Memorial Day weekend marks the unofficial start of the summer season along the Jersey Shore. As the tourist season begins in earnest, the New Jersey Legislature ("Legislature") is working quickly to pass legislative fixes intended to alleviate aspects of New Jersey's 11.65% tax on short-term rental properties located within the State (referred to colloquially as the "Airbnb Tax").
New Jersey (the "State") introduced the Airbnb Tax last year in an effort to mitigate the explosive growth of online home-sharing sites such as Airbnb, VRBO, and HomeAway. The Airbnb Tax subjects accommodations booked through such websites to the same taxes and assessments paid by hotels and motels within the State. As implemented, the Airbnb Tax applies to all "short-term" rentals (defined as less than 90 days), and includes rentals made directly between an owner and renter. The Legislature attempted to include a carve out accommodating the State's coastal community rental market in the original legislation through the inclusion of language exempting short-term rentals booked through licensed real estate brokers from the tax. As technology has advanced, however, reliance on real estate brokers has diminished, and more people (both owners and renters) are relying on social media, word of mouth, and previous rental history to find and book their summer rentals, which all are currently subject to the Airbnb Tax.
Since taking effect, the Airbnb Tax has had an effect on bookings, with many owners reporting large swaths of vacancies during the summer months that historically fill quickly. Reports have indicated that due to the increased costs, vacationers up and down the State's coastline have been curtailing or even abandoning their summer traditions to pursue more cost-effective destinations, which could decrease the number of vacationers and customers at coastal businesses.
Proposed Legislative Corrections
Constituents spoke up and this past Monday (May 20), the New Jersey Assembly's Appropriations Committee ("Committee") passed two measures aimed at protecting the State's $40 billion tourism industry and providing relief to the State's coastal communities caused by the Airbnb Tax.
The first bill, Assembly Bill 4814 ("AB 4814"), aims to more narrowly tailor the Airbnb Tax to apply only to properties actually booked through Airbnb and similar online marketplaces, rather than all short-term rentals. AB 4814 will make "transient accommodation" taxes and fees only applicable if the property is rented through a "transient space marketplace" where the accommodations are both advertised/listed and provide a means for the customer to arrange and pay for the accommodation. If passed, this language will effectively narrow the scope of the Airbnb Tax by removing rentals identified through social media platforms, offline and word of mouth owner advertising, and the ongoing annual rental arrangements enjoyed by many from the scope of the Airbnb Tax. AB 4814 passed out of the Committee by a 10-0 vote.
The second bill, Assembly Bill 4520 ("AB 4520"), takes a more broad-based approach by completely excluding the four counties bordering the Atlantic Ocean - Monmouth, Ocean, Atlantic, and Cape May - from the Airbnb Tax. AB 4520 accomplishes this by excluding counties of the fifth or sixth classes (i.e. the coastal counties) form the definition of "transient accommodation" which is subject to the Airbnb Tax. AB 4520 was also approved in a vote of 10-0 by the Committee vote on Monday.
Attorneys in Parker McCay's Corporate and Real Estate departments will continue to track this legislation and provide updates as they become available. Our attorneys handle a multitude of issues surrounding the sale, purchase, lease, and financing of commercial, industrial and residential real estate.
If you have questions regarding the Airbnb Tax or other real estate questions, please contact Parker McCay's Real Estate Department.
The content of this post is for informational purposes only and should not be construed as legal advice or legal opinion. You should consult a lawyer concerning your specific situation and any specific legal question you may have.