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How It Works: Hotel-Motel Tax Revenue Management

Many cities undergo a one-time hotel-motel tax recovery audit in order to ensure that lodging providers collected and remitted the correct amount of tax over the past 36 months. But what happens next? How do cities make sure the problems detected in the audit are permanently solved?
 
It’s hard, actually. And problems detected in the audit often recur. That’s because ongoing activities related to the collection of the tax can take up a lot of city staff time. But GMA has developed a process for helping cities with the fine details of regularly collecting this hotel-motel tax revenue.

From collecting money to following up on delinquent payments, GMA’s revenue management process involves a series of ongoing and important tasks. Let’s find out how it works.

Gather and submit at least the last 12 months of hotel-motel tax returns.Collecting the last 36 months of returns is best, but at the very least the city needs to gather the last 12 months of returns for each hotel. This information helps GMA to begin building its database of the city’s hotel-motel tax experience.

Gather information about the lodging providers. Detailed information about the lodging providers is usually available from either the city’s hotel-motel tax registration process or a business license application. If the city does not have this information, GMA will ask the city to register the lodging providers (through a form GMA gives to the city) so that GMA can learn in detail who is handling the city’s tax money at each hotel or motel.

Address hotels and motels that have not paid the city. Once GMA collects and organizes the hotel-motel return information in our database, it first addresses hotels that have not paid the city over the last year. GMA provides the city with a collection letter that outlines what months the hotel did not pay, the estimated payments owed, and a demand for payment. GMA guides the city through this process.

Update the city’s hotel motel ordinance (if needed). GMA provides cities with an up-to-date model hotel-motel ordinance. A city must adopt this ordinance before GMA can start receiving payments on the city’s behalf. This is literally a showstopper if it’s not done. That’s because in order to properly administer the city’s hotel-motel tax, GMA must get the city’s hotel-motel ordinance in compliance with current law.

Meet with lodging providers to discuss the new process. Once the city adopts the updated ordinance, GMA works with the city to schedule a meeting (typically at city hall) with all of the lodging providers. Here, GMA educates them on the proper administration of the tax and explains to them that they are no longer paying the city directly. Instead, they are submitting payment to GMA as part of the city’s use of our Revenue Management service.

Remind lodging providers about payment rules and law. GMA trains lodging providers about the payment rules and how it collects the tax. While cities are usually willing to talk with lodging providers about late payments, GMA does regularly remind hotels and motels of the consequences of delinquent or deficient remittances.

Once GMA sets up this revenue management process, the city receives a check and reports every month. The rest of the ongoing work (using expertise developed over two decades) is performed by GMA, which includes:
 
  • Collecting payments on the city’s behalf.
  • Issuing one check to the city each month, including all tax principal and late charges collected.
  • Following up with lodging providers about delinquent payments.
  • Informing the city in case enforcement mechanisms are needed to collect payment.
  • Performing targeted auditing as needed.
  • Providing updates to the city’s ordinance as laws and best practices change.
GMA also continually educates lodging providers about their duties in collecting the tax. As they are also collecting sales and use tax with different exemptions and duties, and as the hotel-motel tax exemptions and rules can change by statute, keeping the lodging providers informed can play just as important a role in ensuring that the city receives its revenue as anything else GMA does.

While this process is relatively straightforward, GMA offers some additional tips and advice about hotel-motel revenue management.

In the end, it’s up to the city to enforce its hotel-motel tax ordinance. If a lodging provider is not paying the required tax on a monthly basis, GMA can only “encourage” that lodging provider to a certain extent. While GMA can remind lodging providers about potential enforcement action from the city, it’s up to the city to then initiate the appropriate enforcement action, which can range from a citation to a court order to close the business, depending upon the circumstances.

Properly collecting and enforcing hotel-motel tax payments solidifies the city’s relationships with local groups that support tourism. Not only is the return on investment huge for the price of this service, but cities also really need to properly collect this money to support tourism efforts through convention and visitors bureaus and other local resources. Properly and transparently collecting this tax helps the city build positive relationships with these groups by making sure they have the financial resources to improve tourism in the community.

And good news! GMA’s revenue management process now offers an online system where the lodging providers file their returns and make payments online. This online system will also allow the city to view hotel-motel tax return data in real time, run reports, and build an electronic record of all returns and payments.
TAKE THE NEXT STEP
For more information on GMA's Hotel and Motel Tax Recovery service, you can contact:
 
WHY GMA?
With our many decades of experience working with cities, GMA quickly helps improve your tax administration and establish compliance between you and your city’s hotel and motel operators. Our process ensures that you receive your hotel and motel tax revenue every month like clockwork – without you worrying about collecting it.