Room sharing, room renting, and vacation home rentals have become very popular, garnering significant attention recently.
Leading websites such as HomeAway.com and VRBO.com each list over 10,000 properties in New York state and Airbnb is estimated to have between 20,000 and 30,000 listings in NYC alone. Airbnb’s website shows hundreds of listings in any sizable municipality across New York state. Renting a room, apartment, or entire home is everywhere now.
But New Yorkers may not be aware of what additional tax requirements apply to them.
Rules for Room and Home Renting
What are the tax compliance requirements for people renting their properties? I am referring to sales and occupancy tax obligations--not income tax requirements, because many vacation rentals do not have taxable income after all the expense deductions, such as mortgage interest, property taxes, cleaning, utilities, and even depreciation.
Few vacation rentals have an income tax liability but they all have a sales and room occupancy tax liability. Sales and room tax is charged on gross rent collected from your guests, not net income.
New York has very unique and complicated sales and room tax requirements. New York, like virtually every state, includes room and home renting in their definition of a hotel and therefore, renting a room or a home is a taxable activity.
The definition of a hotel in New York includes hotels, motels, apartments, condos, bungalows, cottages, cabins, and more. As a result, anytime you rent a room or home for less than 90 days in duration you owe sales and room taxes.
In 2012, however, the New York Department of Taxation clarified the rules and fully exempted ‘bungalows’ from state and county sales tax. (Bungalows are not, however, exempt from local occupancy taxes.)
New York Department of Taxation defines a bungalow as follows:
“A Bungalow is a single-family living unit with its own kitchen, bathroom, and sleeping rooms that is rented fully furnished (e.g., cottages, condominiums, beach or lake houses, etc.). The rental of a bungalow is not taxable as long as no (daily) housekeeping services, food services, or other common hotel services are provided.”
The bungalow exemption rule broadly exempts nearly all Airbnb’s and vacation rentals from state and county sales tax, which average about 8 percent in New York and represents the majority of the state’s hotel tax obligation. As a result most people utilizing Airbnb and other rental websites are currently exempted from state and county sales tax.
Local Room and Hotel Occupancy Tax Requirements
In New York state most counties and a few cities (including NYC) levy their own local hotel or room occupancy tax.
There are few exemptions from these local occupancy taxes and nearly all rentals will be required to collect and remit county or city room occupancy tax. City and county room tax typically ranges from 2–5 percent of the total rent collected.
The NYC hotel tax is higher, 5.875 percent, plus $2 per night for each room rented. People using websites such as Airbnb and VRBO do need to collect and remit these local taxes.
To comply with these tax requirements you need to register with your city or county treasurer or finance office, collect the tax from your guest on each booking, and remit the tax to your city or county every month or quarter.
The good news is that most New Yorkers renting properties on popular websites are exempt from state and county sales tax, but they will need to collect and remit local room and hotel occupancy taxes. It is important to comply with these requirements to avoid potentially significant back tax obligations and penalties for noncompliance.
As Airbnb and the state wrangle over rules to either ban, allow, or regulate room and home renting, they may also decide to change the tax rules and eliminate the bungalow exemption. Stay tuned as these developments unfold to see if there are tax rule changes affecting short term room and house rentals.
