It’s finally summertime, and do you know what that means? It’s time for a little “Gym, Tan, Laundry” as the crew from MTV’s Jersey Shore always said. Let’s soak up the sun, play some carnival games, and walk the boardwalks. But, before you book the perfect apartment or home down the Jersey Shore, you might want to know about a new tax on short-term rentals this year…and it’s a big one!
As of October 1, 2018, New Jersey implemented a law adding a so-called ‘Airbnb Tax’ to short-term rentals. Don’t let the name fool you though, this tax is not just on rentals through Airbnb. The booking of the rental doesn’t even have to take place online. The new ‘Airbnb Tax’ is imposed on all short-term rentals of less than 90 days except those listed with a real estate agent or broker licensed by the state Real Estate Commission.
The tax is a whopping 11.6%, with an option to add up to another 3% in certain popular municipalities like Cape May and Wildwood. It breaks down as the New Jersey State Sales Tax (6.625%) and the State Occupancy Fee (5%). It’s like New Jersey lawmakers went to Atlantic City and hit the jackpot. This new tax is expected to generate millions in newly found revenue for the state, and to a large extent, much of the new found revenue will come from nonresidents of the state.
The purpose of the new tax is an attempt to level the playing field, or beach volleyball court, between online booking sites and brick-and-mortar businesses, which have been struggling to keep up. The new ‘Airbnb Tax’ is New Jersey’s way of collecting taxes from bookings through a “marketplace,” online or otherwise, that equivalate to the taxes collected by hotels. Airbnb has even showed support for these added taxes because it feels the tax legitimizes their company as compared to hotels.
This all relates to last year’s “Wayfair” decision, and what has happened since the decision. E-commerce has quickly become a more convenient method of shopping and booking, making it difficult for governments and taxing authorities to stay ahead. In response, applying tax to Airbnb and other similar websites like HomeAway or VRBO, is something many states have done or are looking to do.
Keep in mind, while this new tax doesn’t apply for listings with real estate agents and brokers, they often charge commissions and fees that may negate some or all of the savings from avoiding this new tax.
If you are fretting about this new ‘Airbnb Tax’ while soaking up the sun at the Jersey Shore this summer, The Tax Warriors® at Drucker & Scaccetti advise you to just let it go and enjoy the sun and the sand. This tax is here to stay so you might as well enjoy your vacation!
As with any article that discusses tax treatment, the usual disclaimers apply: This is a generalized overview, does not represent advice, and may not apply to your situation. Do not use this article to make tax or investment decisions. Consult your tax expert or call us to be that expert.