Hotel R&D Tax Credits for COVID-19 Procedures

November 12, 2020

Hotels can receive significant cash benefits by qualifying for federal research and development (“R&D”) tax credits related to expenses associated with implementing COVID-19 health and safety procedures. These tax credits can be applied to 2020 tax liabilities or carried back to recover 2019 taxes.

The R&D tax credits are available to hotels of all sizes, even if the procedures and technology put in place due to COVID-19 were developed and provided to the local hotel by the hotel’s brand. The credit is based on the amount of expenditures required to customize, implement and train employees on the protocols necessary to provide guests with a safe, healthy environment that maintains the hotel’s standards of service.

Examples of Qualifying Activities

Activities that may qualify for R&D credits include:

  • Implementing new techniques, protocols and processes for contactless hotel check-in and check-out.
  • Training protocols with respect to amenities of the hotel.
  • Technology and software improvements for keyless guestroom entry and applications that monitor guest activities to ensure social distancing within the hotel.
  • Improvements or updates to rooms and implementation of cleaning and sanitizing procedures.
  • Creating trial runs or test batches toward cleaning and social distancing to ensure guest safety.
  • Ensuring and performing scientific or laboratory testing toward guest check-in and use of hospitality amenities to provide guests with safe, COVID-19 free settings.

Apply Credits to 2019 Taxes

A major advantage of the R&D credit is that it can be carried back one year and applied to previously paid taxes. This carryback is significant as it can provide hotels with much needed cash during the pandemic.

With the R&D credit, hotels can generate a net, dollar-for-dollar tax credit of typically between 6%-20% of qualified R&D expenditures.

Savings Example

A Marriott Autograph Collection hotel with 137 guest rooms and suites adopted new and improved procedures that safeguard guests from COVID-19 while maintaining the hotel’s high standard of service and comfort.

The core technology, processes and training guidelines were developed by Marriott. The costs to customize and implement the procedures were funded by the local hotel at a cost in excess of $750,000 to cover wages, supplies and equipment.

With help from Cherry Bekaert, the hotel qualified for a federal R&D credit of $150,000 that will be carried back one year to recover $150,000 of cash.

How Can We Help You?

At Cherry Bekaert, our goal is to help hotels navigate the tax and accounting complexities of offering customers a safe and healthy environment during the COVID-19 pandemic. Please contact Dara Simon or check out our COVID-19 Guidance Center for more topics that might be of interest to you.