How to handle tax increases?

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Madeleine's picture
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So we MAY get an increase in the lodging tax. It would go into effect in Oct. DH thinks we should 'suck it up' rather than preemptively charging the tax that may not even pass. He thinks we'd be out about $30. It's more like $300. I say we do a line item for any rez made now for after Oct 1 and then refund it if the tax doesn't pass. I think it's easier to refund than ask for more money when the guest checks in.

The other option is to resend all of the confirmations we have so far for that time frame (about 20) with the new tax rate. I am NOT willing to eat $300+ in tax revenue.

What do you think?

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Breakfast Diva's picture
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Our taxes will be going up 9%. There's no way I'm going to absorb that.

OnTheShore's picture
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We are subject to a tax rate increase coming up soon, too. In our case however, no one who is coming after the rate change takes effect has yet paid in full, so we have simply adjusted their balance due to reflect the new tax rate. I think if I were in Maddie's shoes, with guests who have paid in full in advance, I would do as Sugar Bear suggests, keeping the total paid the same by adjusting the room rate (but only for those who paid in full in advance).

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Madeleine's picture
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I guess the cheap side of me wouldn't let me do that.

If anyone kicks THEN I'll offer to take it out of my own pocket for them. Nope, that doesn't sound gracious, either does it?

 

muirford's picture
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You are both right - it is dependent on whether you use cash basis accounting or accrual basis accounting: http://www.nolo.com/legal-encyclopedia/cash-vs-accrual-accounting-29513.html

We pay the taxes at the time we take the deposit (to the taxing bodies), but we don't take a full night's deposit. So we would charge the increased tax rate at check-in, but generally there is a much bigger balance than just the change in taxes. For what it's worth, most small businesses use cash basis accounting.

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Generic's picture
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Around here, if they are paid, it's the date of the payment for the tax. If they are unpaid, the tax levy rate changes because it hasn't been paid.

That said, just to avoid the hassle and arguments, I would agree with R about this and just absorb the $300. It's more of a hassle to collect it and it will create some ill will with people, over small amounts.

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Madeleine's picture
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Sugar Bear wrote:

Around here, if they are paid, it's the date of the payment for the tax. If they are unpaid, the tax levy rate changes because it hasn't been paid.

That said, just to avoid the hassle and arguments, I would agree with R about this and just absorb the $300. It's more of a hassle to collect it and it will create some ill will with people, over small amounts.

Since I first posted this we've been waiting to find out if there would be an increase and when it would start. A lot more reservations came in the meantime.

I know it's picky but technically I am not allowed to pay the sales tax for the guest. Weird rule but there it is. Sure, no one else knows that. Well, all the emails have been sent and good thing as we've gotten some cancellations from folks who forgot they made these plans back in the winter.

I hope there is no backlash from guests who were not charged the additional tax at all the other places they booked. Most of them are coming from far enough away that this is not their only stop.

Generic's picture
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For future reservations, put the new tax in now. You can always refund it to them in cash when they are there. For those who are coming, I would simply recalculate the price of the stay if the tax passes. In other words if the tax was 5% and is not 6% and the stay was $100 plus tax (ie $105) instead of asking them for the $1 ($106). I would simply change the price of the stay to $99.06. I just wouldn't want to have the argument with them or for them to have the ill will. I would send them a new corrected invoice so that they see that we have "paid" the extra tax for them by discounting the room, which would create positive will for you, instead. Think of it as $300 worth of advertising.

Madeleine's picture
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OK, I did change the tax rate and hope I don't hear about it from guests who book for next week.

Arks's picture
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I still say the tax is assessed at the time the money is collected. If they paid in full in July, they pay the rate in effect in July, even if they arrive in October when the rate has changed.

Now those who reserved earlier, and haven't made final payment yet, but were quoted a total based on the day they reserved, that's a different story. They just have to understand that they pay the rate in place on the day they make the payment, and if the state/county/city changes that, it's beyond your control and you have to charge what the government says you must charge on the day the money is collected.

Amen.

