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State and Local Tax

Lodging Intermediary Platforms: Tips for Parsing Their Sales Tax Duties Across the States

Niki Ford, J.D., LL.M.  Checkpoint Catalyst Editor/Author

· 17 minute read

Niki Ford, J.D., LL.M.  Checkpoint Catalyst Editor/Author

· 17 minute read

Services such as lodging, passenger transportation, meal delivery, and similar transactions are increasingly offered through online intermediary platforms and apps that may have sales and use tax nexus with a state. Nexus may arise through the dollar amount or volume of services offered or goods sold into the state through the platform, or through a physical contact with the state through the platform’s agent providing the service or delivering the goods.

This article, the first in a series from Checkpoint Catalyst on intermediary platforms, outlines common sales, use, and occupancy tax (collectively, transaction tax) considerations for platforms facilitating lodging transactions, including online travel companies and short-term rental platforms. While more clarity has emerged as states have enacted legislation and issued relevant guidance in this area over the past few years, approaches vary across the states, and in some jurisdictions vexing questions remain. Platforms facilitating lodging transactions, and their tax advisors, should be particularly vigilant around the issues outlined below.

The transaction tax obligations of a lodging intermediary platform in any given state depend on a number of factors. First, the treatment of lodging intermediary platforms often depends on whether a state has adopted an accommodation intermediary-specific law or includes these platforms within the broader reach of a marketplace facilitator scheme. Furthermore, the state’s intermediary law may cover platforms facilitating transactions involving both traditional hotel rooms and residential short-term rentals, or only one of the two (and in some states, different intermediary laws may apply to different types of lodging). As in the past, many of the most complex transaction tax issues for lodging intermediary platforms involve the transaction tax base, and particularly whether the tax base includes amounts charged and retained by the intermediary above and beyond the amount paid for the lodging itself. In addition, local taxes can present a significant compliance burden when a lodging intermediary platform is required to remit a tax directly to a large number of localities, and constitutional challenges are likely to mount around these schemes. Finally, the transaction tax obligations of a lodging intermediary platform become further complicated when more than one lodging intermediary is involved in the lodging transaction.

Type of Intermediary Law.

In recent years, a number of states have imposed tax collection and remittance duties on platforms facilitating lodging transactions. A wide array of issues has arisen as state taxing agencies and intermediaries grapple with the impacts of these laws.

Intermediary-Specific or General Marketplace Facilitator Law: At the outset, the type of intermediary law adopted by the state may impact the obligations of an intermediary facilitating lodging transactions in that state. Some states have chosen to adopt an “accommodation intermediary-specific” statute (i.e. , a statute that applies only to platforms facilitating lodging transactions),1 whereas other states encompass lodging facilitators within the scope of their general marketplace facilitator statutes.2 Interestingly, while all of the general marketplace laws adopted by the states include some sort of economic nexus threshold (i.e. , a threshold based on dollar volume or number of transactions facilitated in the state), the accommodation intermediary-specific laws adopted by several states generally do not include an economic nexus threshold. Thus, there is a question as to whether lodging intermediaries have nexus in the state merely by facilitating a single transaction in the state, or if those intermediaries must meet some transaction volume or dollar threshold before being subject to tax collection and remittance obligations (and if so, what that threshold may be).

Platforms Impacted: The platforms impacted by state facilitator laws include both online travel companies (OTCs) and hosting platforms. Historically, the term “OTC” referred to a platform that facilitated hotel, motel, and similar commercial lodging transactions, whereas the term “hosting platform” referred to a platform that facilitated residential short-term rental transactions. In recent years, however, the distinction between OTCs and hosting platforms has blurred, as many lodging intermediary platforms offer both commercial hotel accommodations and residential short-term rental accommodations on the same platform. Nevertheless, a number of states impose different sales and use tax collection and remittance obligations on platforms based on whether the accommodation sold is a traditional hotel room or a residential short-term rental.3 This differential treatment can create layers of complexity for intermediary platforms that offer both types of accommodations.

