In a previous blog post we discussed the unintended consequences and proposed legislative corrections to New Jersey's 11.65% tax on short-term rental properties located within the State (referred to colloquially as the "Airbnb Tax"). Since then, the competing bills were consolidated and on June 27, 2019, the Legislature voted 74-0-1 in near unanimous favor of the revised Assembly Bill 4814 (“AB 4814”).
Narrowing the Scope of the Airbnb Tax
Under AB 4814, the Airbnb Tax will be more narrowly tailored to apply only to those rental units that are "professionally managed" or booked through a “transient space marketplace.” AB 4814 defines a "professionally managed unit" as any rental space consisting of two or more units that is owned or controlled by a person during the calendar year. The bill defines "transient space marketplace” as any marketplace or travel agency through which a person may offer short term accommodations to customers and through which customers may pay for the short term rental. In short, the bill narrows the application of the Airbnb Tax to only those property owners who i) own or control multiple rental units per year; or ii) who utilize a travel agency or other online platform (such as Airbnb, VRBO, etc.) wherein the rental units are not only listed and advertised, but also provide a means for payment. As drafted, AB 4814 should relieve those landlords that rely on social media, word of mouth, and repeat renters from shouldering the Airbnb Tax and who were most negatively impacted by the breadth of the Airbnb Tax as it was first enacted. In addition, the initial legislative carve out that was originally intended to protect the State’s coastal community rental market by exempting rentals booked through licensed real estate brokers continues to remain in effect under AB 4814, with a few additional requirements. To properly qualify for this exemption, licensed real estate brokers must “entirely facilitate” the rental accommodation and provide renters with access to the unit.
Not all Good News - Expansion of Local Hotel/Motel Tax
While the scope of the Airbnb Tax has been narrowed, as modified, AB 4814 provides local governments the ability to impose a tax (not to exceed 3%) on charges of rent for occupancy of those short term rentals subject to the Airbnb Tax. The tax is applicable to "transient accommodations" which is defined in AB 4814 as “a room . . . or other living or sleeping space for the lodging of occupants . . . that is obtained through a transient space marketplace or is a professionally managed unit.” In essence, local municipalities will be able to tax those properties subject to the Airbnb Tax with an additional tax that has historically been implemented only against hotels and motels.
Mission Accomplished (?)
The newly passed AB 4814 serves to correct the adverse impacts that the Airbnb Tax placed on property owners who engage in ongoing annual rental arrangements, and those who solicit their rentals through word-of-mouth advertising or other online platforms (i.e. Facebook) that require renters to contact the owner directly to set up reservations and make a payment. Under AB 4814, those landlords who solicit renters directly, rely on previously rental history, or utilize online platforms that require prospective renters to make reservations and pay property owners directly for accommodations are not subject to the Airbnb Tax. However, those remaining short term rentals that are deemed to qualify as a "transient accommodation" under AB 4814 not only remain subject to the Airbnb Tax but may also end up being subject to an even greater amount of taxes than was originally contemplated when the Airbnb Tax was first signed into law.
AB 4814 now awaits the signature of the Governor.
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.
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.