Cabin opinion creates tax question

By M. Scott Cater | The Journal Record

[DECEMBER 18, 2009 – BROKEN BOW, OK ] – An attorney general’s opinion that forced more than a dozen cabin rental agencies in Broken Bow to stop day-to-day and weekend rentals could have huge tax consequences for the state, an Oklahoma City attorney said Thursday.

The opinion, released by Attorney General Drew Edmondson on Wednesday, forced cabin rental companies across southeastern Oklahoma to comply with the state’s real estate code. The companies had, for more than a decade, been operating under rules set by the Oklahoma Tax Commission and the state Health Department.

However, in 2004, lawmakers changed the state’s real estate code, requiring the cabin rental companies to be supervised by a licensed real estate broker.

This summer, the companies were notified by the Oklahoma Real Estate Commission that they were under formal investigation for unlicensed real estate activities. Commission director Anne Woody said the companies could not continue to rent cabins unless they were under a licensed real estate broker’s supervision.

That change, Oklahoma City attorney Marc Edwards said, could cause the state even more problems.

“On one side you have the Real Estate Commission saying this is leasing of an interest in real estate,” he said. “On the other side, you have the Tax Commission saying this constitutes a service which involves real estate.”

Edwards, an attorney with the Phillips Murrah law firm, which represents some cabin owners, said forcing the companies to comply with the real estate code has created a question of whether it’s necessary to collect sales tax on all cabin rentals.

“There is this issue hanging out there of whether or not state sales tax should have been collected and remitted,” he said. “It could potentially be a much bigger issue.”

The tax code, Edwards said, treats overnight cabin rentals the same as hotel and motel rentals, and requires sales tax to be collected.

“Now there is a question of, ‘Is there a difference between overnight rental of cabins and overnight rentals of hotel rooms?’” he said. “Which is also a question of whether or not sales tax should be charged.”

Officials at many of the area’s cabin management companies said Edmondson’s opinion will cause serious problems for the area’s tourism industry.

“Tourism is huge down here,” said Michelle Finch, the co-owner of McCurtain County Getaways, a cabin rental company. “If we’re forced to do this our county would lose. Everyone loses.”

Edwards said the problem becomes worse when trying to define the difference between cabins and hotel or motel rooms, which are exempt from the real estate code.

“I don’t see any distinction,” he said. “A hotel or motel is realty. Whether it’s the Marriot down the street or some type of motel, when you stay, you’re granted a room in a real estate. It just happens to be in a complex. It’s a slippery slope to try and distinguish between a cabin and hotel or motel room.”

The author of the 2004 measure that changed the law said the controversy was an unintended consequence.

“It was never my intent to harm southeastern Oklahoma tourism,” said state Sen. J. Paul Gumm, D-Durant. “This initial concern was a total surprise.”

Gumm said he expected lawmakers to re-examine the issue during the next legislative session.

“I certainly want to ask how we got to this point,” he said. “These are tourists that generate cash flow and revenue that affects and improves the bottom line on lots of businesses in the area.”

Edwards said exempting the cabins would help, but added that many issues in the controversy remain.

“There are several entities – including the state – which lease cabins,” he said. “For example, Quartz Mountain is owned by the state but managed by a third party. Does this mean that their management company needs to be licensed under the real estate code? Does it mean that the clerk working the front desk needs to be licensed?”

State lawmakers will get their chance to review the issue when the Oklahoma Legislature reconvenes on Feb. 1. Meanwhile, the only option for owners is to hire a broker or lease the cabins themselves.