The Appellate Division, First Department, affirming a 2009 New York City Tax Appeals Tribunal decision, has upheld a New York City hotel tax regulation which limits the exemption for “permanent residents” to hotel rooms actually rented for 180 consecutive days, and denies the exemption for additional rooms rented for a shorter duration. Matter of American Airlines, Inc. v. New York City Tax App. Trib., 2010 NY Slip Op. 7264 (1st Dep’t, Oct. 14, 2010).

The New York City hotel room occupancy tax is imposed on the occupancy of hotel rooms in the City. The tax is not imposed, however, on a “permanent resident,” defined as “any occupant of any room or rooms in a hotel for at least [180] consecutive days.” N.Y.C. Admin. Code § 11-2502(a). The hotel tax regulations contain the following limitation:  

Where a permanent resident rents additional rooms on a temporary basis, that person is not considered a permanent resident with respect to such additional rooms unless such rooms are occupied for 180 or more consecutive days. 19 RCNY 12-01(2) (emphasis added).  

American Airlines leased blocks of rooms in several hotels throughout New York City for use by its pilots and flight attendants with layovers between flights. Its occupancy agreements with hotels varied, but generally provided that the hotels would furnish an indefinite number of rooms, sometimes limited in number, based on the airline’s room needs. Under the prescribed procedure for the permanent resident exemption, the hotels collected hotel tax from American on all the rented rooms until the rooms were rented for 180 consecutive days, at which point they refunded the hotel tax back to American with respect to those rooms.  

However, American also filed refund claims with New York City seeking the recovery of hotel tax paid for all rooms it rented at each hotel during the 180 day period, even for rooms not rented for at least 180 consecutive days. American took the position that once it qualified as a “permanent resident” with respect to at least one hotel room during the period, the law exempted it from the tax for all rooms it rented in the hotel. American argued that the regulation (19 RCNY § 12-01) contravened the statute.  

The Administrative Law Judge agreed with American, and held that it was entitled to a refund of hotel taxes paid for all rooms rented at each hotel during the 180 day period. The City Tribunal reversed the ALJ, holding that the “permanent resident” exemption provision should be narrowly construed against the taxpayer. After examining the legislative intent and the wording of the “permanent resident” provision, and after concluding that the taxpayer’s interpretation “produces an absurd result,” the Tribunal held that the exemption was not conferred upon the person, but upon the person’s actual occupancy. Thus, even though American was a “permanent resident” with respect to at least some rooms, the Tribunal held that the law required that the exemption be applied on a room-by-room basis, so that the exemption would not apply to any room rented on a temporary basis until it was consecutively rented for at least 180 days.  

The Appellate Division has now confirmed the Tribunal’s decision, finding the decision “reasonable,” and the City’s regulation “consistent with the [hotel tax] enabling legislation and the . . . Administrative Code.” Thus, under the court’s decision, a person can be a “permanent resident” of a hotel only with respect to those hotel rooms actually rented for at least 180 consecutive days.  

Additional Insights

The court’s decision, if not overturned on appeal, would presumably be relevant to the separate New York State and City sales tax on hotel room occupancies, which contain a substantively similar consecutive occupancy rule regarding the “permanent resident” exemption.