Short-term rental
Occupancy tax
Also written: transient occupancy tax, TOT, lodging tax
What Occupancy tax means
Occupancy tax is a municipal or state excise levied on the rental of temporary lodging, typically stays under 30 consecutive days. Collected by operators directly from guests at check-out, it is remitted to local tax authorities to fund public infrastructure, tourism marketing, and municipal services.
Formula
Occupancy Tax Amount = Base Room Rate × Occupancy Tax Rate
How it is used
Revenue managers must ensure occupancy tax rates are correctly mapped across all direct booking engines and third-party channels like Airbnb or OTAs, as tax pass-through compliance varies by jurisdiction. Failing to collect or remit accurately triggers severe financial penalties, interest charges, and potential license revocation. Operators factor regional lodging taxes into gross rate positioning, as high tax surcharges directly reduce a guest's price tolerance for base room rates.
Worked example
A short-term rental charges a base rate of $200 per night for a 3-night stay, yielding $600 in taxable lodging revenue. With a local Transient Occupancy Tax rate of 12%, the operator collects an additional $72 ($600 × 0.12) from the guest, bringing the total folio to $672, and remits the $72 to the city tax authority.
Common mistake
Assuming online booking platforms automatically collect and remit all applicable local taxes on your behalf, which can leave operators personally liable for uncollected municipal surcharges.
Occupancy tax in our reporting
Recent stories where this term does real work.