Hotels & Motels - Local Option Sales Tax

It has come to the attention of the department that not all hotels and motels are aware of a change in the taxation of rooms that went into effect last year. We present this article in an attempt to provide that information.

Legislation passed in 2005 (SF 413-I) removed from the sales tax portion of the Iowa Code the rental of rooms in a hotel, motel, inn, public lodging house, rooming house, or in any place where sleeping accommodations are furnished to transient guests for rent. Instead, the rental of these rooms was placed under a separate state "excise" tax. This change, which became effective on 7-1-05, was part of Iowa 's continuing effort to comply with the Streamlined Sales Tax Project. So lodging is no longer subject to 5% state sales tax. It is subject to the new 5% excise tax and any additional locally imposed hotel/motel tax.

This revision also impacted the imposition of Local Option Sales Tax (LOST) and School Infrastructure Local Option Tax (SILO). Transactions can only be subject to LOST/SILO if they are first subject to the state sales tax. Since lodging is no longer subject to state sales tax, it is no longer subject to either LOST or SILO under any circumstances.

Prior to 7-1-05, the rental of rooms was exempt from LOST/SILO if they were subject to the hotel/motel tax. On or after 7-1-05, lodging is no longer subject to LOST/SILO, whether or not the hotel/motel tax is imposed.

So if a room is rented in a jurisdiction that has no locally imposed hotel/motel tax, but does have one or both local option taxes, only the 5% excise tax is charged. If lodging is rented in a jurisdiction that does have hotel/motel tax, it is subject to the 5% state excise tax, plus the applicable hotel/motel tax. In neither case would LOST or SILO be imposed.

In addition to sleeping rooms, these changes also apply to banquet or conference rooms in a hotel, motel, or other similar facility. Therefore, the rental of a banquet or conference room in a hotel would be subject to the new 5% excise tax, but not state sales tax. And since they are no longer subject to sales tax, they are no longer subject to LOST or SILO.

Furthermore, where the prior hotel/motel tax provisions applied to "sleeping rooms" only, the new locally imposed hotel/motel tax applies to "rooms," including banquet and conference rooms in a hotel, motel, or other similar facility. Therefore, a banquet or conference room in an area with a locally imposed hotel/motel tax would be subject to 5% excise tax and up to 7% hotel/motel tax. In an area with no locally imposed hotel/motel tax, a banquet or conference room will be subject to only the 5% excise tax.