The New York State Department of Taxation and Finance released two Advisory Opinions analyzing the sales tax imposed on charges for hotel occupancy under Tax Law § 1105(e). One Advisory Opinion concluded that the Petitioner’s rentals of furnished one-family dwellings for periods as short as two days were not subject to sales tax because the units could not be classified as “rooms in a hotel.” Advisory Opinion, TSB-A-15(38)S (N.Y.S. Dep’t of Taxation & Fin., Nov. 13, 2015). The other Advisory Opinion concluded that the Petitioners were not “room remarketers” and thus were not subject to New York sales tax collection responsibility when they facilitated the online purchase and reservation of hotel rooms by third-party customers. Advisory Opinion, TSB-A-15(43)S (N.Y.S. Dep’t of Taxation & Fin., Nov. 13, 2015).

Advisory Opinion on Rental Units

This Advisory Opinion involved a Petitioner that rented out eight furnished units intended for single-family occupancy in New York.  Five of the units were one- family dwellings owned by the Petitioner, two were condominium units leased to the Petitioner, and one other unit was an apartment managed by the Petitioner on behalf of its owner. In furnishing the units, the Petitioner provided linens but did not change the linens during a stay.  The Petitioner did not provide maid service, food service, concierge service, entertainment, planned activities, or transportation service in relation to the unit rentals. The units were rented for a minimum of two nights and could be rented for periods of a month or longer.

The Department concluded that none of the amounts collected as rent on any of the units were subject to New York sales tax imposed on hotel occupancy charges. As stated in the Opinion, the Tax Law defines a “hotel” for sales tax purposes as “[a] building or portion of it which is regularly used and kept open as such for the lodging of guests.”  Tax Law § 1101(c)(1).  The regulations identify four factors for determining whether a building (or portion of a building) meets the definition of “hotel”:

  1. whether sleeping accommodations are provided for the lodging of paying occupants on a regular basis;
  2. whether typical occupants are transients or travelers;
  3. whether housekeeping, linen, or other customary hotel services are provided for occupants; and
  4. whether the relationship between the operator of the establishment and the occupant is that of an innkeeper and a guest, not that of a landlord and tenant.

20 N.Y.C.R.R. § 527.9(b)(1). Further, the Department emphasized that “sales tax is not imposed on rentals of real property,” and that a furnished living unit limited to a single-family occupancy is not subject to the sales tax on hotel occupancy “provided no housekeeping, food, or other common hotel services, such as entertainment or planned activities, are provided by the lessor.” As no such services were provided, the Department concluded that the units could not be classified as “rooms in a hotel,” and sales tax is not due on the charges to occupants.

Advisory Opinion Concerning Facilitation of Hotel Room Bookings

This Opinion involved two Petitioners that provided the service of booking hotel rooms for travelers in New York and elsewhere. Neither Petitioner maintained an inventory of rooms on its own behalf or directly purchased hotel rooms in New York for resale. The first Petitioner entered into license agreements with hotel operators to provide information technology and advertising services, including listing hotel rooms on its website. The second Petitioner entered into contracts with hotel operators to act as a booking agent.

Both Petitioners collected a non-refundable deposit calculated as a fixed percentage of the reservation — typically 10 percent of the total value of the reservation — at the time of a booking by a traveler. Such deposits were kept by the Petitioners in exchange for their services. For a limited period, the first Petitioner also collected a flat reservation fee from travelers, which either was collected on a transaction-by-transaction basis or was waived for travelers who paid an annual membership fee. Neither Petitioner set the hotel room charges, which were instead set by the respective hotel operators. All charges (other than the deposit fee) associated with the traveler’s stay at a hotel were paid directly to the hotel operators. The Petitioners had no further obligation after a room was booked (except with relation to the deposit fee if the traveler obtained cancellation protection), and travelers had to cancel a booked room by contacting the hotel operator directly.

The Department concluded that neither Petitioner was required to collect sales tax on the charges for a hotel room booked using the Petitioners’ services. Under the Tax Law, sales tax collection responsibility is placed on “persons required to collect any tax.” For purposes of the collection of sales tax on hotel occupancy charges, a “person required to collect tax” is defined to include “[a]ny person operating a hotel” and a “room remarketer.” Tax Law § 1101(c)(4). A “room remarketer” is defined as “[a] person who reserves, arranges for, conveys, or furnishes occupancy . . . to an occupant for rent in an amount determined by the room remarketer.”  Tax Law § 1101(c)(8). Consistent with the statute, this Opinion highlighted an earlier Technical Memorandum stating that businesses akin to travel agencies that reserve rooms on behalf of customers but “do not have the right to determine the amount of rent that their customer pays for the room” are not room remarketers. Amendments Affecting the Application of Sales Tax to Rent Received for Hotel Occupancy by Room Remarketers, TSB-M-10(10)S (N.Y.S. Dep’t of Taxation & Fin., Aug. 13, 2010).  The Department ruled that the Petitioners were not hotel operators, and that the reservation fees they charged were not calculated in a manner constituting “determining” rent for purposes of the room remarketer definition. Therefore, the Petitioners were not required to collect sales tax on hotel occupancy charges — instead, only the hotel operator and the occupant were jointly liable for any sales tax due.

Additional Insights.

The Advisory Opinions provide valuable insight into how the Department will apply the 2009 and 2010 changes to New York tax statutes and regulations. The four-factor test for determining when a building or portion of a building will be classified as a “hotel” was added to the Department’s regulations in 2009. This Advisory Opinion on rental units is one of the few opinions showing how the Department will apply such regulatory language, and it provides an example of the Department acknowledging that a rental of a dwelling space was not a “hotel.” Further, the Tax Law was amended effective September 1, 2010, to require persons classified as “room remarketers” to collect sales tax on hotel occupancy charges. The Opinion dealing with facilitating room bookings reiterates that offering hotel reservations on behalf of a hotel will not make a person a “room remarketer” if such person does not have the power to determine the amount of the hotel’s occupancy charge — even if such person conducts activities online. The activities of the Petitioners in this Opinion can be distinguished from the activities of companies like Expedia.com that pay hotels for rooms and then resell such rooms to travelers. While both Advisory Opinions explicitly state that they do not address the “hotel occupancy tax imposed and administered by a locality itself,” the Advisory Opinions could be helpful in interpreting terms defined similarly for New York State sales tax and local hotel occupancy tax purposes. See, e.g., the definition of “hotel” in Tax Law § 1101(c)(1) & N.Y.C. Admin. Code § 11-2501(5).