UPDATE: On Friday, July 21, 2017, Governor Christie vetoed Assembly Bill No. 4587, which bill would have imposed State sales and use tax and hotel and motel occupancy fees on transient accommodations like those provided through Airbnb. In support of the veto, Governor Christie stated “I strongly believe that levying new taxes on our already overtaxed residents is not the answer to the State’s fiscal challenges. The tax increase proposed in this bill would not only impact New Jersey property owners who have – for generations – made their homes available for short-term rentals, but would also disproportionally increase the cost of visiting New Jersey shore towns and other tourist destinations. This area and its economy cannot and should not be jeopardized.” For the full text of Governor Christie’s veto message, visit http://nj.gov/governor/news/news/552017/pdfs/20170721a/A4587AV.PDF.
Airbnb Rentals in New Jersey May Soon be Subject to Tax
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On June 19, 2017, the New Jersey State Legislature passed a bill that imposes State sales and use tax and hotel and motel occupancy fees on transient accommodations like those provided through Airbnb. The bill authorizes various municipal taxes and fees on accommodations including the Hotel Occupancy Tax, the Atlantic City Luxury Tax, the Atlantic City Promotion Fee, the Cape May County Tourism Sales Tax, the Cape May County Tourism Assessment, the Municipal Occupancy Tax, the Sports and Entertainment Facility Tax, and the Meadowlands Regional Hotel Use Assessment. A. 4587 passed the Senate on June 19, 2017 by a vote of 25-13, and previously passed the General Assembly on May 22, 2017 by a vote of 45-29. The bill is now with Governor Christie for consideration.
If enacted, New Jersey would not be the first state to impose taxes on rooms provided through online home-sharing platforms. For example, Airbnb already collects and remits the Pennsylvania Hotel Occupancy Tax and Local Sales Tax from guests booking Airbnb listings in the Commonwealth, as well as various local taxes (including the Philadelphia Hotel Room Rental tax).
New Jersey’s current law imposes the sales and use tax and the hotel and motel occupancy fee on charges for the occupancy of a room in a hotel in New Jersey. Current law also allows certain municipalities to impose similar taxes and fees on charges for the occupancy of a hotel room located within the municipality. The current law, however, does not impose taxes and fees on short-term rentals for occupancies that occur in other types of real property, such as the rental of a spare bedroom in an apartment.
Under A. 4587, the sales and use tax, hotel and motel occupancy fees, and other municipal taxes are amended to apply to certain occupancies that occur in certain real property. Charges for the occupancy of a transient accommodation will be subject to tax in the same form and manner as charges for the occupancy of a room in a hotel.
A transient accommodation is defined by the bill 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.” The bill defines a residence as “a house, condominium, or other residential dwelling unit in a building or structure or part of a building or structure that is designed, constructed, leased, rented, let or hired out, or otherwise made available for use as a residence.”
Among the items excluded from the definition of transient accommodations are school dormitories, rooms in a hospital or nursing home, campsites, and “a furnished or unfurnished private residential property, including but not limited to condominiums, bungalows, single-family homes and similar living units, where no maid service, room service, linen changing service, or other common hotel services are made available by the lessor and where the keys to the furnished or unfurnished private residential property, whether a physical key, access to a keyless locking mechanism, or other means of physical ingress to the furnished or unfurnished private residential property, are provided to the lessee at the location of an offsite real estate broker licensed by the New Jersey Real Estate Commission.”
The bill also provides that charges of rent for providing transient accommodations to a permanent resident (defined as “any occupant of any room or rooms in a hotel or transient accommodation for at least 90 consecutive days”) are not subject to tax or fee, and states that charitable non-profit organizations are exempt from tax and fee collection responsibilities when providing transient accommodations in furtherance of the purposes for which they were organized.
As for the bill’s fiscal impact, the Office of Legislative Services (OLS) expects that the enactment of the bill will produce a recurring annual increase in State and local tax and fee revenues, but currently lacks sufficient information to determine the magnitude of the gain in fiscal years following enactment. Because of the uncertainty surrounding the number of the transient accommodations in the State and the rates that will be charged for the accommodations, the OLS is unable to produce an estimate regarding the overall impact of the bill on State and local revenues.
Nonetheless, the Statement to the bill notes that Airbnb has disclosed that 6,100 active hosts in New Jersey earned over $50 million in 2016. Had those transient accommodations been taxable, the combined revenue would have been up to approximately $6 million. Revenues are likely to be higher, however, because transient accommodations through Airbnb represent only a portion of short-term rentals that would be taxable under the bill.
If enacted, the bill will take effect immediately.
For the full text of A. 4587, see http://www.njleg.state.nj.us/2016/Bills/A5000/4587_R2.PDF.
Samantha Heaton is an associate with the firm. She is admitted to the Bars of the State of New Jersey and The Commonwealth of Pennsylvania. Mrs. Heaton earned her J.D., summa cum laude, from Rutgers Law School, where she also received a Certificate in Corporate and Business Law and served as an Articles Editor for the Rutgers University Law Review.