Is a company that leases furnished New York City apartments to tenants for a month or more a taxable 'hotel,' and which of its extra charges are taxable?

Plain-English summary

The accounting firm KPMG Peat Marwick asked, for a company called "XYZ," whether XYZ is a taxable "hotel." XYZ leases furnished residential apartments in New York City — at one building it subleases units, at another it controls the co-op — renting to tenants for one month up to a year or longer. It provides no restaurant, security, 24-hour staff, or health club. Tenants may optionally buy a service package (light cleaning, supplies, linen, laundry) and pay a fixed monthly amount for electricity, cable TV and basic phone.

The Department held XYZ is not a hotel, so the rent is not taxable — but several add-on charges are:

• Not a hotel / rent exempt. A "hotel" (§ 1101(c)(1); § 1105(e)) is regularly kept open for transient lodging. XYZ instead rents real property under valid landlord-tenant leases of a month or more, so it is not offering hotel occupancy. New York does not tax real-property rentals (Breezy Point Surf Club; Miller, Addison, Steele), so the apartment rent is exempt.
• Electricity and telephone — taxable (resale available). XYZ must collect tax on electric and phone charges to tenants under § 1105(b), but may buy those services for resale tax-free.
• Cable TV — not taxed. Cable television isn't an enumerated taxable service, so no tax on XYZ's purchase or resale (N.Y.S. Cable Television Assn. v. State Tax Commission).
• Laundry and linen — exempt. Laundering is excluded under § 1105(c)(3)(ii), and the linen charge is exempt as laundering where the major part of the charge is for the laundering service (Linen Systems for Hospitals).
• Light cleaning — taxable. The optional cleaning service is taxable under § 1105(c)(5). (Before June 1, 1990, regularly-contracted cleaning of 30 days or more was excluded from state tax — but New York City taxed it regardless.)
• Supplies — taxable (resale available). Supplies provided to tenants are taxable under § 1105(a), though XYZ may buy them for resale.

What this means for you

Long-term furnished rentals are real-property leases, not hotel stays

The hotel occupancy tax targets transient lodging. A furnished-apartment operator renting for a month or more under real landlord-tenant leases — with no hotel-style services — is a landlord, and the rent escapes sales tax. Corporate-housing and extended-stay operators should confirm their terms and services look like leasing, not innkeeping.

Unbundle the extras — they're taxed on their own footing

Even when the rent is exempt, the separately provided services and goods each get their own treatment: utilities and supplies taxable (but buyable for resale), cleaning taxable, laundry/linen and cable TV exempt. Bill and track them separately so you apply the right rule to each.

The resale mechanism can prevent double tax on utilities and supplies

For electricity, telephone and supplies you resell to tenants, you can buy tax-free for resale and collect tax on the charge to the tenant — avoiding tax at both ends. Keep the resale documentation.

Common questions

Q: Is renting furnished apartments monthly subject to the hotel tax?
A: No. Month-or-longer furnished rentals under real landlord-tenant leases are nontaxable real-property rentals, not taxable hotel occupancy.

Q: What does the landlord still have to charge tax on?
A: Electricity and telephone (§ 1105(b)), optional light cleaning (§ 1105(c)(5)), and supplies (§ 1105(a)) — utilities and supplies can be bought for resale.

Q: Are cable TV, laundry and linen taxable?
A: No. Cable TV isn't an enumerated service; laundry is excluded under § 1105(c)(3)(ii); and the linen charge is exempt as laundering when it's mainly for the laundering service.

Citations and references

Statutes and cases:

• Tax Law § 1101(c)(1); § 1105(e) — hotel definition and hotel-occupancy tax
• Tax Law § 1105(b) (electricity/telephone); § 1105(c)(3)(ii) (laundering excluded); § 1105(c)(5) (real-property servicing); § 1105(a) (tangible personal property)
• Breezy Point Surf Club, Inc. v. State Tax Commission, 67 AD2d 760, affd 48 NY2d 776; Miller, Addison, Steele, Inc., TSB-A-81(13)S
• N.Y.S. Cable Television Assn. v. State Tax Commission, 59 AD2d 81; Linen Systems for Hospitals, Inc., TSB-A-81(14)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (21)S
Sales Tax
February 13, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S901017A

