It may have happened to you or will happen in the future—you get a notice from the Department of Revenue letting you know they are going to audit your lodging tax returns for the past five years. In the least, it is annoying. At the worst, it takes up your time and the findings of the audit could cost you money including interest and penalty. Here are a few helpful tips to make the audit as efficient as possible.
Keep an Audit File
Keep an audit file for each quarter. The file should include a copy of your lodging tax return, copies of the documents you used to prepare the return and supporting documentation for all nontaxable sales reported for the quarter.
Supporting Documentation
Documents you used to prepare the return might include month end statements and tax-exempt reports.
Gross Lodging Receipts
To verify the gross lodging receipts reported on your return the Department may look at bank statements and/or business income tax returns. Those don’t necessarily need to be included in the quarterly file, but be aware we may request them for a few sample quarters. Be sure you are including all the correct revenue fields in your gross receipts. These include taxable and non-taxable room revenues, roll a way bed charges, linen charges if any, No-Show revenue, booking fees and any cleaning charges. Pet Fees and food are not taxable if they are separately stated to the guest on their folio/bill.
Non-taxable Sales
To verify non-taxable sales reported on your return, including long-term and federal government stays, the Department will want to view each guest folio associated with the non-taxable sale for a few sample periods. Keep a copy of each folio in your file.
For long-term or monthly rentals we will verify the stay was for 30 or more consecutive days.
For non-taxable federal government lodging we will verify the stay was paid for directly by the federal government. You will know the stay is paid for by the federal government by the credit card number. Please make sure your employees are aware of which credit cards are direct pay and result in non-taxable lodging. The best method for documenting the credit card is to have a copy of the folio for the federal government stay with at least the first six digits of the credit card number on the folio. When appropriate and feasible , we may ask to verify the full credit card number for a small sample of the federal government stays to verify someone is not just writing down a known direct pay credit card number in place of the actual credit card number used…it has happened.
That’s it. A simple file with proper documentation will reduce the time needed to complete the audit and support the numbers reported on your return.
If you have questions call or send us an email.
One last note, the lodging audits help to ensure guests are taxed consistently throughout the State and helps to level the playing field for all lodging facilities.
Written by:
Mark Schoenfeld
Unit Manager, Miscellaneous Taxes
