If an online travel company (a re-renter) books my hotel rooms, do I still owe Hotel Operators' Occupation Tax, or can I treat the sale to the re-renter as exempt?

Plain-English summary

A hotel operator wrote to the Illinois Department of Revenue after receiving a notice from an online travel company (OTC) saying the OTC would now "pay taxes on all of their bookings." The hotel operator worried this meant it could treat those bookings as tax-exempt resales, and that if the OTC didn't actually pay the tax, the hotel operator would be stuck with a huge unexpected tax bill since a large share of its business comes through the OTC.

The Department's answer: the hotel operator still owes Hotel Operators' Occupation Tax on the gross rental receipts it receives from the OTC, and it cannot claim a resale exemption. Under 35 ILCS 145/3(c), effective July 1, 2024, when a room is rented through a "re-renter" of hotel rooms — a category that includes many online travel companies — the re-renter itself becomes the hotel operator subject to tax on what it collects from the guest. But that doesn't relieve the original hotel operator of its own tax obligation on what it received from the re-renter; the Act specifically prohibits resale exemptions in this chain under 35 ILCS 145/3-2.

To avoid double taxation, the Act gives the re-renter a credit under 35 ILCS 145/3-3: the re-renter can credit against its own tax liability the amount it already reimbursed to the hotel operator for tax on that room. The practical effect is that the re-renter ends up paying tax only on its markup, while the hotel operator still remits tax on what it received from the re-renter up front.

The Department closed by telling the hotel operator to "structure their rental transactions accordingly" — meaning the hotel operator should build its tax obligation into its pricing/reimbursement arrangement with the re-renter rather than assume the re-renter's tax collection substitutes for its own liability.

What this means for you

Hotel and lodging operators working with online travel companies

If you rent rooms to an online travel company or another "re-renter" (as defined at 35 ILCS 145/2(9)), you still owe Hotel Operators' Occupation Tax on the gross rental receipts you receive from that re-renter — you cannot treat the transaction as an exempt resale. Don't assume that a re-renter's notice about "paying taxes on bookings" eliminates your own tax liability on the amount it pays you; make sure your contracts and remittance reimbursement from the re-renter account for the tax you owe.

Online travel companies and other re-renters

As of July 1, 2024, if you meet the Act's definition of "re-renter" (you collect or process rent payments and either control guest access/occupancy or facilitate bookings, without operating under a shared hotel brand with the operator), you are treated as the hotel operator on your own gross rental receipts from the guest. You can, however, take a credit under 35 ILCS 145/3-3 for the amount you reimbursed the hotel operator for tax on that same room, so in effect you're taxed only on your markup.

Accountants and tax professionals

This GIL illustrates the layered tax structure created by 35 ILCS 145/3(a)-(c): tax applies at both the hotel-operator-to-re-renter level and the re-renter-to-guest level, with a credit mechanism (35 ILCS 145/3-3) to prevent full double taxation, and an explicit statutory bar on resale exemptions (35 ILCS 145/3-2). When advising clients on either side of a re-renter relationship, confirm who is contractually the "re-renter" under 35 ILCS 145/2(9) and make sure reimbursement flows and credit claims are documented.

Common questions

Q: If an online travel company collects and remits tax on its bookings, does that mean I no longer owe tax on the room?
A: No. You still owe Hotel Operators' Occupation Tax on the gross rental receipts you receive from the re-renter, and you cannot claim a resale exemption. The re-renter's own tax obligation on what it charges the guest is separate from your obligation on what you receive from the re-renter.

Q: What is a "re-renter" under the Act?
A: A person who isn't employed by the hotel operator but who, directly or indirectly (including through third-party agreements), collects or processes rent for a hotel room in Illinois and either obtains the right to control/grant access to or occupancy of the room, or facilitates the booking of the room. A person operating under a shared hotel brand with the operator is not considered a re-renter. See 35 ILCS 145/2(9).

Q: Doesn't taxing both the hotel operator and the re-renter mean double taxation?
A: The Act mitigates this with a credit: the re-renter can credit against its own tax liability the amount it paid the hotel operator as reimbursement for tax on that room, so the re-renter effectively pays tax only on its markup over what it paid the hotel operator. See 35 ILCS 145/3-3.

Q: When did the re-renter rules take effect?
A: The provision making a re-renter the hotel operator subject to tax on its own gross rental receipts took effect July 1, 2024. See 35 ILCS 145/3(c).

