Overview
During our audit of EOHLC, we identified concerns regarding the monitoring of hotel and motel vendors used as shelters, specifically related to whether the hotels and motels are in compliance with state and local tax obligations. We found that EOHLC does not have an established policy or procedure to verify that hotels and motels are current on their tax obligations, such as property taxes or state and local room occupancy taxes, before entering into contracts.
Additionally, as part of our review, we observed discrepancies in the language used in the shelter contracts, particularly around the responsibility for the collection and distribution of applicable taxes. In several instances, the contract language was unclear and inconsistent, leading to confusion about which party—the Commonwealth or the vendor—is responsible for ensuring the timely payment of taxes to relevant authorities.
Different contracts have a variety of different terms and conditions relative to the responsible party for payment of taxes. However, in a different contract, the language is vague, and it does not clearly specify which party is responsible for the prompt distribution of taxes.
Specifically, we noted the different treatment of these issues in different contracts as follows:
- Contract for Hotel A: This contract states, “The contractor will collect all applicable taxes on rooms paid for by the Emergency Assistance (EA) Program and ensure that these are distributed promptly to the appropriate entities.”
- Contract for Hotel B: This contract includes a provision specifying that “The Department shall compensate the hotel/motel vendor for providing hotel/motel rooms to families receiving Emergency Assistance (EA) Homeless benefits at the optimal nightly rate.” While the rate should include taxes, the documents we reviewed suggest that the nightly rate does not always account for taxes or other additional fees. For example, one contract lists the fiscal year 2024 room rate as $130 per night, which excludes taxes and fees.
This lack of clarity in contract language and the failure to verify tax compliance raises concerns about EOHLC’s oversight of its contracted hotels and motels, whether EOHLC is opening itself to the risk of lawsuits or noncompliance due to vagueness, and EOHLC’s ability to ensure that taxpayer funds are being used appropriately.
It is recommended that EOHLC do the following:
- establish policies and procedures to verify that hotels and motels are current on their state and local tax obligations before entering into any agreements;
- standardize contract language to clearly delineate the responsibilities of both the contractor and EOHLC in ensuring the timely payment of all applicable taxes; and
- review and amend contract terms to ensure that the agreed-upon room rates account for all taxes and fees, avoiding ambiguity in pricing and financial obligations.
The issue of awareness of local tax compliance could be addressed through increased communication and coordination between EOHLC and cities and towns in the Commonwealth. Not only would this address important financial issues, but it could also provide significant benefits to the Commonwealth, given the deeper municipal knowledge of local hotels and motels, including their inspection history, their public safety track record, and other important considerations when placing vulnerable families in shelters.
Auditee’s Response
Over the course of the audit, EOHLC informed the SAO that it has an established process for addressing tax payments to municipalities. The report does not acknowledge this process.
EOHLC addresses local tax obligations through direct payments to municipalities by the Commonwealth. In [fiscal year 2024], EOHLC adopted a process through which the Commonwealth compared [fiscal year 2023] and [fiscal year 2024] local option excise tax revenues of municipalities in which EA hotels/motels were located and sent to municipalities with decreased revenues in [fiscal year 2024] a distribution in order to make up the loss.
Auditor’s Reply
EOHLC mentioned the process it has in place regarding municipal excise tax revenues. We did not mention this process because it was not the issue raised in this Other Matters section. Our concern was ensuring that vendors with which EOHLC contracts are current regarding their state and local taxes before EOHLC contracts with them. In an email dated March 5, 2025, EOHLC informed us that it does not have a process for determining whether hotels or motels are in arrears on their tax obligations before entering into an agreement with those hotels or motels. This can result in taxpayer money being used to benefit vendors that owe money to the taxpayers.
We strongly encourage EOHLC to implement our recommendations regarding this matter. As part of our post-audit review process, we will follow up on this matter in approximately six months.
| Date published: | May 20, 2025 |
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