In the attempt to improve the quality of service to hotel and restaurant taxpayers and to avoid the evasion of local income tax, Pekalongan City Government through DPPKAD or Dinas Pendapatan, Pengelolaan Keuangan dan Aset Daerah (Local Income, Financial and Asset Management Service) introduced a Hotel and Restaurant Tax using online system. This research aims to identify problems and constraints in applying the online-based tax system and recommends steps to address the problems. This study surveyed the users of the system using purposive samplingof DPPKAD officers, hotel, inn, and restaurant owners, and bank as the service provider. The results identified the advantages of online-based Hotel and Restaurant Tax namely: reducing potential fraud; improved tax assessments; reducing administrative works in the recordingof Surat Pemberitahuan Tahunan (Annual Notification Letter). However, DPPKAD of Pekalongan City encountered some constraints: many taxpayers were not willing to calculate their own tax and had the DPPKAD to specify the tax amount; many restaurant owners were not willing to use cash register because they were afraid that it would increase their products’ selling price; exposure of taxpayers’ private financial records; 2) the preparation of infrastructure is inhibited because the taxpayers have not been willing to connect the cashier machine directly to the partner’s bank system,3) DPPKAD had not had human resource with the competency of examining the local tax.