Tennessee’s Complicated Treatment: For example, in Tennessee, as in a number of other states, traditional hotel, motel, and similar accommodations fall within the scope of the state’s general marketplace facilitator law.4 Thus, platforms facilitating hotel transactions in Tennessee may meet the definition of a marketplace facilitator; however, under Tennessee law, marketplace facilitators may seek a waiver of their sales tax collection and remittance obligations if they can demonstrate to the Tennessee Department of Revenue that “substantially all” of the marketplace sellers for whom they facilitate sales are registered with the Department as dealers.5 Because, by their very nature, lodging platforms only facilitate sales for brick and mortar entities that are physically present in the taxing jurisdiction, lodging platforms meeting the definition of a marketplace facilitator may be able to take advantage of this waiver provision, particularly in the case of platforms facilitating sales of accommodations at commercial hotels that are presumably registered as dealers in the state.

While lodging platforms may be able to seek a waiver of their obligations for non-residential hotel accommodations, a separate Tennessee law is expressly directed at residential short-term rentals. Beginning January 1, 2021, “short-term rental unit marketplaces” are required to collect and remit state sales taxes and local occupancy taxes for short-term rental units secured through the marketplace.6 In Tennessee, a short-term rental unit is a residential dwelling (including, but not limited to, a cabin, house, condominium, or apartment) that is rented, in full or in part, for less than 30 continuous days.7 A short-term rental unit marketplace is defined as a “business that provides a platform for compensation through which a third party offers to rent a short-term rental unit to an occupant.”8 Unlike the marketplace facilitator law, the short-term rental marketplace law in Tennessee provides no opportunity for platforms to seek or be granted a waiver of their tax collection and remittance obligations. Thus, platforms facilitating both commercial hotel transactions and residential short-term rental transactions may end up having different collection and remittance obligations for different transactions occurring within the same marketplace.

Transaction Tax Obligations Under “Agency” Versus “Merchant” Model.

When states do impose a collection and remittance obligation on intermediaries (whether by way of a general marketplace facilitator statute, or a statute aimed at hotel facilitators, short-term rental facilitators, or both), one of the most important questions that arises relates to the proper base upon which the tax is to be computed. Lodging intermediaries provide the service of allowing guests to reserve and book rooms via the intermediary’ s platform, and are generally compensated by the accommodation operators for this convenience.9 The compensation arrangements for lodging intermediaries vary, but two common models are used: the “agency” model and the “merchant” model.10Agency Model: Under the agency model, the hotel generally determines the price to be charged for the hotel room, and compensates the intermediary for its services on a commission basis.11 In the agency model, as Hellerstein writes, intermediaries operate more or less as “traditional travel agents, allowing customers to reserve a room at an advertised price and to pay for the room at checkout,” and in these cases the “hotel calculates tax on the actual room charge the guest paid at checkout, and no deduction is allowed for the commission due the agent.”12 Many states do not pull agency-model transactions into the scope of their facilitator laws because the collection or processing of payment from the booker is often a necessary condition for the facilitator law to apply and, in the agency model, the booker generally pays the accommodation operator directly.13 Thus, in an agency model transaction, the tax basis is frequently the amount charged by the hotel operator for the hotel room, and the hotel operator is generally the party responsible for remitting that tax to the state.

In practice, the author has found that in the few states that do not expressly require a lodging intermediary platform to collect or process payment from the booker as a condition to being subject to transaction tax obligations, a practical question arises as to how that platform can be required to collect and remit tax on funds that it never actually touches. There is a marked lack of guidance on this question. Lodging platforms operating in states that purport to impose tax collection and remittance obligations for agency model transactions may wish to seek guidance from the state taxing authorities on how to comply with their tax obligations.

Merchant Model: Under the merchant model, the intermediary generally collects the payment from the booker and is the party that determines the final sale price for the hotel room–often, by taking the net room price set by the hotel operator and applying a markup.14 Rather than being paid a commission, the intermediary retains this markup (frequently called the intermediary’s “margin”) as part of the total price that it collects from the consumer (and the intermediary may charge and collect additional service fees from the consumer). In the merchant model, intermediaries “act more like resellers, arranging to buy low from hotels and then sell high to consumers.”15

