New Jersey lawmakers are currently considering legislation that would make rentals via Airbnb and similar online marketplaces subject to the same state and local occupancy taxes as hotel and motel rooms. The proposed bill is the latest attempt of state and local authorities to regulate the so-called “sharing” economy.
Under current law, the State imposes a sales and use tax and a hotel and motel occupancy fee (at a rate of 7 percent and 5 percent, respectively) on hotel room rentals. In addition, New Jersey municipalities are authorized to impose a local hotel occupancy tax (with varying rates of up to 6 percent). However, there are no existing State-wide regulations for short term rentals involving residential homes or similar properties.
As previously discussed on the Scarinci Hollenbeck Government & Law Blog, Jersey City and Newark have enacted local ordinances that allow residents to rent out their homes through services like Airbnb while imposing a 6 percent municipal occupancy tax. In the first six months since its ordinance took effect, Jersey City collected approximately $450,000 in additional hotel tax revenue. “My general perspective is you need to figure out a way as a municipality to work with technology and not fight technology,” Mayor Steve Fulop stated.
The bill currently under consideration aims to create a State-wide standard. It would impose the 7 percent sales and use tax as well as 5 percent transient accommodation fee on charges for short-term rentals rented through a transient space marketplace.
As described by the sponsors, Assembly Bill No. 4048 would limit the imposition of the taxes and fees to taxable space for accommodation of a transient guest that is provided by a person engaged in the business of providing space for accommodation. To be engaged in business, a person must be “engaged in the business of providing space for accommodation to the public as a business activity through the placement of an advertisement, or the listing of the space for accommodation, with a transient space marketplace, and must have cumulative gross receipts from charges for providing space for accommodation to transient guests in this State in excess of $1,000 during the preceding four calendar quarters.”
The proposed legislation would also allow the Director of the Division of Taxation to enter into an agreement with the owner or operator of a transient space marketplace for the purpose of collection and payment of the tax, which is the approach adopted by both Jersey City and Newark. Upon entering an agreement with the owner or operator of a transient space marketplace, the Director may waive the responsibility of a person engaged in the business of providing space for accommodation to collect and pay the tax. The owner or operator of the transient space marketplace must then agree to be personally liable for the collection and payment of the fee on behalf of a person engaged in the business of providing space for accommodation.
For more information about the proposed bill or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.