Abstract: As of October 1, 2018, New Jersey has changed its hospitality tax regime to include “transient accommodations.” Owners of these short-term rentals will now be responsible for collecting and remitting sales tax, occupancy taxes and fees, and possibly local taxes on gross rents received. Those taxpayers with vacation homes, shore homes, second homes, or simply short-term room rentals, should all be wary of the change in law as they could be on the hook for an unwelcome surprise from the Division of Taxation.
Effective October 1, 2018, New Jersey has changed its rules for “transient accommodations” (referred to by some as the “Airbnb Tax”). Short-term rentals under 90 consecutive days are now subject to sales and occupancy taxes. Lessors must now collect and remit these amounts to the State unless they fall under one of the statutory exceptions. There are too many to list here, but one of the most likely to be applicable is related to rentals made through a broker. The exception will apply if the owner of the rental property rents the property through a licensed real estate broker, where the real estate broker advertises the property, collects the rent from the lessee, and provides keys to the lessee at the broker’s office. Lessors subject to these taxes may also be liable for certain local taxes. Please refer to the New Jersey Division of Taxation’s Technical Bulletin TB-81R2 for more detailed information.
Another exception is related to those renting through an online marketplace. When utilizing one of these online rental services (referred to in the regulations as “transient space marketplaces”) a lessor could be exempt from registering and collecting the tax, as the responsibility will reside with the marketplace provider. A transient space marketplace is an online marketplace through which a person may offer transient accommodations or hotel rooms to individuals. A transient space marketplace allows transient accommodations or hotel rooms to be advertised or listed through an online marketplace in exchange for consideration. (Refer to TB-81R-2 for full definition and examples.)
Airbnb is the most popular example of a transient space marketplace, but others include HomeAway, VRBO, FlipKey, and Tripz. It is important to note that these platforms may collect New Jersey short-term rental taxes for you when the listing is booked. However, platforms may not collect taxes in all locations, and they may not collect all the state and local taxes you owe.
If you don’t fall into one of the exceptions and thus are required to follow the transient accommodation rules as described above you may be required to collect sales tax, which currently stands at a rate of 6.625%, as well as the 5% occupancy tax (unless a different rate applies in your municipality). These taxes must be remitted periodically. The Division requires that you register online by completing Form NJ-REG at the New Jersey Division of Revenue website. Registration should be completed at least 15 days prior to the initiation of a rental. Once registered, the lessor will receive a notice detailing their responsibilities and the timing of remittances. Refer to TB-81R-2 for further information. Note that registered entities already engaged in the business of renting or leasing transient accommodations may need to update their tax registration by filing Form REG-C-L.
New Jersey Sales Tax law requires sellers (and in this case, lessors) to file quarterly returns and make quarterly payments. Some sellers must also make monthly payments, if they collected more than $30,000 in Sales and Use Tax in New Jersey during the prior calendar year. Sellers must file a return for each quarter, even if no tax is due and no sales made during the period. This, along with the occupancy fee and other tax filings, can be done via the online portal on the State website.
It is important to note that all charges for the rental of transient accommodations are subject to sales tax and the state occupancy fee. Additional taxes, fees, or assessments may also apply, depending on the location of the transient accommodation. These fees are fiduciary taxes. If a lessor does not correctly collect and remit these amounts, the lessor could be held personally responsible and forced to pay the amounts, plus penalties and interest. To avoid this undesirable situation, lessors should always remember to itemize their invoices to their tenants, breaking out each tax and fee charged, and then timely remit the amounts collected to the State.
The main take away here is that property owners of short-term rentals are responsible for collecting and remitting sales tax, occupancy taxes and fees, and possibly local taxes on gross rents received. Those taxpayers should be wary of the change in law as they could be on the hook for an unwelcome surprise from the Division of Taxation.
As always, the SALT tax professionals at Citrin Cooperman are here to help if you have any questions regarding this and other recent state and local tax law changes. You can also contact the authors directly at firstname.lastname@example.org or email@example.com