New Jersey’s New Tax Affecting Beach Rentals
New Jersey passed a tax on transient accommodations, which came into effect on October 1, 2018. A transient accommodation is a room, group of rooms, or other living space for lodging of occupants. The law is not limited to transient accommodations of residences. Instead the law also applies to buildings that are used as residences and rentals that are made through transient marketplace (i.e. Airbnb, VRBO) and rentals that are made directly by the homeowner through classified listing sites, local newspaper ads, referrals from friends and family or by placing a sign on the law.
A transient space marketplace is an online marketplace through which a person may offer transient accommodations or hotel rooms to individuals. They also allow transient accommodations or hotel rooms to be advertised or listed through an online marketplace in exchange for consideration or provide a means for a customer to arrange for the occupancy of the transient accommodation or hotel room in exchange for consideration. Where consideration means money or other valuable exchange. An online marketplace operated by or on behalf of a hotel or hotel corporation that facilitates customer occupancy solely for the hotel or hotel corporation’s owned or managed hotels and franchises is not a transient space marketplace. A transient space marketplace is also not a travel agency or an online travel agency where the travel agency books rooms on behalf of customers and the hotel bill and collects any applicable tax. Although the travel agency is not required to collect the tax, the underlying rental transaction is subject to all applicable taxes.
There are a few exclusions within the law which are not considered transient accommodations. Hotels, and hotel rooms are excluded from this law, but may be subject to other, distinct, taxes. Rooms, groups of rooms, or other living spaces used as a place of assembly are also excluded. So are dormitories or other facilities of an elementary school, secondary school, college or university. Hospitals, nursing homes, or other similar facilities are excluded so long as the provider is licensed by the state. Campsites, cabins, lean-tos or other facilities of a campground, adult camp or youth camp are also not considered transient accommodations under the law. Finally, furnished or unfurnished private residential property, where no maid service or other hotel-like service is provided is excluded so long as the rental transaction is executed by a real estate broker, where the real estate broker is holding the key or other means of entry in an offsite location from the house.
The law also requires those intending to list a transient accommodation to become registered with the state. Everybody who charges for the rental of a transient accommodation is a seller and must register with the state for the collection and remittance of all applicable taxes, fees or assessments by filing a business registration or application. Additionally, the seller must register at least 15 days before conducting business. However, the law is unclear where that means a seller must send in an application 15 days prior to conducting business, whether the seller must be approved 15 days prior to conducting business or whether an application to register is automatically approved and when it is sent in the registration is complete. This registration is required unless all sales are solely consummated through a transient space marketplace or unless all sales are executed by a real estate broker licensed by the New Jersey Real Estate Commission, the keys or other means of physical entry are provided to the lessee at the location of an offsite real estate broker, the rental property is private residential property and the lessor does not provide common hotel services.
Those renting must also update their tax registration to include Sales Tax, The State Occupancy Fee, the Meadowlands Regional Hotel Use Assessment and all other applicable taxes, fees or assessments. These taxes and fees are to be collected by the seller on behalf of the state and the seller is personally liable if the taxes, fees or assessments are not provided to the Division. The Sales Tax is currently 6.625%, the State Occupancy Fee is 5%, the Meadowlands Regional Hotel Use Assessment is 3%, but only applies to specific municipalities in Hudson and Bergen counties. In addition, some towns have municipal occupancy taxes. At the moment no town has created them, but a municipal occupancy tax can be up to 3%. Under this law any town levying a municipal occupancy fee would result in a lower state occupancy fee to be accessed.
These taxes are to be collected and paid by the transient space marketplace when the sale is solely consummated through the marketplace. In order to be solely consummated through the marketplace the payment must be made either directly or indirectly through the marketplace. When marketplaces do not collect the payment from the customer, marketplaces are not required to collect taxes on transient accommodations.
In addition to paying taxes, the transient space marketplace is required to maintain stores of records that are to be kept for four years after the sale. The information required is the name of the lessor, the name of the lessee, the address of the transient accommodation, the dates and nightly rates for which the consumer purchased the transient accommodation or hotel room, the municipal transient accommodation registration number, if applicable. The nature of the accommodation – full unit, part unit, or full, long term unit. They must also collect the individualized name and number of each advertisement or listing connected to such unit and such other information as the Division requires.
According to The Star Ledger, only about 6,000 property owners in the State of New Jersey will be affected by this law. However, these property owners and other activist groups are worried that the levying of taxes on beach rentals could disrupt New Jersey’s thriving tourist industry and encourage people to travel instead to Delaware, Maryland and the Carolinas. In practice, the realtor exemption does very little to change the nature of the industry as a whole. It is no longer as convenient as finding a house online, however it would be much similar to renting a beach house in the early 2000s. Spending the winter visiting the towns you want to go to, looking at houses with a realtor and then when it’s all said and done finally booking one. While it may be an inconvenience to many, this law is very unlikely to change the industry in any meaningful way.
By: Matthew DeLeo, Villanova Law ’21