Rental of Bungalow or Similar Unit Exempt from Tax in New York

Tuesday, March 20th, 2012

New York

Responding to a 2011 decision from the Division of Tax Appeals, the New York State Department of Taxation and Finance (DTF) issued a technical memorandum explaining that the Department has changed its policy on the taxability of bungalow rentals. N.Y. Technical Memo. TSB-M-12(4)S (Dept. of Taxn. and Fin. Mar. 16, 2012). Going forward, the rental of bungalows or similar living units will not be subject to tax, regardless of the length of stay, as long as no housekeeping services or other common hotel services are provided by the lessor.

New York imposes sales tax on the rental for every occupancy of a room in a hotel, motel, or similar establishment, but the rental of real property for the purpose of residency is not subject to sales tax. Previously, New York treated the rental of bungalows and similar units as the rental of real property when (1) the rental term was at least one week and (2) the lessor provided no housekeeping services or other common hotel services. Thus, renting a bungalow for less than a week was taxable, similar to the temporary occupancy of a room in a hotel. However, in June 2011, an Administrative Law Judge from the Division of Tax Appeals concluded that the one-week stay component of the test for a bungalow rental to be non-taxable is not supportable and is, therefore, invalid. In Re: Old Forge Kampgrounds, LLC DTA No. 823254 (N.Y. Div. of Tax Apps., A.L.J. Unit June 2, 2011)

Based on that decision, the DTF has changed its policy on bungalow rentals, eliminating the one week stay requirement. Under the new terms of the policy, the rental of a bungalow will be treated as the rental of real property, regardless of the length of stay, so long as no housekeeping services or other common hotel services are provided for by the lessor. If these services are provided, the rental will be treated as the rental of a hotel and therefore subject to tax. The DTF also stated the Sales and Use Taxes Regulations will be amended to reflect this new policy.

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