Iowa Hotel and Motel Tax

Contracts made directly with Iowa state / local governmental entities and schools will be subject to both the 5% state excise and local hotel/motel taxes.

Contracts made directly with the federal government are exempt from both the state 5 percent excise tax and local hotel/motel tax throughout these various periods. However, rooms rented to federal government employees who are paying with cash, personal check, or personal credit card are subject to tax. This is true even if the employees will be reimbursed by the federal government.

• When the same person rents lodging for more than 90 consecutive days, the rental is exempt after the 90th day, whether the rental is a room, apartment, or sleeping quarter at any place where sleeping accommodations are furnished to transient guests.
  • Tax is due and not refundable for the first 90 days of an extended rental.
  • “Person” applies to an individual as well as any legal entity.
• Renting of sleeping rooms in dormitories at all universities and colleges located in Iowa.
• Renting of a room to the guest of a religious institution located on real property exempt from tax as the property of a religious institution, if the reason for renting the room is to provide a place for a religious retreat or function and not a place for transient guests generally.
• When the lodging is furnished to family and friends of a patient at a hospital, as defined in Iowa Code section 135B.1(3), by a nonprofit lodging provider (tax-exempt under Internal Revenue Code section 501(c)(3)) during the patient’s time of medical need and the length of the stay is based upon the needs of the patient, family, or friends.
  • The nonprofit lodging must maintain an established lodging facility for family and friends of a hospital patient during the patient’s time of medical need.
  • Lodging furnished to family or friends of a patient at a hospice or other health care facility is not eligible for this exemption. The language used in the new exemption requires the lodging to be furnished to family and friends of a patient at a “hospital,” which has specific meaning in Iowa law.

• The state 5% excise tax on room rental
• Any local hotel and motel tax, which can be imposed at a rate up to 7%
• The state 6% sales tax and any local option sales tax (LOST) 

These exemptions apply to conference and banquet room rental in hotel and motels, as well as to freestanding conference centers and restaurant banquet rooms.

There may be other items or services included or associated with the banquet or conference room rental that are subject to the state 6% sales tax, plus any applicable LOST. Examples of taxable items or services that may be included or associated with room rental include prepared foods, alcohol, soft drinks, candy, security services, and the rental of furnishings or equipment.

If the facility bills a lump sum for the room rental and taxable items or services, the state 6% sales tax, plus any LOST, applies to the entire bill. If taxable items and services are separately stated from the room rental on the invoice, the state 6% sales tax, plus any LOST, only applies to the sales price of the taxable items and services.

House File 760 was enacted by the Iowa General Assembly and signed into law by Governor Reynolds during the 2020 legislative session. Lodging providers and entities who rent lodging for extended periods of time will want to note, starting July 1, 2020, rentals are only exempt to the extent they last more than 90 days. The first 90 days is not exempt from the tax even if the rental is for more than 90 days.

Example. A railroad company operates a rail line that runs through Dubuque on a regular basis. The company reserves blocks of rooms at a hotel in Dubuque for employees who travel with a train when the train stops in or around Dubuque. The railroad company’s rental agreement with the hotel books rooms for six months at a time. The hotel must collect hotel and motel tax from the railroad company for the first 90 days of rental of each room for each agreement.

Beginning January 1, 2019, Iowa Code chapter 423A changed regarding how Iowa’s state and local hotel and motel excise tax is administered and imposes new collection obligations on persons who facilitate the sales of lodging on a platform. The Department has further amended and condensed its prior administrative rules relating to this excise tax, which can be found in Chapter 253 of the rules.

Effective January 1, 2019.

Sales price

The sales price in a lodging transaction is the price that is ultimately charged to the customer. This price represents all consideration charged for renting or facilitating the renting of lodging (before taxes). The following are examples of charges that are included in the sales price and therefore subject to hotel and motel tax:

• Cleaning fees
• Linen/towel fees
• Nonrefundable deposits
• Facilitation fees
• Any other direct or indirect charge made in connection with the sale

Rentals directly by hotels and property owners

Direct rentals by hotels and property owners remain largely the same as they did prior to January 1, 2019. The person renting the property must collect and remit applicable state and local hotel and motel taxes on the entire price charged for the rental.

Example: A hotel located in Iowa offers rooms to rent. Customers can book rooms directly with the hotel, either in person, by phone, or through the hotel’s website. The hotel must collect all applicable hotel and motel taxes on the total price of its room rentals that is charged to the customers, and must remit those taxes to the Department.

Hotels and property owners who make direct rentals in this manner must obtain a sales tax permit and remit to the Department the hotel and motel tax and applicable local hotel and motel tax on a quarterly basis.

Lodging rental marketplaces

When a property owner lists and rents their property through a marketplace, such as Airbnb or VRBO, that marketplace is responsible for the collection and remittance of all applicable hotel and motel taxes. The sales price includes all fees the marketplace directly charges the customer for facilitating the rental.

