Travel Taxes: The Hidden Trifecta

Issue Briefs | Taxes

No. 167
Thursday, July 30, 2015
by Jacob Kohlhepp

In recent years, in a drive toward more revenue, officials at every level of government have raised a trifecta of travel-based taxes dramatically. As a result, travelers bear large effective tax burdens that can amount to 30 percent higher costs in high-demand areas like New York City or Chicago.

Hotel Occupancy Taxes. As of 2012, the most recent year for which complete data is available, about 22 states levy a specific statewide tax on lodging, ranging from as low as 3 percent to as high as 13 percent of the price of a night’s stay at a hotel or motel. They are often accompanied by local lodging taxes, which are popular in such metropolitan areas as Chicago and Los Angeles, where the hotel tax is 4.5 percent and 14 percent, respectively.

Rates vary, but the structure of the occupancy tax tends to be similar, with a minimum stay threshold determining if a rental is transient or residential, and a minimum price threshold determining if the rental is taxed. For example, according to the Texas Comptroller of Public Accounts, hotel occupancy in Texas is taxed if the bill at a hotel, motel, condominium, or bed and breakfast totals more than $15. Local taxes also apply to any room rental that totals more than $2 per night for stays of less than 31 days. This means that in some Texas cities, even the rental of a personal residence for a short stay is taxable.

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