Franchise accounting guide How should a franchised hotel book OTA commissions: gross, net, or both?

What is the difference between the agency and merchant models?

Should room revenue be recorded gross or net?

The agency model is recorded gross: the hotel sells the room, recognises the full rate and books the commission as a cost. The merchant model is less settled. Whether the room revenue is the guest’s price or the net rate is a principal-versus-agent judgement under the revenue standard, and the Uniform System of Accounts for the Lodging Industry — the chart most brand agreements require — was amended to address exactly this gross-versus-net question when that standard arrived^[1]. Its 12th revised edition took effect on 1 January 2026^[2]. How your P&L presents merchant revenue is your CPA’s call on your contracts. What your brand charges its fees on is a separate question, and it has a clearer answer.

What are the brand’s fees charged on?

On the license agreement’s own definition, which rarely starts from the deposit. Fairfield by Marriott’s 2024 franchise disclosure charges a 5.5% franchise fee and a 3.85% program services contribution, which includes a 2.5% marketing fund contribution, on gross room sales, due by the 15th of the following month. It defines gross room sales as all revenue from renting guestrooms with no reduction for chargebacks, credit card service charges or uncollectible amounts, and it includes no-show, cancellation and resort fees^[3]. A hotel that reports the net rate the OTA remitted is reporting the wrong number.

What does reporting the net cost you?

Room nights sold                               3,487
Average daily rate                            145.50
Gross rooms revenue                       507,358.50
  of which through merchant-model OTAs (35%)  177,575.48
  OTA margin at 18%                            31,963.59

Franchise fee at 5.5% on the gross         27,904.72
Franchise fee at 5.5% if merchant nights
  were reported at the net rate            26,146.72
Under-reported in the month                  1,758.00

The difference compounds with every other fee on the same basis — the program fee, the loyalty assessment, the reservation fees — and it is exactly what a brand’s revenue audit looks for.

Who remits occupancy tax on a merchant booking?

It depends on the state and often the city. Under the merchant model many jurisdictions treat the OTA as the operator for tax purposes: it collects the tax on the full amount the guest paid and remits it on its own account. Others require tax only on the OTA’s markup, some rely on voluntary collection agreements, and at least seven states exclude OTAs from their marketplace facilitator definitions^[4]. Map each jurisdiction your properties sit in, record which party remits, and keep the OTA’s share of the tax out of your liability.

How are advance deposits and virtual cards handled?

• Advance deposits are a liability until the guest stays; release them to revenue night by night as the stay happens, and to cancellation revenue if the deposit is forfeited.
• Virtual cards from a merchant OTA are charged by the hotel for the net amount; match each charge to its reservation, because a card left uncharged is a payout that never arrives.
• Commission invoices under the agency model arrive monthly and must be matched to the stays they claim; a commission billed on a cancelled or no-show reservation is recoverable if you catch it.