Illinois Rules Overnight Camps Must Collect Hotel Occupancy Tax

The Illinois Department of Revenue (DOR) has issued a general information letter clarifying that overnight camps and similar businesses providing sleeping accommodations are now subject to the state's Hotel Operators’ Occupation Tax. The ruling, which interprets existing tax law, effectively reclassifies these seasonal and recreational businesses as hotel operators, imposing significant new tax collection and remittance obligations on a sector that has historically operated outside the scope of lodging taxes.

The determination hinges on the state's broad definition of a "hotel," which includes any establishment offering rooms to the public for a fee. According to the DOR's letter, the temporary, furnished accommodations provided by camps—such as cabins or bunkhouses—fall squarely within this definition. This subjects the gross receipts from providing such lodging to the state tax, as well as any applicable local hotel taxes, creating new financial and administrative burdens for operators across Illinois.

In our experience, this type of administrative reinterpretation of tax law is a classic blind spot for many small and mid-sized businesses. Camp operators, who are focused on programming and safety, likely never considered their bunkhouses to be in the same tax category as a Marriott or a Hilton. This ruling is a stark reminder that state revenue departments are constantly looking to broaden the tax base by applying old laws to new business models or, as in this case, to sectors previously overlooked. The risk for businesses caught unaware is not just future compliance, but the potential for audits assessing back taxes, penalties, and interest for past seasons. Navigating these nuanced state and local tax obligations is a core challenge we address for our clients. For businesses affected by this or similar rulings, expert guidance is essential for risk mitigation, and our tax preparation and compliance services are designed for exactly these situations. To understand your specific obligations, contact C&S Finance Group LLC at csfinancegroup.com for a comprehensive review.

The Illinois Hotel Operators’ Occupation Tax is imposed on the business of renting, leasing, or letting rooms in a hotel on a transient basis. The state-level tax is levied at a rate of 6% of 94% of the gross rental receipts, with an additional 1% tax administered by the Department of Revenue for Chicago's Metropolitan Pier and Exposition Authority. Furthermore, municipalities and counties are authorized to impose their own local hotel taxes, which can significantly increase the total tax burden passed on to consumers or absorbed by the business.

The key factor in the DOR's analysis is the transient nature of the stay. The tax generally does not apply to rentals to permanent residents, typically defined as those who occupy a room for at least thirty consecutive days. Because stays at overnight camps are, by design, short-term and temporary, they fail to meet the permanent resident exemption, placing them firmly within the taxable category. The ruling makes no distinction based on the type of programming offered, meaning that educational, religious, and sports-focused camps are all equally affected as long as they provide and charge for overnight accommodations.

For camp operators, the financial and operational consequences are immediate and substantial. From a financial standpoint, businesses must decide whether to increase their prices to cover the new tax liability or absorb the cost, thereby reducing already tight profit margins. For a camp session costing $2,000, the state tax alone could add more than $110 to the price, before any local taxes are factored in. This price hike could make camps less accessible for many families.

Operationally, camp businesses must now register with the Illinois DOR, establish new accounting processes to accurately track lodging-related revenue, and implement systems for collecting and remitting the tax on a timely basis. This represents a significant administrative hurdle, particularly for smaller or seasonal operations that may lack dedicated financial staff. Failure to comply can lead to audits and severe financial penalties, creating a high-stakes environment for businesses that may still be unaware of the change.

The ruling is part of a broader trend among state and local governments to expand the definition of lodging to capture more revenue. This movement gained significant momentum with the rise of short-term rental platforms like Airbnb and Vrbo, which prompted governments nationwide to update or reinterpret tax laws to include non-traditional accommodations. The Illinois DOR's letter suggests this trend is now extending to other sectors of the hospitality and recreation industry.

While the general information letter provides clarity on the DOR's position, it also raises questions about its retroactive application. Because the letter is presented as a clarification of existing law rather than the creation of a new one, the department could potentially argue that the tax obligation has always existed. This could expose camp operators to liability for unpaid taxes from previous years, a possibility that should prompt immediate consultation with tax professionals.

Moving forward, camp operators and industry associations in Illinois will need to quickly assess the impact of this ruling and determine a path to compliance. Businesses affected by the clarification should immediately begin the process of registering with the DOR and adjusting their pricing and accounting systems. It remains to be seen whether industry groups will lobby for a legislative exemption for camps or challenge the department's interpretation in court.