State Budget Proposal Would Apply Sales Tax To Vacation Rentals

Governor Andrew Cuomo’s proposed New York State budget calls for subjecting vacation rentals to the same state sales tax that applies to stays in hotels. If the measure is adopted, any rental on the South Fork for a period of fewer than 90 days will be costlier starting September 1.

The bill aims to raise additional revenue for the cash-strapped state amid the pandemic and to level the playing field between hotels and vacation rental marketplaces, such as Airbnb and Vrbo. It is expected to raise $10 million in fiscal year 2022, which begins April 1, 2021, and then $18 million in subsequent fiscal years.

The bill would also require vacation rental marketplaces to collect the sales tax on the rentals that they facilitate, and remit the money to the state. Homeowners who do not use an online marketplace such as Airbnb would themselves be responsible for collecting and remitting the sales tax.

Under existing state law, the rental of summer homes, beach houses and similar properties, “where no services commonly associated with hotel occupancy are provided,” is not subject to state sales tax.

Similar taxes on short-term rentals exist across the country and have had very little impact on demand for such rentals, according to Pam Knudsen, the senior director of compliance for tax compliance software company Avalara, headquartered in Seattle, Washington.

“Short-term rentals in New York have typically, a lot of times, not been subject to the state level taxes because of a thing called the ‘bungalow exception,’” Ms. Knudsen said during a recent interview. “New York has defined a bungalow as a furnished living unit limited to single-family occupancy with no daily housekeeping, food or other common hotel services, such as entertainment or planned activities. … But the legislation is basically going to take that away, and it’s going to say, look, they are going to be treated the same as a hotel, and so they’re going to be subject to the same level of taxation.”

She noted that it is “pass-through” taxation. That means the renter pays it, rather than the property owner.

“The intent here is to try and get all kinds of lodging on a level playing field from a taxation standpoint,” she added. “And I think from a jurisdictional standpoint … we all know that the jurisdictions are under some pretty tight budget constraints.”

She said this is a way for jurisdictions to help their budgets without putting the tax burden on their own citizens.

New York State sales tax is 4 percent, and Suffolk County is part of the Metropolitan Commuter Transportation District, which tacks on an additional 0.375 percent. The budget proposal would also subject vacation rentals in New York City to the $1.50 per night New York City hotel unit fee.

In addition to the state sales tax, Suffolk County’s sales tax is 4.25 percent. Hotel stays in Suffolk County are subject to that sales tax, and on top of that, the county has a short-term lodging tax of 3 percent on stays of fewer than 30 days.

The short-term lodging tax is for more than just hotel rooms. “This law applies to all lodging facilities including residences and tourist homes, not just traditional hotels and motels,” the county comptroller’s office states on its website.

Revenue from the 3 percent lodging tax is designated for the promotion of tourism and the preservation of the county’s historic sites and parklands.

Airbnb has supported tax collection on short-term lodging since 2016 and has voluntary collection agreements with 34 of the state’s 62 counties.

“The announcement from the governor is an important step forward for the thousands of Airbnb hosts across New York who pay bills sharing their homes, and will bring millions of dollars in new revenue across the state each year,” Airbnb Northeast Policy Director Alex Dagg said in a statement. “We’re pleased the state has recognized the important role short-term rentals can play in New York’s recovery and are hopeful that 2021 will be the year New York joins dozens of other states in passing sensible short-term rental rules that protect economic opportunity and drive tourism forward.”

Dede Gotthelf, the owner of The Southampton Inn in Southampton Village, said that she is pleased the legislation is on the horizon and that it is absolutely correct that everyone in the tourism business should have to pay the same.

When guests are comparing prices for short-term rentals, they see that hotel rooms have an 11.625 percent tax add-on, Ms. Gotthelf noted. “Our guests are comparing bottom lines, as they should,” she said. “So it places an untoward burden on the registered, traditional hotel model, and benefits the new tourism opportunities and options in our marketplace.”