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Madeleine's picture
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Arkansawyer wrote:

I still say the tax is assessed at the time the money is collected. If they paid in full in July, they pay the rate in effect in July, even if they arrive in October when the rate has changed.

Now those who reserved earlier, and haven't made final payment yet, but were quoted a total based on the day they reserved, that's a different story. They just have to understand that they pay the rate in place on the day they make the payment, and if the state/county/city changes that, it's beyond your control and you have to charge what the government says you must charge on the day the money is collected.

Amen.

I would say that applies to the price of the room. If you had a rate of $100 when you booked in March and I raise the rates to $150 you still get the room at $100. But I have no control over the tax rate. So, you, the guest, do have to cover that as the tax isn't due until after you've stayed. (I have a fair number of guests who got a discounted stay because they booked early before room rates went up.)

Here, if I collect the room + the tax as a deposit and you cancel and forfeit your deposit, I have to give you back the tax portion of that. No tax is collected or remitted for services not used.

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we have a tax on pretty much everything called VAT they changed it from 17.5% to 20% when I worked in a large hotel  and it was all done overnight majour operation - but say guests were staying 4 nights their exact same drinks or room rates were one price one day different the next it was a pain in the bum to say the least when checking all these people out when you had to explain to everyone when they queried that their martini on Monday was $5 and$5.20 on Tuesday!

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Breakfast Diva's picture
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They are paying to rent the room for a specific night. The service is performed & provided on a specific date. The tax rate is for that night of service. When you pay your state, city, county taxes, they are paid AFTER the room has been occupied. The collecting agencies don't care when you received the money, they only care that the taxes have been paid at the legal rate at the time of service.

Hallelujah

Breakfast Diva's picture
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Our rates are probably going up also, so I posted this on our policy page, confirmation letter and policies that must be clicked to make an online reservation.  "Rates are for two people and include full breakfast delivered to your room; rates are subject to change without notice. If tax rates change from time of booking, guest will be responsible at check-in for any additional room taxes due."

I'm thinking that I probably won't send them anything before their stay. It will be a significant difference...it will go from 1% to 10%!

Madeleine's picture
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OK, I'm fretting about a 1% increase and making sure the guests know in advance. Mostly because a LARGE % have 'paid in full' and I don't want them giving me the hairy eyeball on check-in when they suddenly have a balance. And I know most of them are going to hand me a credit card. I've had this happen before. Out comes the plastic. It may be time to put out a sign that says 'No credit cards accepted for charges under $10.'

 

Breakfast Diva's picture
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Madeleine wrote:

OK, I'm fretting about a 1% increase and making sure the guests know in advance. Mostly because a LARGE % have 'paid in full' and I don't want them giving me the hairy eyeball on check-in when they suddenly have a balance. And I know most of them are going to hand me a credit card. I've had this happen before. Out comes the plastic. It may be time to put out a sign that says 'No credit cards accepted for charges under $10.'

 

Yes, I wouldn't fret over 1%. What you might consider is when you check them in and they have paid in advance (this would be mostly 1 nighters) I would inform them about the difference in tax to make sure that they have cash when they check-out. I think it's very reasonable to inform them there are no credit cards accepted for less than $10. I'm sure there are many ATM/bank machines in your area they can get cash. Do make sure you have plenty of change for them.

Madeleine's picture
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Lodging tax did go up. I am sending out updated confirmations.

Have already received back a snooty email asking if we'll take a credit card for the additional $1.55?

Sigh. Without writing out a thesis on taxes in their updated info I am trying to give folks a head's up so they don't say, 'No, I'm all paid up,' when they get here.

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I would not suck it up.  You're just the pass through collector for the tax.  People are aware that these things can change.  I had it happen here several times when we had new local option sales taxes and while I didn't take deposits ahead of time, I had to explain why their total was different than what it was in the confirmation.  No worries. 

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Arks's picture
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Did we ever settle what we were discussing about this a few days ago? Is money you collect now subject to what the tax rate will be in a few months?

