7 locally imposed tax as separate and apart from the sales price and separate and apart from the state-imposed tax. On the receipt or invoice, the OTC must separately state the sales price ($100), the state-imposed tax ($5), and the locally imposed tax ($7), but is not required to identify the portion of the sales price attributable to either the discount room charge or the facilitation fee.
The OTC must transmit to the hotel $9.60—the amount of hotel and motel taxes collected on the $80 discount room charge. The OTC must separately remit $2.40 to the Department—the amount of hotel and motel tax collected on the $20 facilitation fee that the OTC keeps. The hotel is then responsible for remitting the $9.60 of hotel and motel tax to the Department.
Transactions where property owner pays commission directly to the facilitator
Where a property owner pays a travel agent, online travel company, or other facilitator a commission or fee for facilitating the transaction, that commission is not included in the sales price of the transaction and is therefore not subject to state or local hotel and motel taxes.
Example: A customer books a room at a hotel through a travel agent that is unaffiliated with the hotel. The hotel is located in a jurisdiction with a locally imposed hotel and motel tax of 7 percent. The total sales price charged to the customer is $100. The travel agent coordinates the customer’s payment by collecting the $100 sales price plus tax paid by the customer and transmitting it to the hotel. The travel agent does not retain any part of the customer’s $100 payment, nor does it impose an additional fee to the customer for facilitating the rental. However, after the customer has stayed at the hotel, the travel agent receives a $20 commission from the hotel.
The $20 commission the hotel pays to the travel agent is not part of the sales price, and is therefore not subject to state or local hotel and motel taxes. The travel agent must collect $12 of hotel and motel taxes (12 percent combined hotel and motel tax rate × $100 sales price) and remit the $12 to the hotel when the travel agent facilitates payment of the sales price to the hotel. The hotel must then remit the entire $12 tax to the Department.
In this scenario, a travel agent does not have an obligation to remit any hotel and motel tax to the Department on this transaction.
What does this mean?
- The entire sales price charged to a purchaser of lodging--including all fees, deposits, etc.--is subject to hotel and motel tax.
- Where a property owner is renting their property directly to a customer, without any involvement of a third-party facilitator or marketplace, the property owner is responsible for collecting and remitting to the Department any hotel and motel taxes due.
- If you rent using a lodging marketplace, such as Airbnb or VRBO, then those marketplaces are responsible for collecting hotel and motel taxes on sales made using the marketplaces. However, you remain responsible for collecting and remitting hotel and motel taxes on non-marketplace rentals, if you have any.
- In a transaction involving an online travel company, the online travel company collects and remits hotel and motel tax on the amount of the sales price they keep, and the property owner remits hotel and motel tax on any amount received from the online travel company.
- Where a property owner pays commission to any person for assisting with or otherwise facilitating the sale of lodging, that commission is not subject to hotel and motel taxes.