New Connecticut law gives cities and towns authority to regulate short-term rentals

Connecticut municipalities have explicit power to regulate short-term rentals (STRs) under a new state law. The legislation, a wide-ranging bill designed to address Connecticut’s affordable housing crisis, goes into effect October 1, 2024.

Under the measure, municipalities are authorized to:

• Adopt ordinances requiring STRs to be licensed
• Regulate STR operations
• Engage consultants to help develop STR ordinances

In Connecticut, a short-term rental is defined as the rental of a “furnished residence or similar accommodation” that is not a hotel/motel or bed-and-breakfast, for a period of 30 consecutive calendar days or less.

As of February 2024, only 12 towns in Connecticut had expressly regulated STRs, either by ordinance or through their zoning codes, according to the state Office of Legislative Research. Those are Ashford, Bozrah, Bridgeport, Canton, Chester, Greenwich, Hartford, Ledyard, Lyme, Preston, Simsbury, and Stonington.

Each town’s rules differ, but almost all of them require STR operators to obtain permits in certain situations, with Greenwich as the only exception. In Stonington, where all STR operators must have permits, STR property owners must also register with the town each year. Various towns have put other rules in place for STRs, including requiring special permits for STRs where events are held and restrictions on STRs in residential districts.

In municipalities without express STR regulations, legal uses may end up being determined by the courts. In one recent case, the Connecticut Supreme Court ruled in favor of a Branford STR owner who started renting out a home for short terms in the borough of Pine Orchard in 2005. Following neighbor complaints, the borough amended its policy to prohibit single-family dwelling rentals for periods shorter than 30 days and issued a cease-and-desist order to the STR owner.

The owner argued that short-term rentals were a protected nonconforming use under the borough’s original 1994 zoning law, which was in effect when he started his STR business. In considering the legal question of whether a “residence” or “home” means there is some degree of permanency, the majority of the court found that the legal definition of “residence” does not require a specific duration of occupancy, rejecting the borough’s argument that a “residence” implies long-term living. The homeowner was allowed to continue operating the STR.

In addition to local operation rules, Connecticut STRs are also subject to state room occupancy taxes. Operators are required to register with the Connecticut Department of Revenue Services for a tax registration number, collect the tax from guests, and file room occupancy tax returns. All charges associated with occupancy, including accommodations, amenities, and services, whether separately stated or included, are taxable. This includes items such as cleaning fees, pet fees, rollaway bed fees, and extra person fees.

STR operators aren’t required to register with the state if a third party — such as STR marketplaces Airbnb or Vrbo — collects and pays all occupancy taxes. In Connecticut, these marketplaces are required to collect and remit room occupancy tax for all their listings.

Avalara MyLodgeTax can help short-term rental hosts automate lodging tax to streamline and simplify their lodging tax compliance. For more on lodging taxes in Connecticut, see our state vacation rental tax guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.