Hotel Occupancy Tax

Understanding Hotel Occupancy Tax: What Short-Term Rental Investors Need to Know

As a real estate investor, understanding the tax obligations associated with owning the property is crucial to your profitability. One key tax that should be included in your analysis is the Hotel Occupancy Tax (HOT), particularly if you’re operating a short-term rental (STR) property. Including this expense in your underwriting is essential to understand how this tax impacts your bottom line. Below, we’ll break down what the Hotel Occupancy Tax is, how it applies to your properties, and what you need to do to stay compliant with the local tax regulations.

What is Hotel Occupancy Tax?

Hotel Occupancy Tax (HOT) is a tax imposed by local governments on guests who stay in hotels, motels, or other types of lodging accommodations, including short-term rentals (STRs). The tax is typically a percentage of the rental rate and is collected by the property owner or operator on behalf of the government.

In Austin, this tax applies to all accommodations rented for less than 30 consecutive days. Whether you’re renting out a vacation rental, a guesthouse, or a room in your home, if your property qualifies as an STR, you’re responsible for collecting and remitting the Hotel Occupancy Tax.

Why is there a Hotel Occupancy Tax?

The Hotel Occupancy Tax was introduced to generate revenue for local municipalities, primarily for promoting tourism and funding tourism-related services and infrastructure. The tax is meant to support things like:

• Tourism marketing and promotion to attract visitors to Austin
• Event venues, festivals, and conventions
• Local improvements like parks and public transportation

For Austin, since it has become a major destination for visitors, particularly in the real estate and short-term rental markets, the Hotel Occupancy Tax helps fund the city’s tourism initiatives and related services.

Hotel Occupancy Tax and Property Tax: What’s the Difference?

While both taxes are related to property ownership, Hotel Occupancy Tax and property tax are entirely different:

1. Hotel Occupancy Tax is a transactional tax, collected on a per-night basis from guests staying in your short-term rental (STR) or hotel. It’s not an annual tax, but rather one that applies each time a guest stays at your property.
2. Property Tax, on the other hand, is a recurring, annual tax imposed on real estate owners based on the value of their property. This is assessed by the Travis County Appraisal District in Austin and is a fundamental tax for all property owners in the area.

While Hotel Occupancy Tax is paid by your guests, property tax is paid by you, the property owner. Make sure to account for both when budgeting for your property.

Who Needs to Pay the Hotel Occupancy Tax in Austin?

If you’re a property owner in Austin who rents out accommodations for periods of less than 30 days, you’re responsible for paying the Hotel Occupancy Tax. This includes:

• Owners of vacation rental properties
• Short-term rental hosts on platforms like Airbnb, Vrbo, and Booking.com
• Traditional hotels, motels, and inns

While guests technically pay the tax, it’s up to you, the property owner, to collect it and remit it to the city. Failure to do so can lead to penalties, interest, and fines, so it’s essential to stay on top of these obligations.

How Much is the Hotel Occupancy Tax in Austin?

In Austin, the Hotel Occupancy Tax rate is composed of two parts:

1. State of Texas: 6%
2. City of Austin: 11%, comprised of 9% occupancy tax and 2% venue project tax

This means the combined Hotel Occupancy Tax rate for short-term rentals in Austin is 17% of the rental price. For example, if you charge $200 per night for a rental, the tax would be $34 (17% of $200). The total amount you collect from the guest would be $234, with the $34 going toward the city’s Hotel Occupancy Tax.

It's important to note that there are areas surrounding Austin, not within the city limits, where the total hotel occupancy tax would be lower.

Hotel Occupancy Tax for Short-Term Rentals (STRs) in Austin

In Austin, STRs are a major contributor to the local Hotel Occupancy Tax revenue. If you’re renting out your property for short stays (less than 30 days), you’re required to follow these guidelines:

1. Registration: All short-term rental operators in Austin must register with the city and obtain a short-term rental license.
2. Collecting the Tax: As the property owner, you are responsible for collecting the Hotel Occupancy Tax from your guests. This includes collecting the tax through platforms like Airbnb or Vrbo, which may also collect and remit the tax on your behalf.
3. Reporting and Remitting the Tax: You must file monthly reports and remit the collected tax to the City of Austin. Reports are due by the 20th of each month for the previous month’s collections.

How to Register and Report Hotel Occupancy Tax in Austin

To comply with the Hotel Occupancy Tax requirements, you’ll need to:

1. Register with the City: Visit the City of Austin’s website to register as a short-term rental operator. You’ll need to provide details about your property and obtain a short-term rental license.
2. Collect the Tax: Ensure that you’re collecting the HOT from guests either manually or through your booking platform.
3. Submit Monthly Reports: You must submit monthly HOT reports online through the City of Austin’s portal. Payments and reports are due by the 20th of each month.
4. Keep Records: Maintain accurate records of all transactions, as the city may request documentation.

Exemptions and Deductions for Hotel Occupancy Tax in Austin

Some exemptions may apply, such as:

• Long-term stays: If a guest stays for 30 days or longer, the Hotel Occupancy Tax is not applicable.
• Certain nonprofit organizations: Some nonprofit organizations may be exempt from paying the tax.

It’s important to familiarize yourself with these exemptions to ensure you’re only collecting the tax when necessary.

How Hotel Occupancy Tax Impacts Investors in Austin Real Estate

For real estate investors in Austin, especially those who own short-term rental properties, the Hotel Occupancy Tax is an important consideration. Not only do you need to factor in the tax when setting rental rates, but you must also ensure compliance with local regulations to avoid fines. By understanding the nuances of HOT, you can better calculate potential profits, plan for tax payments, and ensure that you’re fully compliant with Austin’s rental laws. Additionally, if you’re working with creative financing or STR investment strategies, understanding HOT will help you make informed decisions on pricing and rental structures.

Consulting with an Austin Real Estate Agent for Investment Tax Strategies

As you build your real estate investment portfolio in Austin (or anywhere), it’s important to stay informed about all the taxes and regulations that may apply to your properties. Working with an agent experienced with investors can help you navigate the intricacies of the Hotel Occupancy Tax and other tax strategies to ensure you’re maximizing your investment returns while remaining compliant.

If you’re interested in buying or selling short-term rental properties, or if you need advice on local tax strategies for your properties, don’t hesitate to reach out. I’m here to help you understand the local market and make the most of your investments.