New York City Short-Term Rentals and Hotel Taxes: What Owners Should Know

New York City’s regulations for short-term rentals are becoming stricter, and even properties that resemble traditional apartments can be classified as hotels for tax purposes. A recent decision by the New York City Tax Appeals Tribunal clarifies this point. The ruling indicates that the way you market, furnish, and manage a property can activate the Hotel Room Occupancy Tax (HROT), even if you never use the word “hotel.” For real estate owners, investors, and managers, understanding these rules is essential to avoid unexpected tax exposure.

When Rentals Cross Into Hotel Territory

USA Stay LLC subleases fully furnished residential apartments for both short-term stays (fewer than 180 days) and longer-term use. The company marketed these units as convenient options for travelers and sightseers, referring to occupants as both “guests” and “subtenants.”

NYC assessed the Hotel Room Occupancy Tax (HROT) on short-term stays, claiming that USA Stay operated a hotel-like business. USA Stay countered, arguing it ran an apartment-rental service and shouldn’t be subject to hotel taxes.

The dispute raises a question many NYC property owners now face: When does a short-term rental become a hotel under city tax law?

USA Stay’s Argument: No Services, No Hotel

USA Stay focused on how NYC outlines a hotel under its administrative code section 11-2501(5). While the definition includes apartment hotels, motels, and boarding houses, it also states that these properties qualify “whether or not meals are served.”

USA Stay argued that this language assumes a hotel provides customary hotel services (e.g., housekeeping, concierge, mail), and merely clarifies that meals are optional. The company emphasized that it didn’t offer daily housekeeping, access to building amenities, or other traditional hotel services. Occupants paid their own utilities and cleaned their own units.

From USA Stay’s perspective, the lack of hotel-style services meant it operated as a rental, not a hospitality business. The company also relied on principles of statutory interpretation to support a narrower reading of the law.

The City’s Position: Focus on Use, Not Services

NYC adopted a broader approach. Instead of concentrating on services, the City examined how the apartments were marketed and occupied.

Under the city code, a hotel includes any building or portion of a building, “regularly used and kept open for the lodging of guests.” According to the City, that definition depends on transient occupancy, not amenities.

The City cited several factors that supported its position:

• The units were fully furnished
• Apartments were available for stays shorter than 180 days
• USA Stay marketed the units to travelers using hospitality-style language.
• The properties were consistently available for short-term occupancy

The City also rejected the argument that “whether or not meals are served” creates a requirement for other services. Instead, it viewed that language as intentionally expanding the definition of a hotel for tax purposes.

Finally, the City noted that while state-level hotel taxes may focus on standard hotel services, NYC’s HROT is broader by design and doesn’t need to follow the same framework.

The Tribunal’s Ruling: Substance Over Labels

Both the administrative law judge and the full Tax Appeals Tribunal agreed with the City.

The Tribunal determined that the primary consideration under NYC law is whether the property is consistently available for short-term rentals. USA Stay’s business model met that standard.

The Tribunal also rejected USA Stay’s argument that additional services are required. It concluded that the meal language was intended to broaden the scope of the law, not imply that other hotel services are mandatory.

Importantly, the Tribunal looked beyond marketing and length of stay. It focused on the level of control USA Stay maintained over occupants. The agreements limited access to building amenities, restricted social gatherings, and prohibited undisclosed guests. These restrictions suggested that occupants lacked the control typically associated with a landlord-tenant relationship.

As a result, the Tribunal concluded that the arrangement resembled an innkeeper-guest agreement, supporting the City’s position that the units operated like hotel rooms.

Why This Means for New York City Real Estate Owners

The decision sends a clear message that labels alone don’t dictate tax treatment. Even if a property is zoned as residential and marketed as a rental, it might still be subject to hotel taxes if it:

• Targets transient occupants
• Offers furnished, short-term stays
• Uses hospitality-style marketing language
• Retains significant control over how occupants use space.

This ruling emphasizes the importance of reviewing short-term rental strategies from a tax-compliance perspective. Marketing language, lease terms, length of stay, and operating practices all matter.

Practical Steps to Reduce Risk

For property owners offering short-term stays, the decision emphasizes several forward-looking considerations:

• Reevaluate branding and messaging strategies. Hospitality-related terms can have tax implications, even if the property is residential.
• Monitor stay duration trends. A consistent pattern of short stays may draw scrutiny under local tax rules.
• Assess the level of control occupants have. The more restrictions you impose on use and access, the more difficult it may become to support a traditional rental stance.
• Ensure consistency across all operations. Lease terms, furnishing decisions, and management practices should align with the same business purpose.

Addressing these areas proactively can help owners manage tax exposure and reduce the risk of unexpected assessments as enforcement evolves.

A Broader Trend Beyond New York City

While this ruling specifically applies to NYC’s Hotel Room Occupancy Tax, the overall approach is not unique. Other major markets continue to evaluate how they regulate and tax short-term rentals as housing availability, tourism, and local revenue needs intersect.

Across the country, cities are scrutinizing property marketing, tenant turnover, and the level of control owners retain. As enforcement increases, owners operating in multiple markets — or exploring short-term strategies elsewhere — shouldn’t assume that NYC is an exception.

If you have questions about how short-term rental rules or hotel taxes may affect your properties, our real estate professionals can help you evaluate risk and plan next steps. Reach out to a member of our real estate team to discuss your portfolio, operating model, and evolving local requirements.