The U.S. hotel industry continues to grapple with post-pandemic challenges, with profit margins in June 2025 remaining 4% below 2019 levels despite strong domestic travel demand. A new report from Avalara, based on a survey of 500 lodging executives, reveals that tax compliance is a significant drag on performance, consuming valuable time and resources that could be better spent improving customer experience.
The High Cost of Staying Compliant
According to the study, 40% of hotel operators spend 50-100 hours per year on tax compliance alone. This includes navigating complex local codes, filing returns, managing varying rates, and property registration. Despite these efforts, nearly half of respondents (44%) report only “somewhat confident” compliance status, and another 45% feel unprepared for future regulatory changes.
The problem is not just time-intensive; it creates uncertainty that ripples through other financial operations and can ultimately affect service quality. This is particularly critical in an industry where every operational inefficiency translates to a competitive disadvantage.
Why Hotels Hesitate to Automate
The industry’s reluctance to fully embrace automation is striking. Nearly half (44%) still rely on manual or semi-manual processes, citing concerns about accuracy (47%), understanding the technology (34%), and implementation costs (33%). Some also worry about displacing employees, but the report highlights that AI-powered tools can enhance employee efficiency by freeing them from repetitive tasks.
This hesitation is understandable but short-sighted. Manual compliance efforts are unsustainable as regulations become more complex and operating margins shrink.
The Opportunity Cost of Delaying Automation
The Avalara report makes a clear case for change. The longer hotels delay adopting automated tax compliance solutions, the more they stand to lose in time, agility, and competitive advantage. The cost of inaction is growing, as Nicole Rogers, Avalara’s lodging general manager, points out : “Hotels that continue to rely on outdated methods are sacrificing critical resources in an increasingly dynamic regulatory environment.”
The industry understands the importance of compliance, but the inconsistency of rules across portfolios makes it harder than ever to achieve. The key takeaway is that investing in the latest technologies is no longer a luxury but a necessity for growth, guest experience, and profitability.
