The AG states that AIRBNB hosts owe a 15% tax on all their rentals. However, the AG purposefully avoids responding to the well established “Bungalow Exception,” created by NY State, which excludes furnished apartments from having to pay sales tax. For those not familiar with the “bungalow exception,” it is defined by the NY State Dept of Taxation as a “complete living unit with its own kitchen, bathroom and sleeping rooms that is rented furnished.” In a number of memos written by NY state, NYC, and courts opinions, they specifically include the words “furnished apartments” as being a bungalow and exempt these bungalows/apartments from additional sales tax.  Feel free to google all of the following Tax Advisory opinions
1) TSB-A-03(15)S
2) TSB-A-91 (44)S
3) TSB-A-06(1)S
4) TSB-A-91 (21)S This one specifically says furnished apartments are not hotels
5) TSB-A-04(6)S
6) TSB-A-08(46)S
7) TSB-A-93 (5) S
8) http://www.nysdta.org/Determinations/823254.det.pdf Court held that to tax a less than 7 day stay stay in a “bungalow” violates the common law definition of “hotel” because the length of stay in a location is irrelevant to whether a place is or is not a hotel.

NY State has made it black and white that there is no Sales tax on bungalows (as long as typical hotel services like daily maid service, room service, mail service, entertainment, planned activities and other services that are commonly provided by hotels are not provided) Google NY States Dept of Taxation’s own form “TSB-M-12(4)S” (ignore the NYC component at the end for the time being). You can also look at http://www.tax.ny.gov/pdf/rulemaking/aug2312/hotel-bungalow/sapa/jis.pdf  

Even better, if you look at the brief submitted by the attorney general (page #13 of the petition [page 18 of the adobe file]), https://www.eff.org/document/ny-ag-opposition-airbnb-motion-quash-subpoena even he acknowledges the bungalow exception and then at the end sneakily adds in italics “outside the limits of nyc .” The reason it’s in Italics is b/c “outside the limits of NYC” was simply made up by the attorney general! What he cites as his proof is footer #6 which is his Assistant Attorney General citing just a NYC.GOV website (It’s not an authoritative site. The AG citing NYC.Gov is like one quoting himself). To make it more laughable, this NYC.Gov website he cites doesn’t say anything about being “outside the limits of NYC.”  The AG literally fabricated those words!!
In order to not be called out on making up such words, the AG is citing his assistant. Imagine you are a news columnist and you write out a line for your best friend to say that you know to be false and then you quote him in your article.

So, now that we know there is no State sales tax (which is the 8 point something %) what about the NY City occupancy/hotel tax (5% plus $2/room per day which by the way a kitchen may be included as a separate room). Under NY State Constitution and the enabling legislation, no municipality including NYC has the right to levy taxes on people without first getting consent of NY State legislation or the state comptroller. Back in 1946 the City got permission to tax “hotels” after world war II b/c the city needed money. But we know that a “furnished apartment” can’t be a “hotel” due to the bungalow exception, there being zonings requirements in order to be a hotel, and not to mention the C of O of the building (which is given out by NYC) states residential units!   Furthermore, back in 1946, there was no Airbnb and the internet didn’t exist. So it’s impossible that the state legislature would have had “Airbnb” in mind back in 1946. Thus “Given the well-established rule that a statute that levies a tax “must be narrowly construed” and “any doubts concerning its scope and application are to be resolved in favor of the taxpayer” (Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 NY2d 657, 661 [1993]).”

So, how did the city go about charging occupancy tax on furnished apartments? The city simply circumvented getting legislature permission by redefining the word “hotel” to include a bungalow 

So the State specifically excludes bungalow from the definition of a hotel and city includes it. Confusing, right!   What’s not confusing is that the city is not permitted to redefine a word in order to circumvent getting state legislative permission to tax people.  One, it makes sense that the state and city can not have two conflicting definitions of a word for tax purposes; people would have no clue what to do, what taxes to pay, which definition they need to apply.

Second, courts have ruled that if the State has created an exemption, the city has no authority to redefine a word to circumvent the exemption without first getting state legislative approval.  Google  1970 1st Carey Transp. v. Perrott or Kiamesha Concord, Inc. v. Chairman of Bd. of Supervisors Bottom line is that NY State trumps NYC and NY state says no taxes on bungalows. 

Please keep in mind, it is not relevant to the tax issue whether you agree or disagree whether people should be permitted to rent out their apartments on Airbnb. If the city wants to collect certain taxes, it should follow the rules and get legislative permission.
 
One last thing to think about. Excluding income tax which every single person is required to pay, can you name one thing NY State or NYC charges a specific tax on that is “illegal?” Ex:/ There are additional/specific taxes on the purchase of cigarets (which is legal) but not on marijuana (Which is illegal). Point being how can NYC demand taxes on the under 30 day rental of a furnished apartment if they claim that such rental is illegal?

Airbnb CEO and co-founder Brian Chesky told the New York Times earlier this summer. “We’re not classified as the brokers, we’re just the service.”

Airbnb takes a commission from the renter. In my book, that makes them party to an illegal transaction. Hmm, taking a commission from a renter? Isn’t that exactly what a broker who deals in rental listings does?

Would any Attorney Generals like to comment?