by Pamela Knudsen, Senior Director of Compliance Services for Avalara MyLodgeTax
Popular before the pandemic, extended stays had solidified their place in the lodging sector. However, they weren’t as widely used by the average traveler. Extended stays were popular within the business, construction and relocation industries, especially in off-the-beaten path locales. It was perfect for travel where someone might need to be in one spot for a week or up to a few months. Designed with a living space, work desk, kitchenette and bedroom with on-site laundry facilities, these studio or small apartments feel hotel rooms were ideal for a certain type of traveler.
As the pandemic has shifted how we think about time off and vacation, extended stays have become popular with the average traveler as well. While they were profitable but mostly under the radar pre-pandemic, this category has had enduring success during a challenging time.
Extended stay excelled during the pandemic.
As the pandemic hit, and travel and hotel stays ground to a halt, one segment of the market was able to bounce back quickly and that was extended stays. In 2020, overall hotel occupancy was 44 percent, but was 60.5 percent for extended stays. As consumer preference is shifting, extended stay properties are poised to meet their new needs. Many travelers are choosing road trips to less populous areas, as opposed to hopping on a plane to a dense metropolitan center. They want to be close enough to drive not only to the lodging site, but also to explore the area surrounding their base of operations.
An extended stay property is uniquely primed to capture this new market. They are generally located in less populous areas, and offer a high level of autonomy to guests. Instead of being forced to eat every meal out, the kitchenette allows travelers to bring their own groceries, or even get groceries delivered. Additionally, the living area provides a space to relax and unwind comfortably, which can be extra helpful for guests who are working remotely and want extra space for relaxation. Since many of these properties catered to business-focused guests before the pandemic, extended stays often come with excellent internet service and frequently a work surface set up in the living area. This is convenient for those who want to work but get out of their homes for a change of scenery. With on-site laundry, and often a small convenience store, extended stays give today’s traveler everything they need.
Hotel chains are getting in on the action.
Name brand hotel chains are taking notice as well, working to acquire extended stay properties over the past year from distressed entities, as well as retrofitting standard rooms to extended stay in preparation to meet demand once travel opens broadly. Hotel owners don’t want to be left behind. They are adjusting to this trend and appealing to diverse types of travelers as things begin to open back up.
Additionally, established extended stay brands are expanding. Sonesta, Choice and Red Roof have announced growth plans as the industry continues to benefit from increasing occupancy rates.
Taxing authorities will eventually catch up with this consumer preference, and tax liability for these entities will likely change. Currently, many taxing jurisdictions consider stays over 30 days to be exempt from lodging tax. However, as this type of stay becomes more popular and jurisdictions seek to recoup revenue lost not only from the pandemic but from the shifting landscape, they may look to extend that timing to 60 or 90 days or even longer. And they may require more of a lease agreement to determine taxability rather than just the number of nights.
Here to stay.
While extended stays may have been low-profile before the pandemic, they are taking center stage in the current travel climate. Since consumer travel preferences have shifted, extended stays continue to appeal to a wider range of travelers, and we’ll see more invested in this type of lodging. By being available in more remote areas, offering more autonomy and providing apartment-style features, extended stays are filling a large need in the travel sector. From a tax standpoint, we may see many jurisdictions reevaluating what is considered a short-term rental in order to recoup tax revenue. As we look ahead to the travel landscape in the coming years, extended stays have not only established themselves as a fantastic option for safety-concerned travelers but have shown potential for profit and growth while much of the hospitality industry have been struggling.
Pamela Knudsen is Senior Director of Compliance at Avalara MyLodgeTax, leading the Lodging tax team and Returns Experience/Reconciliation team for Sales & Use. She serves as a leading voice in vacation rental tax compliance and regulation, in addition to bringing in-depth experience across software/SaaS technology as well as ERP systems.