Historical Litigation: In many states, whether the intermediary’s margin and fees are to be included in the tax base has historically been the subject of litigation, with some states determining that the margin and fees are part of the total sales price subject to tax, and other states finding that the margin and fees are separate receipts for sales of nontaxable services.16 For example, the U.S. Court of Appeals for the Fifth Circuit has held that service fees charged by OTCs for hotel rooms in Texas are not subject to the Texas municipalities’ hotel occupancy tax ordinances and only the discounted room rate that an OTC pays to a hotel is taxable. City of San Antonio, Texas v., L.P., 17 On the other hand, in New York, the Department of Taxation and Finance has interpreted the “room remarketer” (New York’s term for a lodging intermediary) provisions as requiring a room remarketer to collect and pay sales tax on the total price collected from the consumer, inclusive of any margin or service fee retained by the OTC.18 Some states lack explicit guidance discussing whether a lodging intermediary’s margin or service fees are part of the transaction tax base. Lodging intermediaries should carefully consider whether the transaction tax in a given state applies to the net hotel rate only, or also includes the intermediary’s margin and fees, and may wish to seek guidance from those states where the answer remains unclear.

Duty to Remit: Furthermore, in states that do impose tax on the total charge, a related question arises as to which party (the intermediary or the hotel operator) is required to remit the tax. Some states, such as New York, require the intermediary to remit tax on its margin and service fees, and require the operator to remit tax on the underlying net room rate.19 In other states, such as North Carolina, the intermediary is required to remit tax on the entire charge.20

Local Taxes.

Another area of concern for lodging intermediaries is whether the intermediary’s tax collection duties encompass only a state-level tax on accommodations, or whether the intermediary is also required to collect and remit local taxes. Some states expressly extend their accommodations intermediary or marketplace facilitator laws to the collection and remittance of local taxes. A platform’s obligations become more complicated when the local taxes at issue are administered by the locality itself rather than the state revenue department–a scenario that is increasingly common in the context of accommodations taxes. In general, the question of whether localities can impose sales, use, or other transaction tax obligations on taxpayers that lack a physical presence in the jurisdiction remains unresolved even after South Dakota v. Wayfair.21 The Wayfair case dealt with the imposition of state-level taxes, and the Wayfair Court specifically noted a number of features of the South Dakota law at issue that resulted in the law being deemed constitutional. Among the features noted by the Wayfair Court in upholding South Dakota’s law, with its original $100,000 receipts / 200 transaction economic nexus threshold, were that: the law only required a merchant to collect tax if it did a considerable amount of business in the state; readily available software eased the compliance burden on remote taxpayers; and South Dakota was a party to the Streamlined Sales and Use Agreement, which afforded taxpayers making sales in multiple jurisdictions a degree of uniformity in determining taxability and filing requirements.22

In the case of locally imposed and administered taxes, many of these safeguards don’t necessarily exist. For example, the Virginia accommodations intermediary statute requires intermediaries to collect and remit both the state sales tax and locally-administered transient occupancy taxes.23 However, Virginia’s locally-administered transient occupancy taxes lack both a locality-specific economic nexus threshold and a mandatory centralized filing mechanism for taxpayers doing business in multiple localities.

Furthermore, the Court in Wayfair referenced its earlier holding in Pike v. Bruce Church, wherein it held that state laws regulating commerce may be invalid if the “burden” imposed on commerce is “clearly excessive” in relation to the local benefits afforded by the law.24 There are thousands of local taxing jurisdictions in the United States, and the sale of a hotel room or residential short-term rental may be subject to multiple local-level taxes, such as county taxes, city taxes, convention center taxes, resort taxes, and many others. Compliance with the schemes of all these jurisdictions can be confounding even for the most knowledgeable practitioner. Subjecting a remote taxpayer to thousands of non-uniform, locally administered taxes arguably may raise the type of “undue burden” envisioned by Pike v. Bruce Church and later referenced in South Dakota v. Wayfair. Overall, it remains to be seen whether locally administered taxes imposed on remote sellers and marketplaces would withstand constitutional scrutiny.

Multiple Intermediary Platforms.

Finally, the facilitation of a travel service may involve more than one online travel company. For example, an OTC (OTC-1) may have a contractual relationship with a hotel provider whereby the hotel provider allows OTC-1 to offer rooms directly to OTC-1’s customers and to other online travel companies. OTC-1 may also have a separate agreement with a different online travel company (OTC-2), whereby OTC-1 agrees to make the hotel accommodations available for listing on OTC-2’s platform (generally in exchange for a commission or a portion of the total charge to the customer paid by OTC-2 to OTC-1). When a room reservation is completed on OTC-2’s platform, at least four parties are involved in the transaction: the customer, OTC-2, OTC-1, and the hotel provider.