On October 17, 1990 a Petition for Advisory Opinion was received from KPMG Peat
Marwick, 345 Park Avenue, New York, New York 10154.
The issue raised by Petitioner, KPMG Peat Marwick, is whether the business operations of
XYZ as described below fall within the definition of a "hotel" as provided under Section 1101(c)(1)
of the Tax Law and thereby become subject to the imposition of sales or use tax under the provisions
of Section 1105(e) of the Tax Law.
XYZ Company (hereinafter XYZ) is a U.S. Corporation headquartered in New York City.
XYZ operates as a lessor of furnished residential apartments within the City of New York. XYZ's
tenants utilize the apartments as their residences.
XYZ's inventory of available residential apartments are at two locations. XYZ does not
maintain nor provide restaurant services or facilities, security, 24 hours staff, health club, etc. at
either location. XYZ's operations at each location are as follows:
Location A
XYZ has leased approximately half of the apartments in an apartment building located in
Manhattan. XYZ subleases these apartments for periods ranging anywhere from one month to one
year or longer. Each lessee (tenant) is bound by an executed lease to remit payment for residency
of the apartment in monthly installments, in advance, for the term of the contract.
Location B
XYZ owns the majority of the outstanding stock of an existing cooperative housing
corporation (coop) which owns a building in New York City. XYZ leases furnished apartments
within this cooperative building to tenants for periods ranging anywhere from one month to one year
or longer. Each lessee is bound by an executed lease to remit payment for residency of the apartment
in monthly installments, in advance, for the term of the contract.
The tenants at Locations A & B, may subscribe to an optional service package from XYZ
available at varying frequencies (i.e., 4 times per month, 8 times per month, etc.). The service
package includes light cleaning, supplies, linen, and laundry.
The above service package is available at the option of the tenant for a separate charge in
addition to the monthly lease payment. Once subscribed for, the tenant may cancel the services at
any time during the lease term. Additionally, the lease contract also requires the lessee to pay to the

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Sales Tax
February 13, 1991
lessor a fixed amount per month which covers the cost of electricity, cable TV, and basic telephone
charges incurred by the tenant for the duration of the lease.
Section 1101(c) of the Tax Law states, in part:
When used in this article for the purposes of the tax imposed under subdivision (e)
of section eleven hundred five, the following terms shall mean:
(1) Hotel. A building or portion of it which is regularly used and kept open as such
for the lodging of guests. The term "hotel" includes an apartment hotel, a motel
boarding house or club, whether or not meals are served.
Section 527.9 of the Sales and Use Tax Regulations states in part:
Hotel occupancy. [Tax Law, §1105(e] (a) Imposition. A sales tax is imposed on
every occupancy of any room or rooms in a hotel, motel or similar establishment at
the combined statewide and local sales tax rate in effect at the situs of such
establishment, except that the tax shall not apply to (1) the charges for occupancy by
a permanent resident, or (2) where the charge is $2 or less per day.
(b) Definitions. As used in this section, the following terms shall mean:
(1) Hotel. A building or portion of it, which is regularly used and kept open for the
lodging of guests. The term hotel includes but is not limited to an apartment hotel,
a motel, bungalow or cottage colony, boarding house or club, whether or not meals
are served.
Article 28 of the Tax Law imposes a sales tax applicable to (1) sales of tangible personal
property, (2) sales of enumerated services, (3) the use of tangible personal property and services, (4)
sales of gas, electricity, refrigeration and steam, and telephone and telegraph services, (5)
occupancies of hotel and motel rooms, (6) food and beverages sold by restaurants and caterers, (7)
admission charges to certain places of amusement and to cabarets and similar places, and (8) club
dues.
Receipts from the sale of real property, whether conveyed in fee-simple or tenancy in
common, are not included within the ambit of Article 28. Receipts from the leasing of, or the
licensing to use, real property, are also generally not subject to tax under Article 28 of the Tax Law.
Tax is imposed, however, in the instance where such leasing or licensing constitutes the rental of a
hotel room located in New York. Re Miller, Addison, Steele, Inc. Adv Op Comm of T&F, August
7, 1981, TSB-A-81(13)S.
In Breezy Point Surf Club, Inc. v. State Tax Commission 67 AD2d 760, affd 48 NY2d 776,
the Appellate Division held that:

