At Olive River, we work with hotels across the country. Unfortunately, we see the same issue arise time and time again - hotels are misled into believing that business conducted with the government, via a third-party contractor, is tax-exempt. It’s not. If you're unaware of the rules, it could result in a costly surprise when your state tax authority comes calling for unpaid taxes.

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Here is the core issue:

The federal government is tax-exempt for the primary contractor when invoicing the government directly. If you are working with a third-party contractor, the exemption does not apply to your hotel, which is a subcontractor. 

 

Unfortunately, some contractors mislead hotels by claiming they are tax-exempt or by suggesting that taxes don’t apply because government employees are staying at the property. Some may even present misleading documentation, like a fake tax exemption form or just the first page of a government contract (SF1449), to back up their claim.

 

This is not only inaccurate but also unethical and ultimately unfair to hotels. When state tax authorities audit your property, you’ll be liable for any unpaid taxes, even if the contractor never reimbursed you for them.

 

At Olive River Contract Management, we do things differently.

We always request a tax-inclusive rate, and we ensure that taxes are properly paid.

 

That said, this puts us at a competitive disadvantage. Contractors who exclude taxes from their bids can appear 10–20% cheaper, increasing their chances of winning the contract. But in the long run, the hotel working with them may end up footing the bill—often without warning.

 

Protect your business. Know the facts. Work with contractors who play by the rules.