Short-term Rental Tax Takes Unexpected Toll

NORTH WILDWOOD – When Kathy Truesdale booked a six-bedroom home three blocks from the beach for summer 2019, she didn’t know she would be hit with a new state tax of nearly $1,000 two months later.
The additional cost means she and her husband, her three children, and four grandchildren probably won’t be going out to eat as often, or do some of the “cool” things they planned to celebrate their 50th wedding anniversary.
North Wildwood condo owner Paul Maione said he’s received multiple inquiries about renting his four-bedroom home on the beach, but hasn’t booked the open weeks. When he asks potential renters why, he’s been told the price is too high by the amount of the taxes he’s required to collect.
While he’s concerned about his rental, he said he’s more concerned about the impact to local businesses because visitors may not have the money to spend with them.
Maione and Truesdale are seeing the impacts of a new state law that requires homeowners who rent their homes through short-term rental booking websites 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.
“Businesses have about 10 weeks to make their money for the year,” Maione said. “If people are spending more renting a place to stay, that’s less money going into the economy and going to our local businesses. If the businesses don’t make enough money, they’ll close. There go the things that attract people to the shore.”
In addition, Maione said if homes aren’t rented, there’s apt to be an increase in foreclosures because mortgages won’t be covered or repairs won’t be made because rental income will be less.
Now that the impacts are being forecasted, however, there is an effort underway to correct the existing legislation to exempt transient accommodations from state and local taxes. To date, identical bills have been introduced in the Assembly (A4520) and the Senate (S3133) and both bills have been referred to committee. As of March 4, A4520 excluded short-term rentals in Monmouth, Ocean, Atlantic and Cape May counties.
“During the committee hearings, there’s been discussion that the law discriminates against the shore, and should include areas where there’s skiing or other activities,” said Duane Watlington, a founding member of the N.J. Shore Rentals Coalition, and an owner of a vacation rental in Ocean County. “We’re trying for state-wide exemption.”
Watlington said the original bill was known as the “Airbnb bill” because the legislators wanted to collect the sales tax from similar websites. “During the final negotiations to get the budget passed, they exempted Realtors from the tax because they thought most rentals went through a realtor,” he added. “I think it was an unintended consequence that homeowners got hit because less than 50 percent of rentals go through Realtors.”
Sen. Robert Andrzejczak (D-1st), one of 16 co-sponsors of the Senate bill and one of two primary sponsors of the Assembly bill, said he is hopeful the bills will be approved and be retroactive to refund customers for summer 2019.
However, the anticipated revenue from the sales tax is included in the proposed state budget and Andrzejczak said, “It will be harder to take it out.” He was on his way to Trenton for committee meetings and said he was working to get the bill changed as soon as possible.
Watlington predicted if the legislation wasn’t changed, homeowners would use Realtors more since they are currently exempted from collecting the tax currently. He also thinks rates would still increase to cover the cost of commissions.
However, he believes the state will continue to receive income from the sales tax collected on websites such as Airbnb, minimizing any financial impact statewide.
“If the law isn’t changed, vacationers will go away because they can’t afford to come to the shore,” he said. “If the tax doesn’t scare them, they will come with less money to spend in the businesses. We’ll start seeing businesses closing.”
Watlington said he became involved in the fight against the bill after contacting the state Division of Taxation about the tax. When he found out he had to collect the tax, he contacted his assemblyman. That began his “crusade” to change the bill by forming the coalition who hired the public policy advocacy group, Pizzutillo Public Affairs, LLC, to lead efforts with lawmakers in Trenton.
“We will lose to other destinations,” Watlington said, “if the bill isn’t changed. Now is the time when people book their summer vacations, then there’s a rush around Easter and Memorial Day. We need the bill changed now so we don’t lose this season.”
In the meantime, Watlington urged shore vacation homeowners visit their website http://www.njshoretax.com for updates and to support fundraising efforts to cover the lobbyist and legal fees.
For Truesdale and her family, they are already making adjustments to their vacation plans. “We’ve already talked about not going out to eat and cooking in more,” she said. “We thought it would be cool to rent a golf cart for the week to transport our grandkids, but we won’t be doing that. I was a secretary and my husband worked at the university, so we’re not made of money; this vacation is a big thing for us and our children.
“The tax is outrageous,” she added. “We’ll be bringing a lot of board games with us.”
To contact Karen Knight, email kknight@cmcherald.com.