One Litchfield County real estate firm is advertising an “incredible new construction Washington rental” for the upcoming ski season, from Dec. 16 through March 14—just shy of 90 days if someone rented it for the full term. In Salisbury, another Realtor offers an in-town “retreat” available on a short-term or monthly basis during the academic year, or in the summer. Lakefront vacation homes have historically been hot summer rentals in the scenic Litchfield Hills, often for the entire season but also for shorter terms in many cases.
As of Oct. 1, Realtors and real estate firms that manage the leasing or rental of properties for fewer than 90 days may be required to collect and remit to the state a room occupancy tax on short-term rentals, based on a new statute adopted by the Connecticut General Assembly as part of the 2019-2020 state budget.
Full details of the new statute can be found in a Connecticut Department of Revenue Services (DRS) special notice posted online.
Until the new public act (P.A. 19-117, Sections 329 and 330) was passed, with an effective date of Oct.1, the DRS collected room occupancy tax only from operators of hotels, motels, and bed-and-breakfast establishments.
The tax for hotels and motels was 15 percent, and bed-and-breakfasts were taxed at 11 percent. Those tax levels remain unchanged. (Conn. General Statutes § 12-407 a(2)(H)).
There was no room occupancy tax imposed on owners who rented their homes, or a portion of their homes, for any period of time—though the rental income was, and still is, taxable as income.
The new statute, legislators have indicated to constituents, was meant to target Airbnb and Vrbo (vacation rentals by owner), and other entities that arrange for short-term rentals of furnished residences.
While it seems those who facilitate Vrbo rentals have not been responsible for paying the tax until now, Connecticut has imposed the 15 percent tax on Airbnb since 2016, according to The Hartford Courant. A recent story in The News-Times says, “With Connecticut applying to Airbnb receipts the standard lodging tax of 15 percent — the highest in the nation — Airbnb visits this past summer equate to more than $4 million in revenue for the state.”
However, as the Connecticut Association of Realtors indicated in a Sept. 19 notice to its members, the 15 percent tax will apply to real estate agencies that handle short-term rentals—a thriving segment of the market in northwestern Connecticut in the summer, and for ski season and the academic year.
Unless the state government takes corrective action as the full implications of the new statute become clear—as is happening with efforts to roll back new taxes on prepared foods sold in grocery stores—Realtors will fall under the umbrella of “short-term rental facilitators.” If a real estate agency collects the rent from a short-term tenant and forwards the rent to the owner, the agency may become a “facilitator,” and therefore become obligated to forward the 15 percent room occupancy tax to the Connecticut DRS. An agency does not become a “facilitator” if the short-term tenant pays the rent directly to the owner.
If a Realtor or real estate broker or agent fits within the definition of “facilitator,” they will be required to collect and remit Connecticut room occupancy tax on short-term rentals if they meet certain parameters set forth in P.A. 19-117, which imposes the room occupancy tax on a “short-term rental” of all or part of a furnished residence.
A “short-term rental” is defined as the “transfer for consideration of the occupancy in a furnished residence or similar accommodation for a period of 30 consecutive calendar days or less.” Furnished rentals for 90 days or less are taxed the room occupancy tax for the first 30 days of occupancy. A lease for more than 90 days is not affected by the public act, and unfurnished rental residences do not require collection and payment of the room occupancy tax.
A “short-term rental facilitator” is defined is any person or entity that:
- Facilitates retail sale of at least $250,000 during the prior twelve-month period by short-term rental lodging house operators (owners of residential properties) by providing a short-term rental platform;
- Directly or indirectly through agreements or arrangements with third parties, collects rent for occupancy and remits payments to the short-term rental operators; and
- Receives compensation or other consideration for such services.
A “short-term rental platform” means a physical or electronic place, including, but not limited to, a store, a booth, an Internet website, a catalog, or a dedicated software application that allows short-term rental operators to display available accommodations to prospective guests. Such platforms may include travel websites, home-sharing websites, and real estate agent offices or websites.
Notably for large real estate firms with a multi-state presence, the $250,000 threshold applies not just to Connecticut retail sales (short-term rentals), but also to short-term rentals outside of Connecticut.
Beginning October 1, 2019, each qualifying “short-term rental facilitator” must:
- Collect and remit sales tax to the DRS on each such sale;
- Be responsible for all of the obligations that the Connecticut sales and use tax imposes as if it were the lodging house operator and retailer of the sale; and
- Keep the records and information that the DRS requires to ensure proper sales tax collection and remittance, in accordance with existing sales tax record-keeping requirements.
The Connecticut Association of Realtors notes that the “statute additionally provides that short-term rental operators (property owners/landlords) are not liable for collecting room occupancy tax to the extent that the short-term rental facilitator collected the tax due.” Realtors, real estate brokers and agents can avoid becoming “facilitators” by making sure that the short-term tenant pays the rent directly to the owner/landlord, who then is required to pay the 15 percent tax to the DRS.
Anyone with questions or concerns about the room occupancy tax on short-term rentals—or any other issue related to residential or commercial real estate—may contact me or any of the other attorneys in our Residential & Commercial Real Estate Lawpractice. Cramer & Anderson’s team of real estate attorneys works with clients throughout western Connecticut, from the Massachusetts border to Lower Fairfield County and east to Greater Waterbury and beyond.
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