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Ruling 2012-1 Room Occupancy Tax


A nonprofit charitable hospital as the term is used in Conn. Gen. Stat. §12-412(5) (“Hospital”) intends to operate a hotel, as defined in Conn. Gen. Stat. §12-407(a)(16), primarily for the convenience of its patients and their families, visiting medical personnel, and recruitment candidates (“Priority Guests”). Priority Guests will be referred to the hotel by the hospital, and at the time that a guest checks in, the hotel will be able to identify the guest as either a Priority Guest or a member of the general public.  With respect to most visiting medical personnel and recruitment candidates, the Hospital will pay for the room rental. Although Priority Guests will be given preference for all the rooms in the hotel, to the extent rooms have not been reserved for Priority Guests, the rooms will be made available to the general public.

It is represented that income derived from the transfer of room occupancy in the hotel to priority guests is not unrelated business taxable income, as defined in 26 U.S.C. §512, while income derived from the transfer of room occupancy in the hotel to guests other than Priority Guests may constitute unrelated business taxable income.


Does the room occupancy tax apply to the rent, as defined in Conn. Gen. Stat. §12-407(a)(21), received from hotel guests?


The room occupancy tax applies to the rent received from members of the general public, but not to the rent received from Priority Guests.


Room occupancy tax is imposed on the transfer for a consideration of the occupancy of any room or rooms in a hotel or lodging house for a period of 30 days or less.  Conn. Gen. Stat. § 12-407(a)(2)(H). 

Sales of tangible personal property or services to and by nonprofit charitable hospitals for the exclusive purposes of the hospitals are exempt from sales and use taxes. Conn. Gen. Stat. § 12-412(5)(A). This exemption also applies to the room occupancy tax, because the exemptions under Conn. Gen. Stat. § 12-412 apply to taxes imposed in Chapter 219.

In a case concerning the property tax, the Connecticut Supreme Court reviewed Conn. Gen. Stat. § 12-88, which provided in pertinent part, “The real property belonging to, or held in trust for, any [hospital], not used exclusively for carrying out [hospital] purposes but leased, rented or otherwise used for other purposes, shall not be exempt.” Hartford Hospital vs. Hartford, 160 Conn. 370 (1970). Stating this law in the affirmative, as “Property belonging to or held in trust for a hospital which is used exclusively for carrying out hospital purposes shall be exempt,” Hartford Hospital at 376-7, the Court held that a building owned by a hospital and used to rent apartments to hospital medical personnel and staff was used exclusively for hospital purposes and was thus exempt from property tax.

Applying a similar analysis to the comparable language of Conn. Gen. Stat. § 12-412(5)(A), the room occupancy tax does not apply to rent received from Priority Guests of the hotel, because such transfers of occupancy are sales by a nonprofit charitable hospital for its exclusive purpose.  Such sales to Priority Guests are within the “exclusive purposes” of the Hospital because Priority Guests include Hospital patients, patients’ families, medical personnel and recruitment candidates.  On the other hand, transfers of occupancy to members of the general public are not within the “exclusive purpose” of the Hospital and do not come under this exemption.  Similarly, the position of the Internal Revenue Service is that income from providing lodging to members of the general public is taxable as unrelated business income under 26 U.S.C. §511; for example, in IRS Technical Advice Memorandum 9847002, a tax-exempt hospital’s maintenance of a nearby motel was not an unrelated trade or business to the extent patients or their relatives were guests, but that income from providing lodging to members of the general public was an unrelated trade or business.

January 19, 2012