Example: Bob owns a cabin in Iowa that he lists for rent on BNB Mania, an online lodging rental marketplace. Bob offers the cabin for rent for a three-day weekend for $900. When listing the cabin, Bob also requires customers to pay a $20 towel fee and a $50 cleaning fee on top of the base $900 rental fee. BNB Mania also imposes a $30 service charge on the customers for processing the transaction.

• A customer reserves and pays for renting Bob’s cabin using BNB Mania. The total sales price is $1,000:
  • $900 - Lake home rental
  • $20 - Towel fee
  • $50 - Cleaning fee
  • $30 - Service charge
• Bob’s cabin is located in a jurisdiction that imposes a 7 percent local hotel and motel tax. BNB Mania must charge the customer $1,120:
  • $1000 - Sales price of the rental ($900 + $20 + $50 + $30)
  • $50 - State hotel and motel tax (5% of sales price)
  • $70 - Local hotel and motel tax (7% of sales price)

BNB Mania must add the $50 state-imposed tax as separate and apart from the sales price and separate and apart from the locally imposed tax, and add the $70 locally imposed tax as separate and apart from the sales price and separate and apart from the state-imposed tax. BNB Mania must then remit the $120 in tax to the Department.

If a property owner only makes rentals through such lodging rental marketplaces, the property owner does not need to collect hotel and motel taxes or file returns. However, if a property owner makes some rentals on a marketplace and some rentals directly to customers not through a marketplace, then the property owner must collect and remit all applicable hotel and motel taxes for those direct rentals not made through a marketplace.

Online rentals and online travel companies

Online travel companies that rent hotel rooms are responsible for collecting from the customer all applicable hotel and motel taxes. The online travel company must transmit to the property owner any applicable taxes collected on that portion of the sales price transmitted to the property owner, who must then remit that tax to the Department. The online travel company is separately responsible for remitting to the Department the amount of tax that is collected on the portion of the sales price it keeps in exchange for facilitating the rental of the property. These obligations apply to other travel businesses that operate in the same manner.

Example: A customer books a hotel room through an online travel company’s (OTC) website. The total sales price charged to the customer is $100. The $100 sales price includes a $20 fee that is retained by the OTC. In exchange for listing the room for rent on its website, the hotel charges the OTC a discount room charge of $80. The hotel is also located in an Iowa jurisdiction that imposes a local hotel and motel tax of 7 percent.

• The total price the OTC must charge to the customer is $112:
  • $100 - Sales price of the rental ($80 discounted room charge + OTC’s facilitation fee)
  • $5 - State hotel and motel tax (5% of sales price) $7 - Local hotel and motel tax (7% of sales price)

The OTC must add the $5 state-imposed tax as separate and apart from the sales price and separate and apart from the locally imposed tax, and add the $7 locally imposed tax as separate and apart from the sales price and separate and apart from the state-imposed tax. On the receipt or invoice, the OTC must separately state the sales price ($100), the state-imposed tax ($5), and the locally imposed tax ($7), but is not required to identify the portion of the sales price attributable to either the discount room charge or the facilitation fee.

The OTC must transmit to the hotel $9.60—the amount of hotel and motel taxes collected on the $80 discount room charge. The OTC must separately remit $2.40 to the Department—the amount of hotel and motel tax collected on the $20 facilitation fee that the OTC keeps. The hotel is then responsible for remitting the $9.60 of hotel and motel tax to the Department.

Transactions where property owner pays commission directly to the facilitator

Where a property owner pays a travel agent, online travel company, or other facilitator a commission or fee for facilitating the transaction, that commission is not included in the sales price of the transaction and is therefore not subject to state or local hotel and motel taxes.

Example: A customer books a room at a hotel through a travel agent that is unaffiliated with the hotel. The hotel is located in a jurisdiction with a locally imposed hotel and motel tax of 7 percent. The total sales price charged to the customer is $100. The travel agent coordinates the customer’s payment by collecting the $100 sales price plus tax paid by the customer and transmitting it to the hotel. The travel agent does not retain any part of the customer’s $100 payment, nor does it impose an additional fee to the customer for facilitating the rental. However, after the customer has stayed at the hotel, the travel agent receives a $20 commission from the hotel.

The $20 commission the hotel pays to the travel agent is not part of the sales price, and is therefore not subject to state or local hotel and motel taxes. The travel agent must collect $12 of hotel and motel taxes (12 percent combined hotel and motel tax rate × $100 sales price) and remit the $12 to the hotel when the travel agent facilitates payment of the sales price to the hotel. The hotel must then remit the entire $12 tax to the Department.

In this scenario, a travel agent does not have an obligation to remit any hotel and motel tax to the Department on this transaction.