OCA Audit Reports

Issued: August 2006

SUMMARY

This report presents the results of the third in a series of hotel occupancy tax audits. It is the second Hotel Occupancy Tax Collection and Remittance Audit. The goal of this audit is to determine if hotels are properly collecting and remitting City hotel occupancy taxes.

Of the 33 hotels selected, 4 demonstrated compliance and were assessed no additional tax liability. The other 28 hotels were found to have compliance issues and/or additional tax liability and 1 hotel audit was suspended due to bankruptcy issues. Our audits indicated that these 28 hotels owed additional taxes ranging from about $650 to $25,290. Total deficiencies are close to $186,000. Audit work on 5 hotels, begun in the Phase II audit, was also completed with a total liability exceeding $77,000. Thus, total revenue for this audit exceeds $263,000.

The scope of this audit centered on claimed exemptions and exclusions. The understanding and application of rules related to exempt guests varied across hotels. Guests qualifying as permanent residents are entitled to a hotel occupancy tax exclusion. However, some hotels incorrectly apply the exclusions for such guests. Guests who are employees of certain agencies and organizations are also exempt from the tax. We found multiple instances in which hotels were offering exemption for ineligible guests.

In addition to misapplication of exemptions and exclusions, we also encountered several other issues with hotel owners including:

• Lack of reliable documentation for the entire 4 year audit scope period;
• Potential fraud in questionable records; and; and
• Failure to ensure that a prior owner did not owe taxes at the time of purchase.

Austin hotels operate in an environment of lenient enforcement and insufficient communication with regard to the hotel occupancy tax, which may contribute to the level and types of compliance problems identified.

As a result of our prior work, we made recommendations to strengthen the City ordinance guiding the hotel occupancy tax and to enhance monitoring of the tax. Tentative work has begun on writing a new ordinance, funding was provided at mid-year to conduct the Phase III audit, and the OCA has requested funding in the FY 2007 proposed budget for a revenue auditor to conduct the next series of audits.

The three audits conducted to date have identified $1.5 million in additional hotel occupancy tax revenue for the City.

Download the entire text of our Hotel Occupancy Tax: Collection and Remittance Audit, Phase III (Size: 129 KB) in Adobe Acrobat. You will need Adobe's Acrobat Reader to view these files. Or request a hard copy of this audit report, No. AU06104, by submitting this audit report request form.

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