Although these complex transactions happen fairly regularly in the online travel context, very few states have provided written guidance on how tax collection and remittance obligations work when more than one OTC is involved in the transaction. One notable exception is Virginia. Effective October 1, 2022, Virginia law provides that when transactions involve two or more parties that meet the definition of accommodation intermediary, the parties can make an agreement to determine and set which party is responsible for collecting and remitting the tax to the Department and applicable locality.25 The responsible party must be registered as a dealer with the Department.26 Furthermore, the party collecting and remitting the tax will be the sole liable party, and the other parties to the agreement will not be liable. 27

The Takeaway.

States have focused increased attention in recent years on the transaction tax obligations of lodging intermediary platforms, but have taken widely divergent approaches to what those platforms’ obligations should be. There is no “one size fits all” approach to state tax compliance for lodging intermediaries. Instead, it is necessary for lodging intermediary platforms and their advisors to carefully examine each state’s tax laws and evaluate the application of those laws to the various types of lodging transactions facilitated by the platform. For a detailed survey of each state’s approach to lodging intermediary platforms, along with practice tips highlighting possible areas of confusion, see Checkpoint Catalyst Topic # 1051:000 Sales Tax: Electronically Delivered Goods and Services.


2 See, e.g., NMSA 1978 § 7-9-3.3.

4 Tenn. Code Ann. § 67-6-501(f), enacted by L. 2019, c. 646, eff. 10/1/2020; Tenn. Code Ann. § 67-6-501(f)Tenn. Code Ann. § 67-6-501(f), as amended by L. 2020 H379, eff. 06/30/2020; Tenn. Code Ann. § 67-6-102, as amended by L. 2019, c. 646, eff. 10/01/2020; Tenn. Code Ann. § 67-6-201, as amended by L. 2019, c. 646, eff. 10/01/2020; Tennessee Important Notice No. 20-24, 07/01/2020.

6 L. 2020, Chapter 787 § 1405(c), effective 01/01/2021; L. 2020, Chapter 787 § 1426, effective 01/01/2021; L. 2020 Chapter 787 § 3302, effective 01/01/2021; Tennessee: Frequently Asked Questions – Local Occupancy Tax, 12/01/2020Tennessee Important Notice No. 20-20, 10/01/2020.

16 Hardesty: Electronic Commerce, § 6;14.05; Hellerstein & Hellerstein: State Taxation ¶  19.05[8][a]; see, e.g., Travelscape, LLC v. South Carolina Department of Revenue, (02/12/2009, S.C. Dept Rev. Comm. Dec.) Dkt. No. 08-ALJ-17-0076-CC; Appeal of Travelocity, et al, (02/28/2013, Wyo. Bd. Equal.) Dkt. No. 2010-112, 2010-146, 2010-115, 2010-114, 2010-127, 2010-117, 2010-113; St. Louis County v. Prestige Travel, Inc., (2011, Mo.) 344 S.W.3d 708; City of Birmingham, et al., Plaintiffs, v. Orbitz, Inc., et al., Defendants, (03/24/2011, Ala. Cir. Ct.) Dkt. No. CV 09-3607 JSV.

17 City of San Antonio, Texas v., L.P., (2017, 5th Cir.) 876 F.3d 717.

21 South Dakota v. Wayfair, Inc., (2018, U.S.) 138 S. Ct. 2080201 L. Ed. 2d 403.

22 South Dakota v. Wayfair, Inc., (2018, U.S.) 138 S. Ct. 2080, 201 L. Ed. 2d 403. 

24 Loren J. Pike, etc., Appellant, v. Bruce Church, Inc, (1970, U.S.) 397 U.S. 13790 S. Ct. 84425 L. Ed. 2d 174.

25 Va. Code Ann. § 58.1-612.2(C) (eff. 10/01/2022).

26 Va. Code Ann. § 58.1-612.2(C) (eff. 10/01/2022).

27 Va. Code Ann. § 58.1-612.2(C) (eff. 10/01/2022).


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