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), which directs taxpayers to relevant statutes and regulations but is not a statement of Department policy and is not binding, per 2 Ill. Adm. Code 1200.120. A binding Private Letter Ruling requires a separate request under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes:

• 35 ILCS 145/3(a) and (b) — imposes tax at 6% of 94% of gross rental receipts from hotel operations, with exclusions for permanent residents and MPEA Act proceeds
• 35 ILCS 145/3(c) — re-renter treated as the hotel operator subject to tax, effective July 1, 2024
• 35 ILCS 145/3-2 — hotel operator renting to a re-renter still owes tax on those receipts; no resale exemption
• 35 ILCS 145/3-3 — re-renter's credit for tax reimbursed to the hotel operator
• 35 ILCS 145/2(9) — definition of "re-renter"
• 35 ILCS 145/2(6) — definition of "rent" or "rental"

Regulations:

• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0039-GIL.pdf

Original ruling text

ST 24-0039-GIL 11/14/2024 HOTEL OPERATORS’ TAX
A hotel operator who rents, leases, or lets rooms subject to tax under the Hotel
Operators’ Occupation Tax Act to a re-renter of hotel rooms incurs the tax under the
Act on the gross rental receipts it receives from that re-renter of hotel rooms and
cannot claim any resale exemption. See 35 ILCS 145/3-2. (This is a GIL.)
November 14, 2024
NAME
TITLE
COMPANY1
EMAIL
Dear NAME:
This letter is in response to your letter dated October 30, 2024, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer inquiries
concerning the application of a tax statute or rule to a particular fact situation. A PLR is
binding on the Department, but only as to the taxpayer who is the subject of the request for
ruling and only to the extent the facts recited in the PLR are correct and complete. Persons
seeking PLRs must comply with the procedures for PLRs found in the Department’s
regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department
policy and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may
access our website at https://tax.illinois.gov/ to review regulations, letter rulings and other
types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
Good afternoon,
We received the attached notice from an online travel company,
COMPANY2stating that they will now pay taxes on all of their bookings.
IL tax ruling below states that hotel operators should collect the taxes and
remit it directly to the state and that we cannot claim it as exempt even if
COMPANY2pays the taxes.
If COMPANY2doesn’t pay us the taxes, we will be hit with a HUGE tax expense
since XX% of our business comes from these companies.

COMPANY1
Page 2
November 14, 2024
Could you please provide guidance on this? Are they in violation of this ruling
or am I missing something?
Thank you!
DEPARTMENT’S RESPONSE:
The Hotel Operators’ Occupation Tax Act (“the Act”) imposes a tax upon hotel
operators at the rate of 6% of 94% of the gross rental receipts from engaging in business as
a hotel operator, excluding, however, from gross rental receipts, the proceeds of renting,
leasing, or letting hotel rooms to permanent residents of a hotel and proceeds from the tax
imposed under the Metropolitan Pier and Exposition Authority Act. See 35 ILCS 145/3(a) and
(b). Beginning on July 1, 2024, if the renting, leasing, or letting of a hotel room is done through
a re-renter of hotel rooms, then the re-renter is the hotel operator subject to Hotel
Operators’ Occupation Tax. See 35 ILCS 145/3(c)). However, a hotel operator who rents,
leases, or lets rooms subject to tax under the Act to a re-renter of hotel rooms incurs the tax
under the Act on the gross rental receipts it receives from the re-renter of hotel rooms and
cannot claim any resale exemption. In such situations, the re-renter of hotel rooms incurs
tax under the Act on its gross rental receipts. See 35 ILCS 145/3-2. A re-renter of hotel
rooms, however, may take a credit against the tax it incurs on the rental of a hotel room
under the Act for the amount it paid to the hotel operator as reimbursement for the tax
incurred under the Act for the rental of that room for the purposes of re-rental. See 35 ILCS
145/3-3.
The Act defines “re-renter” as a person who is not employed by the hotel operator but
who, either directly or indirectly, through agreements or arrangements with third parties,
collects or processes the payment of rent for a hotel room located in this State and (i)
obtains the right or authority to grant control of, access to, or occupancy of a hotel room in
this State to a guest of the hotel or (ii) facilitates the booking of a hotel room located in this
State. A person who obtains those rights or authorities is not considered a re-renter of a
hotel room if the person operates under a shared hotel brand with the operator. See 35 ILCS
145/2(9).
The Act defines “rent” or “rental”, in relevant part, as the consideration received for
occupancy, valued in money, whether received in money or otherwise, including all
receipts, cash, credits, and property or services of any kind or nature. See 35 ILCS 145/2(6).
If a hotel operator receives gross rental receipts on the rental of a hotel room, that
hotel operator owes tax under the Act on those gross rental receipts. If those receipts are
received from a hotel re-renter who re-rents that hotel room to a guest, then the hotel rerenter also owes tax under the Act on the gross rental receipts it receives from the guest.
2

COMPANY1
Page 3
November 14, 2024
The hotel re-renter may, however, take a credit against the tax it incurs under the Act on the
re-rental of a hotel room equal to the amount it paid to the hotel operator as reimbursement
for the tax incurred under the Act for the rental of that room for the purposes of re-rental.
This statutory structure effectively requires the re-renter to pay tax only on the markup of the
hotel room. While a hotel re-renter who pays tax on the gross rental receipts it receives from
a re-rental of a hotel room without taking credit for any tax it remits to the hotel operator
when it rents the room for re-rental satisfies its liability under the Act, this does not absolve
the hotel operator who rented the room to the re-renter from its tax obligation under the Act
on the rental of the room for re-rental. The Act prohibits resale exemptions. See 35 ILCS
145/3-2. Hotel operators should structure their rental transactions accordingly.
Sincerely,

Samuel J. Moore
Associate Counsel
Legal Services Office
Illinois Department of Revenue
101 West Jefferson St
Springfield, IL 62794
(217) 782-7055
SJM:sce

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