Operating hotels, vacation rentals, and other accommodation establishments in popular tourism hubs brings added complexity in the form of multifaceted hotel tax regulations and requirements. This holds especially true in major cities like Chicago that levy local, county, and state taxes on top of base room rental rates. For hospitality business owners and managers, understanding all applicable taxes is essential for accurate reporting, remittance, and avoidance of penalties.
Our team at Lewis CPA is here to help!
Which Businesses Owe Chicago Hotel Taxes?
Hotels and other accommodation providers like vacation rental hosts have the obligation of collecting, reporting, and remitting applicable taxes on room charges to the taxing authorities. As the entities conducting the retail sale and charging guests for the use of rooms, hotels act as intermediaries processing taxes from consumers to cities.
This hotel tax collection responsibility applies to any person or business that provides sleeping accommodations and lodging for rental in Chicago for a period under 30 consecutive days.
Common entities that must register with tax authorities and understand hotel tax compliance include:
- Hotels
- Motels
- Inns
- Bed & Breakfasts
- Vacation Rentals
- Private Home and Condo Rentals
- Hostels
- Temporary Housing Rentals
For hospitality managers, understanding tax codes determines filing and remittance responsibilities. However, there’s confusion when multiple hotels operate under one umbrella company or utilize third-party booking platforms. Consulting local tax service specialists helps keep up with compliance.
Breaking Down Hotel Tax Rates in Chicago
As a premier Midwest convention and tourism destination, Chicago imposes hotel taxes at the city, county, and state levels that raise accommodation costs for travelers by 21-24%. Hospitality entities renting rooms for less than 30 consecutive days must collect and remit all relevant taxes, including:
- City Tax: 17.39% on net receipts.
- Chicago Hotel Accommodation Tax: 4.5% on gross receipts.
Additionally, large hotels may opt to charge service fees, tourism district assessments, and other surcharges. The multitude of overlapping jurisdictions and calculations for Chicago hotel taxes creates compliance challenges.
Complex Web of Accommodation Taxes in Chicago
The city of Chicago, Cook County, the state of Illinois, and regional entities all impose taxes on hotel rooms and vacation rentals that raise the cost of accommodation above base room rates. These hotel taxes in Chicago take several forms:
- Occupancy Tax: Chicago levies a 4.5% Hotel Accommodations Tax on the gross rental revenue from leasing hotel rooms.
- City Tax: A 17.39% City Tax rate is applied to net receipts from Chicago hotel operations. This includes:
- Municipal Occupation Tax: 6% tax on hotel revenue that goes to Chicago's general budget.
- Metro Pier and Exposition Authority Tax: 1.44% tax to fund McCormick Place expansions and city transit.
- Additional Hotel Tax: 1.75% supplementary hotel tax.
- County Tax: 1.75% Cook County accommodation tax imposed on total hotel rents.
- State Tax: Illinois' 6.25% baseline Sales Tax is extended to hotel stays.
- Additional Surcharges: Some hotels add other fees like resort charges or tourism district assessments.
In total, hotel guests can expect to pay between 21-24% above room rates after all taxes and fees at Chicago hotels. Corporate travelers may be exempt from paying sales tax if staying for business purposes.
How Chicago Uses Revenue from Hotel Taxes
Hotel tax revenue provides billions in funding for Chicago’s city and regional operations, tourism and convention services, and infrastructure projects. Major uses of hotel tax dollars in Chicago include:
- Wider City Budget: The Chicago Corporate Fund uses Municipal Hotel Operators Occupation Tax revenue as a flexible income stream for funding various city services and obligations. This supplied nearly $300 million in 2021.
- Tourism Promotion: Some Occupancy Tax funds tourism advertising to drive more visitors to Chicago through Choose Chicago.
- Public Transit: The Metro Pier and Exposition Authority dedicates hotel taxes to operating and enhancing the city’s public transit system.
- Convention Center: Taxes collected by this regional authority also help pay for construction projects expanding McCormick Place Convention Center.
Chicago Taxes vs Taxes in Other Major Cities
Deciphering hotel tax rates across different cities can quickly turn into a headache. While Chicago offers diverse experiences for travelers, its hotel tax structure, with multiple layers and additional fees, can add up compared to other popular destinations. Let's break down the total hotel tax burden in Chicago and compare it to some other major cities across the United States:
Adhering to Hotel Tax Compliance
For Chicago hospitality managers, keeping up with changing requirements across multiple jurisdictions proves vital for proper compliance. However, frequently amended tax codes and forms perplex hotel owners and staff. Failing to collect taxes from guests as mandated jeopardizes businesses through penalties, fees, legal actions, and revocation of operating licenses.
Formally registering a hotel or rental entity with all applicable city, county, and state authorities stands as the first compliance obligation. Maintaining rigorous tax paperwork and using accounting tools can prevent calculation errors. And understanding how to correctly file all relevant tax forms and remit payments on schedule to avoid fines. As regulations and rates shift, relying on expert guidance such as ours at Lewis CPA can help immensely.
Final Thoughts
In Chicago's intricate web of hotel taxes, staying updated on fluctuating rates is crucial for both hotel managers and owners. By partnering with Lewis CPA, a trusted Chicago CPA firm, businesses in the tourism industry can stay ahead of the curve and navigate the complexities of Chicago's hotel tax landscape.
Rest assured, your business is in safe hands with our experienced tax professionals. Since 1986, we’ve been dedicated to handling all aspects of taxes for you, ensuring compliance and peace of mind. Contact us today to get started!
