New Jersey short-term rental tax goes into effect despite confusion

As of October 1, a new lodging tax is in effect for all New Jersey short-term rentals that are either privately listed or arranged through online rental platforms such as Airbnb, VRBO, and HomeAway, according to a New Jersey Division of Taxation bulletin issued Friday.

Two weeks ago, however, a previous bulletin issued by the division about the new law had been removed and it was unclear whether the law would be implemented as originally written.

At issue was whether the new tax only applied to rentals listed via online rental platforms or whether it also applied to short-term rental operators who listed their rentals privately. Short-term rentals facilitated by real estate agents where keys are delivered to the guest by the agent are exempt from the tax under the new law.

The issue is especially significant for short-term rentals at the Jersey Shore, many of which have traditionally been listed privately rather than through online platforms.

After the previous bulletin was removed, Treasury Department spokeswoman Jennifer Sciortino stated, “The goal of this policy change is to level the playing field statewide between existing hotels and motels and transient accommodations conducted through new online marketplaces. This law is not expected to apply to the vast majority of reported short-term shore rentals. We are in the process of reworking the guidance issued by Taxation to alleviate any confusion.”

Some advocates and legislators argue that the original intent of the legislation was to tax rentals going through Airbnb and other platforms and exempt private listings.

Meanwhile, Duane Watlington, founder of VRLBI (Vacation Rentals Long Beach Island), maintains that the exemption for listings facilitated by real estate agents is unfair.

“In a free market, if you as an owner want to rent your house out on your own and take care of all the leases and collecting payments, you have every right to do so; you shouldn’t feel forced to now have to use a Realtor so you can save your guests almost 12 percent in sales tax,” Watlington said.

However, the new bulletin that was published on Friday did not make any changes from the previous guidance that would exempt short-term rental operators with private listings. The latest bulletin states that the new tax applies to rentals “made through ‘transient space marketplaces,’ as well as rentals that are made directly by the homeowner through classified listing sites, local newspaper ads, referrals from friends/family, or placing a sign on the home, etc.”

The new law, passed in July, requires the state’s 6.625 percent sales tax, 5 percent hotel occupancy fee, and 3 percent Meadowlands Regional Hotel Use Assessment — where applicable — to be paid on short-term accommodations of fewer than 90 consecutive days. The occupancy fee is lower in cities that have their own municipal tax on accommodations, including Atlantic City, Jersey City, and Newark, where the state fee is 1 percent, and the Wildwoods, where it’s 3.15 percent.

Many municipalities in New Jersey also levy their own municipal occupancy taxes on hotels. The new law allows municipalities the option to impose new taxes and fees on short-term rentals, including: municipal hotel occupancy tax, Atlantic City luxury tax, Atlantic City promotion fee, Cape May County tourism sales tax, Cape May County tourism assessment, sports and entertainment facility tax, and Meadowlands regional hotel use assessment.

Short-term rental operators must register with the state for tax purposes before they can start collecting lodging taxes from guests — unless all of their sales transactions go through an online rental platform or a real estate broker. In that case, the platform is responsible for collecting taxes and the operator does not need to register. However, if the host deals directly with the guest in collecting payment, the host is required to register with the state.

Although the law requires registration at least 15 business days prior to commencing business, the registration process for short-term rentals is unavailable until at least October 8.

Hosts who are registered must regularly collect lodging taxes from guests and file regular returns with the state.

HomeAway has begun collecting short-term rental taxes in New Jersey on behalf of its hosts as of October 1. HomeAway collects all state sales and hotel occupancy fees, as well as and state-administered city/county lodging taxes.

The only tax Airbnb collects for New Jersey hosts is municipal occupancy tax in Jersey City. Airbnb hosts in Jersey City still have to collect and pay other taxes due on their rentals themselves.

Short-term rental operators who use Airbnb in other New Jersey locations or who use other rental platforms that do not collect taxes on their behalf must take care of all tax obligations themselves.