Private Business Counsel

In one of the more recent attempts to regulate and tax the growing internet economy, New Jersey has become one of the first big states to adopt a surcharge on rentals of fewer than 90 days, a so-called “AirBnB Tax”. Though the tax became effective October 1, 2018, the New Jersey Division of Taxation issued guidance on March 1, 2019 to clarify the new law for New Jersey landlords as they gear up for the 2019 summer rental season.

The AirBnB Tax imposes Sales Tax, the State Occupancy Fee, and the Meadowlands Regional Hotel Use Assessment on charges associated with the rental of “transient accommodations,” (as defined below) totaling a 11.625% tax on most short-term rentals that fall within the confines of the new law. The law also authorizes certain municipalities to amend or adopt an ordinance to impose the following taxes on charges for transient accommodations: the Municipal Occupancy Tax, Sports and Entertainment Facility Tax – Millville, Atlantic City Luxury Tax, the Atlantic City Promotion Fee, Cape May County Tourism Tax and Assessment, and the Hotel Occupancy Tax – Elizabeth, Newark, and Jersey City.

The tax is specifically imposed on “transient accommodations,” which are defined as “a room, group of rooms, or other living or sleeping space for the lodging of occupants, including but not limited to residences or buildings used as residences.” Such rentals include those made (i) through “transient space marketplaces” (as defined below) or (ii) directly by a homeowner without the assistance of a licensed real estate agent. The law carves out certain forms of accommodations from the definition, including, among others, hotels, dormitories, hospitals and campsites. The law also exempts private residential properties where (a) no common hotel services are made available by the landlord, (b) the rental transaction is executed by a real estate agent licensed in New Jersey and (c) the keys to the property are provided to the tenant at the real estate agent’s offsite location.

Clearly targeting home-sharing company AirBnB and other popular vacation rental websites such as VRBO and Homeaway, the law defines “transient space marketplaces” as “an online marketplace through which a person may offer transient accommodations or hotel rooms to individuals. A transient space marketplace allows transient accommodations or hotel rooms to be advertised or listed through an online marketplace in exchange for consideration, or provides a means for a customer to arrange for the occupancy of the transient accommodation or hotel room in exchange for consideration.” Many of these websites, including AirBnB have already posted revised policies addressing the changes in the law.

In order to comply, short-term rental landlords must register with the State for the collection and remittance of all applicable taxes, fees, and assessments at least 15 business days prior to the start of their short-term lease. If, however, all rentals are made through a transient space marketplace, landlords do not need to register with the State and can instead rely on such marketplace to collect and remit all taxes. Landlords are also exempt from registration if they are renting solely through NJ licensed real estate agents using the transient accommodations exemption mentioned above.