Transient Occupancy Tax

Transient Occupancy Tax (TOT) is a tax levied by local governments on guests who pay for short-term lodging, typically defined as stays of 30 consecutive days or fewer. Also known as hotel tax, lodging tax, bed tax, or short-term rental tax, TOT is assessed on the gross nightly rate charged to guests. The host or platform bears responsibility for collecting TOT from guests and remitting it to the appropriate taxing authority — typically monthly or quarterly. Combined state, county, and city TOT rates typically range from 6% to 15%, though some markets (especially major urban areas) see combined rates exceeding 20%.

Many major OTAs — including Airbnb and Vrbo — have signed tax collection agreements with thousands of jurisdictions and automatically collect and remit TOT on behalf of hosts in those areas. However, this is not universal. Hosts must verify whether their specific location is covered by a platform tax collection agreement or whether they bear full manual collection and remittance responsibility. Failure to collect or remit TOT can result in back taxes owed (retroactively), civil penalties, and personal liability in some states. Some municipalities require a separate TOT registration in addition to an STR business license.

For STR investors, TOT has two primary financial implications. First, TOT is typically passed through to guests as an additional charge on top of the nightly rate — so it does not reduce host revenue directly. However, it increases the total cost to guests, which affects price sensitivity and booking rates, particularly in markets where TOT pushes total guest costs significantly above comparable hotel rates. Second, investors must clearly understand their gross revenue — whether platform payouts include or exclude TOT — to build accurate DSCR and income models.