Seems like you would charge the tax rate that's in place on the day you get the money. If you get money today, you charge today's rate. Money you collect after September would charge the new rate.

Madeleine's picture
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It's the date of the stay where the money goes to the state. So, if I collect a 100% deposit right now for a stay in Oct, the state does not get the lodging tax until Oct. (Well, Nov.)

I'll have to charge the guest more on arrival. And, believe me, I do NOT want to run a cc for $1.50. And I will be asked to do that.

gillumhouse's picture
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And just when did a tax NOT PASS????? Get real - if it CAN be taxed, it will be.

Madeleine's picture
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gillumhouse wrote:

And just when did a tax NOT PASS????? Get real - if it CAN be taxed, it will be.

Our gov is refusing to sign any legislation that involves raising taxes.

gillumhouse's picture
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Most Legislatures have a way around a non-cooperating Gov.

Madeleine's picture
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The man has spoken - he'd rather shut down the state than sign the budget. So, there ya go.

Arks's picture
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gillumhouse wrote:

And just when did a tax NOT PASS????? Get real - if it CAN be taxed, it will be.

Our city voted today to impose a new 1% sales tax to build a new "water park". New pools, both indoor and out. As a result, they're eliminating the 2% tourism tax. So my guest's tax actually goes down 1%. But it's a huge amount of money for a town of 7000 ($7.5 million for construction, plus $700,000/year for eternity to run the thing). That's a lot to spend for the handful of people who will actually use it!

gillumhouse's picture
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I am proud to say the people of the town where I went to high school voted to increase their real estate taxes to build a new high school rather than allow the high school to be consolidated. I know that is very different from a pool (s) but I am proud they did it.

As for the pools - I am happy to hear indoor also. They would not listen to me when ours was being built (I strongly suggested an indoor/outdoor combo but they just did outdoor. Not long afterward, a person who was adamant for the outdoor only stopped me on the rail-trail and said he was sorry they did not listen. We have a beautiful pool that can only be used 3 - 4 months of the year IF the weather is good. If they had made it indoor/outdoor, in the off months, the gate could be closed and the indoor part used for water aerobics, pool parties, laps, etc. Now we spend each summer praying that we will at least break even.

The pools will make your city desirable as a place to visit and more so, as a place to live. They will bring a benefit to the city. When we moved here, people said in surprise - "You moved here on purpose?" Now we have amenities and recreation and because of that we have a business district again. It all works together like a circle. Amenities bring people, people bring business, business brings people.

Just building the bocce courts here has brought activity and people. Charities and Festivals are using our bocce courts for fundraisers and activities. We have bocce leagues and tonight they had classes to teach young people how to play bocce. Our Park (not to brag but...) was donated land, cleared by volunteers, grants submitted for the pool, a walking trail built around the park, pavilions were materials purchased by citizens/clubs (Legion and Moose went halfers for the big pavilion) and built be city workers with donated help from carpenters union and a local contractor to roof the big one. One of the Churches paid for and built the playground down by the pool and in April using grants and donations, a $30k+ playground was built by our city workers and volunteers and cost the City about $12k. The Performance Center (band shell) is being built right now (50/50 grant) and a group of kids just came to the City last week asking for a moto-cross at the park for their bicycles - so we are going to dump some piles of dirt and let them make what they want. People (and companies) rent our pavilions for picnics and parties.

Use it or not, people will buy homes in your town because there is a pool.

OnTheShore's picture
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We're facing a similar problem, although we don't yet have very many reservations (yet) for after the proposed date of increase. But I'm sending out all my quotes saying "plus tax, currently at 7% but subject to change" (especially when the scuttlebutt was about a possible July 1 date!).

In any case, as soon as the tax situation is finalized, I would send all impacted reservations a revised invoice reflecting the new tax rate. I'm just waiting for that e-mail from Greg....

Arks's picture
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I agree, much easier for you to refund if the tax does not pass, than to try to explain later that you have to collect more than people were expecting.

I don't see any reason at all for YOU to be the one who eats the $300. What is DH thinking?!

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