Ministers are understood to be supportive in principle of devolving a range of powers to the capital as part of a proposed £1 billion city deal, including the ability to set and collect a visitor levy.
It is believed Edinburgh would become the first UK destination to introduce such a charge, which would see around £1 per night added to a typical hotel bill.
However, city leaders also said they were keen to make the new system as flexible as possible, with customers at large hotels potentially paying more than those staying in smaller establishments.
They have also indicated a desire to see the tax applied throughout the year, and raised or lowered in response to changing levels of demand. This could see the levy hiked during busy periods such as summer and winter festivals.
City leader Andrew Burns said he was optimistic that the Edinburgh deal – which includes the three Lothian councils, Fife and the Scottish Borders – would be confirmed as “ongoing” in Chancellor George Osborne’s March Budget statement.
He said: “That means it’s in the final period of negotiating the detail and we would expect finalisation in late summer or early autumn.”