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Tax Fix Would Make Summer Sweeter for Renters at the Shore

Lawmakers want to ease the tax bite on most short-term rentals, but agreements made through Airbnb and similar marketplaces would still face 12 percent levy

Jersey Shore houses
Credit: NJTV News

A new state tax meant to help level the playing field for hotels and motels amid rising competition from online rental marketplaces like Airbnb may have made the playing field a little too level in the eyes of lawmakers.

A bill up for vote in the Assembly today addresses the issue by amending the new tax on short-term rentals known as “transient accommodations.”

Originally excluded from the new tax were rentals made through realtors, but not those done through online marketplaces and other, more traditional means. The legislation would still apply the new tax to marketplace rentals, but it would now exclude most other private rental transactions lasting less than 90 days.

One of the primary goals of the legislation is to shield rental properties at the Jersey Shore. Property owners there have raised concerns that the new tax — which totals nearly 12 percent — is already taking a bite out of the state’s crucial summer tourism haul.

Penalizing Airbnb

The bill has breezed through legislative committees, and the Murphy administration has also indicated it is open to tweaking the law. But not everyone has been in favor of creating a carveout for rental properties, including officials from Airbnb, who argue it would end up putting people who use their marketplace at a competitive disadvantage.

The new tax on transient accommodations was passed by lawmakers last year along with the fiscal year 2019 budget that Gov. Phil Murphy, a first-term Democrat, signed into law in July. The idea behind the tax, which Murphy supported along with other new levies on ridesharing services like Uber and Lyft, was to modernize the tax code while also levelling the playing field for the state’s hotels and motels.

People who stay in hotel and motel rooms in New Jersey are generally charged sales and occupancy taxes that total 11.6 percent. Before the transient-accommodations tax was enacted, rooms that were rented through Airbnb and other marketplaces effectively avoided those taxes. Also escaping the sales and occupancy taxes were short-term rentals like those popular at the Jersey Shore, where many homeowners put their properties up for rent either through realtors or by simply putting up a sign. That effectively meant those who could afford to stay at the beach in a rental property for a week or longer faced no taxes at all, while those with the means to only stay overnight in a hotel or motel were taxed.

It’s unclear how many lawmakers knew exactly how wide-ranging the new law was when it was adopted last summer amid a near-government shutdown, but after it went into effect on October 1, the state Department of Treasury made it clear in tax notices that it applied to nearly all short-term rentals whether they used an online marketplace or some other method rather than a realtor.

Rental roundup

In fact, Treasury’s notices emphasized that it would apply to 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.”

With the latest summer tourism season about to get underway, Jersey Shore property owners have been sounding the alarm about how the new law is affecting the rental economy by discouraging bookings. That tapped into broader concerns about rebuilding tourism in the wake of 2012’s superstorm Sandy, since the industry, which includes the beach communities and their tourist attractions, is the state’s seventh-largest, according to the latest report from the Division of Travel and Tourism.

Duane Watlington
Credit: NJTV News
Duane Watlington

Duane Watlington, who owns a rental property on Long Beach Island, told lawmakers earlier this month as the carveout bill went through a legislative committee that in past years every week would be booked by this time.

“When I talk to people about renting they say the cost of this tax is just making it too expensive for them to continue to vacation with us,” Watlington said. “We’re seeing it right now with the bookings not happening.”

“If people don’t come to the Shore, they’re not going to be spending money at the Shore at our businesses, on our boardwalks, and in our restaurants,” he said.

Unforeseen consequences?

While undoing the tax may rejuvenate the rental market in the Shore communities, it would also likely have an effect on the state budget, but it’s unclear right now what that would be. The original revenue projection for the new law was $15 million, but it was later lowered by nearly half.

Another concern for state lawmakers is not running afoul of federal law that requires online and brick-and-mortar transactions to be treated in the same manner.

Meanwhile, officials from Airbnb have also raised concerns about the competitive footing that property owners who use their service would now be put on as hotels and motels; Airbnb rentals would be subject to full taxation, but those arranged privately would be carved out.

“This disadvantage is not only bad for Airbnb and our hosts — it would also reduce tax revenue by incentivizing operators to change their business model to elude the tax requirement and cause confusion for consumers, who could see varying prices for the same accommodation depending on whether it is offered on or off a platform,” said Josh Meltzer, who handles public policy issues for Airbnb, in testimony submitted to lawmakers earlier this month.

Asked about the bill yesterday, Treasury spokeswoman Jennifer Sciortino said it could have a “significant impact on this revenue stream.”

“However, the administration stands ready to work with the Legislature to amend the law to more closely mirror the intent of our original budget proposal, as long as it is done in a manner that passes legal muster,” Sciortino said.

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