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Sales Tax
February 13, 1991
New York State does not impose a sales tax on receipts from the rental of real estate (see Tax
Law, §1105). Petitioners contend that the monies received from the cabana rentals are not
"dues paid to any social or athletic club" (Tax Law §1105, subd. (f), par. (2)) but are instead
receipts from the rental of real estate and thus not subject to the sales tax. We agree. The
record discloses that there is a valid landlord and tenant relationship between the beach club
and its members who elect to rent cabanas. Accordingly, the monies from these rentals are
not dues subject to the sales tax. This decision is consistent with the position taken by the
Department of Taxation and Finance which has stated that the rental of a "bungalow or
apartment, having a private bathroom and kitchen in addition to sleeping rooms," is not
subject to the sales tax (Opinion of Counsel, Dept. of Taxation and Finance, 1966-1. p. 78).
Thus, where the facilities rented were for all practical purposes bungalows or apartments, the
petitioners should not be required to pay a sales tax merely because they chose to call them
"cabanas."
In the instant case, XYZ leases and subleases furnished apartments to lessee/tenants for
periods ranging from one month to one year or longer. Unlike hotels, motels, apartment hotels or
similar establishments as defined under Section 1101(c)(1) of the Tax Law and Section 527.9(b)(1)
of the Sales and Use Tax Regulations, XYZ does not offer lodging or occupancy to transients on a
regular or daily basis. To the contrary, XYZ rents real property and enters into valid landlord and
tenant relationships with the lessee/tenants. Accordingly, as the Tax Law does not impose a sales
tax on the receipts from the rental of real property, XYZ is not required to collect State or local sales
tax on receipts directly applicable to the rental of its furnished residential apartments.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--. . .there is hereby imposed and there shall be paid a tax. .
.upon:
(a) The receipts from every sale of tangible personal property, except as otherwise
provided in this article.
(b) The receipts from every sale, other than sales for resale, of. . .electricity, . . .and
electric. . .service of whatever nature, and. . .of telephony. . .and telephone. .
.service of whatever nature. . .
(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(3) Installing tangible personal property. . .or maintaining, servicing or repairing
tangible personal property. . .except:
(ii) any receipts from laundering, dry cleaning. . .
*

*

*

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February 13, 1991
(5) maintaining, servicing or repairing real property.
In accordance with the provisions of Section 1105(b) of the Tax Law XYZ must collect sales
tax on charges to the lessee/tenants for electric and telephone services. However, as XYZ is
considered to be purchasing such services for resale purposes, XYZ may make tax exempt purchases
of the electric and telephone services. Since cable television service is a service which is not
specifically taxed under Section 1105 of the Tax Law, XYZ will not be required to pay sales tax on
the purchases nor collect sales tax on the sales of the cable television service. N.Y.S. Cable
Television Assn. v State Tax Commission, 59 AD2d 81.
Additionally, XYZ's receipts from the laundering service is specifically excluded from tax
under Section 1105(c)(3)(ii) of the Tax Law. The charge for linen will also be exempt as a charge
for laundering providing the major portion of such charge is for laundering or dry cleaning and the
value of the article of tangible personal property bears no relationship to the charge for the services
rendered. Re Linen Systems for Hospitals, Inc. Adv Op Comm of T&F, August 14, 1981, TSB-A­
81(14)S. XYZ's receipts from the light cleaning service will be subject to tax under the provisions
of Section 1105(c)(5) of the Tax Law. Where XYZ's receipts from such light cleaning service were
for services performed prior to June 1, 1990 such receipts were excluded from the State tax provided
the services were performed on a regular contractual basis for a term of 30 days or more and did not
include window cleaning, rodent and pest control and trash removal from buildings. However, such
services were subject to the New York City tax regardless of whether performed on a regular
contractual basis of 30 days or more or otherwise.
XYZ's receipts from supplies provided to the lessee/tenants will be subject to sales tax under
the provisions of Section 1105(a) of the Tax Law provided the sales of such supplies are subject to
tax under the Tax Law. XYZ may purchase the supplies tax exempt where such purchases will be
resold.

DATED: February 13, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.