[The following article is shared via the Texas Hotel & Lodging Association.]
By Jonathan Gerth, Esq.
Tax compliance audits tend to conjure up scenarios of anxiety, endless paper chases, potentially unknown compliance issues, tax deficiencies, late fees, and fines.
But there are many upsides to the experience that can actually serve your hotel business well. The process puts you in a position to see and take advantage of opportunities for improved knowledge, efficiency, recordkeeping, lowering costs and risks, and accommodating more guests.
Below are some tips from Avenu Insights & Analytics, an endorsed vendor of THLA, to help you prepare for an audit and position you for ongoing success as a Texas hotelier.
- Establish & Document Your Compliance Process. Establish and document a model compliance process to create “knowledge management” and consistency within your organization. Reporting requirements and due dates are essential to avoiding penalties and interest, and in some cases, can deter audit selection. Make this simple by setting calendar reminders (usually monthly or quarterly depending on your local jurisdiction) to avoid overlooking filing deadlines. With so much staff turnover in this industry, this will help maintain consistency, keep your establishment compliant, assist in standardizing the training process for successor employees, and minimize potential risk.
- Keep Good Records. Maintain a readily-accessible, digital or paper trail of records to ensure your audit goes as quickly and smoothly as possible. Typical documentation includes tax returns, bank statements, profit and loss statements, housekeeping reports and guest folios. Local jurisdictions require records for a minimum of 48 months, and a state audit can go back even further if there is a substantial tax liability.
- Know the Regulatory Requirements. Having a solid understanding of your local ordinance and state regulatory laws allows you to keep your business practices aligned with current regulations. New or expiring hotel occupancy tax (HOT) requirements can change the way you maintain records, properly classify gross receipts, and clarify the available deductions, and may impact how much business or guests your hotel you can accommodate.
- Pay Electronically. Tax or fine payments by paper check take time, cost more, and can get lost in the mail. A better way is to pay via a web portal if your jurisdiction allows it. It’s faster and offers a clear, accessible and verifiable history of what you’ve paid and when.
- Conduct Internal Reviews. Regular review and examination of your books help to identify any gaps and inadvertent compliance issues to get ahead of any issues on a potential audit, allow you to proactively remedy them and optimize documentation or training standards to minimize the risk of future occurrences.
Taken together, following these steps put Texas hotels on a solid footing in case of an audit, which can be a positive learning experience. According to Harsh Patel from Days Inn Dilley that was recently audited by Avenu at the request of the city, “I’ve had several auditors through the years and you (Avenu) were by far the MOST polite, thorough, and professional of them all.”
Beyond the personal satisfaction of passing an audit, hoteliers should also recognize the effort is part of an overall, statewide initiative to strengthen and maintain a level, competitive business environment. Hotel taxes by law contribute directly to the promotion of tourism and the convention/hotel industry, so proceeds are committed to attracting more overnight guests. This ultimately helps make Texas a great place to visit, live, and work, and is ultimately intended to stimulate your business.
Jonathan Gerth, Esq., is Vice President of the tax and audit division of Avenu Insights & Analytics. He leads the company’s efforts in helping communities maintain a strong financial outlook to deliver necessary services while ensuring a fair, uniform implementation and enforcement of their tax system. Contact him at email@example.com.