CORRECTION: All rentals will be taxable except for those listed with a real estate agent or broker licensed by the state Real Estate Commission.
TRENTON – If you’ve favored booking vacation homes, condos or apartments over hotel rooms in New Jersey, you may not have realized that you’ve been getting a tax break. No more as of Oct.1.
After years of negotiations, short-term rental websites, such as AirBnB and Homeaway, will have to collect sales and hotel occupancy taxes, similar to those already imposed on the hotel and motel industry.
That’s because Gov. Phil Murphy signed into law, July 2, a bill that imposed sales and use taxes as well as hotel and motel occupancy fees on short-term property rentals made through online vendors.
The move was meant to level the playing field between the two hospitality service providers and is expected to generate millions in revenue for the state.
When the bill takes effect in October, anyone using short-term rental booking websites will have to collect the state’s 6.625-percent sales tax and the 5-percent hotel occupancy fee, in addition to any fees a municipality has in place.
Cape May City has a 2 percent municipal fee.
The legislation was sponsored by Assemblywomen Annette Quijano (D-20th) and Valerie Vainieri Huttle (D-37th) and Assemblymen Raj Mukherji (D-33rd) and Tom Giblin (D-34th), to ensure fairness among all hospitality providers in New Jersey by imposing the same taxes and fees that hotels and motels currently must pay to the state on “transient accommodations,” or residences used as temporary lodging.
Under current law, the state imposes the sales and use tax and the hotel and motel occupancy fee on the rent for each occupancy of a room or rooms in a hotel.
Further, current law authorizes municipalities to impose various taxes and fees on the rent for each occupancy of a room or rooms in a hotel in those municipalities.
However, there is no tax or fee imposed on short-term rentals currently. Short-term rentals are defined as less than 90 days.
No Impact on Agency Rentals
In Cape May County, Diane Wieland, director of the county’s Department of Tourism and Public Information, stated, “This does not impact shore rentals, only those who use the shared housing agencies such as Airbnb, Homeaway, etc. They will be taxed not only with 5 percent occupancy tax but also the current state sales tax, shore rentals still remain untaxed.”
Wieland further explained the county tourism sales tax (2 percent) and county tourism assessment tax (1.85 percent) is actually the Wildwoods Tourism Tax.
“They collect this tax in the three municipalities, Wildwood, North Wildwood and Wildwood Crest,” she noted, “and use the monies for tourism promoted through the Greater Wildwoods Tourism Improvement Development Authority (GWTIDA).
“The bill refers to it as the Cape May County tax, but the county doesn’t receive any funds,” she added. “It is confusing for many, and we often get calls from those who were charged asking for an explanation.”
GWTIDA Executive Director John Siciliano explained the Tourism Assessment is collected in addition to the 2 percent Tourism Tax currently imposed on room rentals and prepared food and beverages.
Room rentals in Wildwood, Wildwood Crest, and North Wildwood are subject to a total 10.475 percent in taxes and assessments (6.625 percent New Jersey Sales Tax; 2 percent Tourism Tax; 1.85 percent Tourism Assessment), in addition to the Occupancy Tax of 3.15 percent. The taxes are capped at 14 percent.
The monies collected support the operation and maintenance of the Wildwoods Convention Center, marketing and advertising for the municipalities and GWTIDA’s administration.
“Our position is that if the hotels have to collect the taxes, then so should all the other short-term rentals,” Siciliano added.
Accommodations listed with a real estate agent or real estate broker licensed by the New Jersey Real Estate Commission are exempt under the law.
Both Wieland and Siciliano said they couldn’t explain why.
Enforcement Questioned
“Forty-seven percent of dwellings in the county are rentals,” Wieland noted. “How this is going to be enforced is a good question.”
One industry expert, Rob Stephens, co-founder and general manager of Avalara MyLodgeTax, said platforms such as Airbnb, VRBO, HomeAway or others may add these taxes automatically to guests’ bills.
“Whatever site you use to rent your short-term vacation property, it’s still a short-term vacation rental, so you are subject to the new taxes,” Stephens said.
Enforcement of individual homeowners, however, is historically hard to track and find, he noted.
“It’s another form of sales tax,” Stephens said. “The hardest part with a small business is them not knowing they have to collect it.
“I have seen in other states very aggressive tax compliance tracking,” he added. Although located in Denver, Colo., Stephens’ expertise is in short-term lodging tax regulation and compliance in any local municipality throughout the U.S.
“I have seen where they have staff go through listings online to see if they are collecting the taxes they should,” he continued. “In some resort communities, I have seen an agent drive around and check houses where there are multiple vehicles and other signs of rental properties. When you file your taxes, and you claim income from rentals, they can check to see if you are paying the tax as you should.
“Auditing is the big hammer they can drop to ensure you are collecting the taxes,” Stephens said. “If they are going to audit you, they can just show up at your door. The industry wants compliance.”
Under the law, permanent residential rentals would continue to be exempt from the taxes and fees listed above. The law would also exempt charitable, non-profit organizations from collecting the taxes and fees when providing transient accommodations in furtherance of the non-profit’s mission.
To contact Karen Knight, email kknight@cmcherald.com.
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