CLARIFICATION: Arrangements made directly between a renter and the property owner, with no intervening use of an online app, are exempt from the state occupancy tax.
COURT HOUSE – At its June 22 meeting, Middle Township Committee introduced an ordinance to regulate the short-term and transient rental marketplace.
The Issue
Short-term rentals have always been a part of the real estate universe, but it is only in the last decade that technology applications have facilitated the connection between host and guest in ways that led to explosive growth in the marketplace.
As late as 2011, travel site servicers did not immediately see the disruptive tendencies in the applications that created new transient rental marketplaces. Just nine years later, Airbnb had an initial public offering in which its shares gained 112% on its first day of trading.
As that marketplace grew rapidly, the issue of how states and local governments should react grew, as well.
By 2018, New Jersey imposed sales tax and state occupancy tax on “transient accommodations.” The state modified the law in 2019 to exempt rentals through real estate brokers. The state also opened the door to allow local governments to impose the municipal occupancy tax on short-term rentals.
Now, many municipalities in Cape May County are defining how they want to regulate this short-term rental phenomenon.
Several factors compel local government attention. The explosive growth in the marketplace has led to all types of accommodations being listed as available rentals.
Health and safety concerns make it critically important that municipalities ensure the right safety and building code inspections are done.
The expanding numbers of visitors moving in and out of housing units on varied and unpredictable schedules place new demands on municipal services. Without some structure for user fees, those services are paid for by local taxpayers.
Complaints from long-term residents in residential neighborhoods require that local officials find ways to balance the needs of these neighborhoods with the beneficial short-term use of housing units that may aid local tourism.
Middle Township has attempted to address each of these factors in its ordinance.
Middle’s Ordinance
Acknowledging that short-term rentals can be good for tourism and economic vitality, the municipal ordinance seeks what it terms “rationally based and reasonably tailored regulations” aimed at protecting “the integrity of township residential neighborhoods.”
At its core, the ordinance seeks appropriate regulation through the imposition of a short-term rental license requirement. The license is for one year and is renewable for annual periods. The ordinance spells out the license application process and establishes a non-refundable application fee.
The license process identifies the marketplace of units that must comply with inspections and health and safety requirements.
The ordinance defines a short-term rental as a specific rental arrangement for a period of less than 90 consecutive days. Noting that transient space marketplace rentals are now subject to state sales and occupancy tax requirements, the ordinance imposes a 3% municipal tax on rental revenue as allowed under state law.
Parking issues are addressed in the ordinance in an attempt to ameliorate the most common complaint about the impact of short-term rentals on the quality of life in a neighborhood.
The ordinance sets a series of operational requirements and establishes a role for the property owner to help ensure that other municipal regulations are complied with.
Penalties for violations of the code are assessed by the court but can be assessed up to $2,000 per violation, per day of the violation.
The ordinance is available as part of the agenda of the June 22 committee meeting. It will be considered for adoption with a public hearing at the July 18 committee meeting at 6 p.m.
To contact Vince Conti, email vconti@cmcherald.com.
