Audit Procedures for Hotel Occupancy Tax
Chapter 1 - Overview of Hotel Occupancy Tax
- Audit Period
- Certificate of No Tax Due
- Hotel Managing Companies
- Sales Tax for Hotels
- Telecommunications Infrastructure Fund Assessment for Hotels
This procedure manual has been written as a training tool and reference guide for the auditor. Basic audit procedures and techniques are outlined in the Auditing Fundamentals Manual. This manual is applicable to Hotel Occupancy Tax Audits. Audit procedures and related characteristics unique to the hotel industry are covered in this manual. The purpose of this manual is to present suggested audit procedures that conform to standard audit practices.
Users of this manual are responsible for insuring that any statute or procedural changes that occur after the published date of this manual are taken into consideration. Taxpayers and any other users of this manual should review applicable statutes and rules and any changes that have been made to the rules or statutes. A good source of information is the Comptroller's hotel occupancy receipts files located on the "Hotel Tax" Web page on the Comptroller's Window on State Government website.
Updated overnight, hotel receipts are listed monthly and quarterly by city and include taxpayer numbers, addresses, capacity, and reported receipt amounts. Monthly and quarterly hotel receipt data for the state is also available by downloading compressed files, but are only current as of the date listed.
The Hotel Occupancy Tax has a four-year statute of limitations. A taxpayer may sign a waiver to extend the statute period. Refer to the Auditing Fundamentals Manual for instructions to complete the form "Agreement to Extend Period of Limitation."
For audits of entities that include tax collected not remitted or audited taxes that are in excess of 25% of reported amounts - the audit period may cover more than four years. This is due to an exception in the statute. Audit periods in excess of four years must be pre-approved by Audit's designated headquarter personnel.
Certificate of No Tax Due
A certificate of no tax due may be requested by either the seller or the purchaser of a business. A certificate stating the amount due or that no tax is due may be obtained from the State in the following manner. The seller, the seller's assignee, or purchaser must make a written request to the Comptroller of Public Accounts for the certificate before the sale of the business is completed. The Comptroller must issue a certificate to the requestor within 60 days after the records are made available by the seller for audit or within 60 days after receiving the written request for the certificate, whichever period expires later, but in any event not later than 90 days after receiving the written request. If any amount is found to be due, it must be paid before the certificate will be issued. Failure of the Comptroller to timely issue the certificate to the requestor will release the purchaser from any further obligation to withhold an amount from the purchase price (for taxes).
If a certificate of no tax due is not obtained by the purchaser of a business, the purchaser may be held liable for any taxes (hotel occupancy tax, sales taxes and other taxes or fees) not reported by the previous owner. For more information on a purchaser's potential tax liability, refer to Comptroller Rule 3.7 of the General Rules - "Successor Liability: Liability Incurred by Purchase of a Business."
A Certificate of No Tax Due audit is a Priority Assignment. The audit and write-up procedures are the same as those for a deficiency/credit or No Tax Change audit. The Processing Center must be notified by comments entered on Work Manager that the assignment is a priority and marked as a Certificate of No Tax Due audit assignment and the audit package should be expedited. This is extremely important as the State may lose revenue if the audit is not processed timely.
Hotel Managing Companies
A managing company is one which manages many hotels. These managing companies do not own the hotels but are responsible for reporting the hotel occupancy tax. TEX. TAX CODE ANN. 156.053 provides that "A person owning, operating, managing, or controlling a hotel shall collect for the state the tax ...." Therefore, if a managing company is responsible for reporting the hotel occupancy tax, then the audit will be conducted on the managing company. In these cases, the managing company, per the statute, would be liable for the audit deficiency.
When conducting an audit the auditor may be dealing with a managing company that manages hotels in several different cities. It is important to determine the location of the records that will need to be examined during the course of an audit. Usually the detail records will be located at the outlet location. Pre-audit research should involve determining the type of records available (i.e., computer system utilized - whether data is available on CD, diskette, in a data format that is accessible by the auditor), also the records location, authorized contacts and their office location, auditor workspace available etc. All these topics should be discussed during the planning stages of the audit fieldwork.
Sales Tax for Hotels
When auditing for hotel occupancy tax the auditor should simultaneously generate and conduct an audit for sales and use tax. The same records used in the hotel audit will also need to be examined for a sales tax audit. This will alleviate the taxpayer the inconvenience of having the same records and personnel involved on two separate occasions for two separate audits. Hotels may summarize their daily receipts/revenues using the same data format or spreadsheet. If so, the reconciliation of taxes and revenues for both sales tax audit and the hotel tax audit may utilize the same data bases and data files.
If the hotel is not permitted for sales tax, the auditor should determine if the entity makes taxable sales - it may be determined that the entity should be collecting and reporting sales and use tax. If this is the case, the hotel owner or management will be required to obtain a sales tax permit to report these amounts. The taxpayer has the option to go to the nearest Comptroller of Public Accounts Enforcement Office and obtain a permit on the premises immediately. If this is not feasible, the auditor should deliver an application for a sales tax permit to the taxpayer and then arrange to have the application processed as soon as possible. If the taxpayer refuses to obtain a sales tax permit, the auditor will permit the taxpayer on the system. This is necessary to process the sales tax audit.
Hotels may summarize most of their daily receipts/revenues on the same data format or spreadsheet. Some types of revenue that the hotel may have are: restaurant sales, parking revenue, valet services, laundry services, vending machine sales, magazines or miscellaneous type sales, and payphone or telephone charges.
In addition to the examination of sales and revenues, the sales and use tax audit will encompass the examination of purchases of both assets and expenses as well as purchases of services made for the hotel's own use. These items may include the following items: furniture, televisions, computers, equipment, office supplies, leasehold improvements and taxable services such as parking, landscaping, etc.
Purchases of items provided for use by the hotel guest are also examined as these items are normally subject to sales tax. These purchases may include, but are not limited to, soaps, toothbrushes, toiletries, towels, and other items used by the guest. In-room amenities provided with the guest room: shampoo, soap, toilet paper, laundry bag, hair net, etc. are taxable to the hotel at the time of purchase. If a separate charge is made to the hotel guest for the purchase of these items, the item may be purchased tax-free by the issuance of a resale certificate. Sales tax would be charged to the occupant when the item is resold.
Kitchen equipment for use in the hotel's restaurant (used to cook, mix, chop, or blend food or beverages) that qualifies as manufacturing equipment may be purchased tax-free with the issuance of an exemption certificate. See Rule 3.300(d).
Telecommunications Infrastructure Fund Assessment for Hotels
When auditing for sales tax, the auditor should check to see if the hotel charges for telecommunications services. In addition to being subject to sales tax, telecommunication services are subject to the Telecommunications Infrastructure Fund (TIF) assessment.
The auditor should add the TIF assessment to the audit if the hotel:
- Charges for local telephone calls;
- Marks up long distance call; or
- Charges for facsimile (FAX) services.
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