Shore rental owners: You could get hit with new tax (for now)

Shore homeowners who directly rent out their properties have been on a yo-yo the last couple weeks – concerned when the state indicated they’d have to start collecting sales and occupancy taxes, relieved when the state withdrew that guidance, then alarmed even more by updated rules published Friday night.

Lawmakers and vacation home owners thought that when the Treasury Department pulled down its initial description for the so-called ‘Airbnb tax,’ it was to clarify that it would not apply to direct-by-owner rentals that don’t go through a real estate agent.

Instead the rules were made even stricter. Duane Watlington of Vacation Rentals LBI says a potential workaround has now been erased, under which no tax would have been charged so long as the key was picked up from a licensed agent.

“After the revisions, it really didn’t change anything for the ‘for rent by owner’ group,” said Watlington. “All it did was close a key loophole that prevents the for-rent-by-owners and just paying them for a key service. So the vast majority of the rentals along the Jersey Shore are still going to be taxed.”

Watlington said some agents had indicated they’d be willing to do a ‘key exchange,’ for which they would have charged property owners $25.

Treasury Department spokesman Jennifer Sciortino said the state can’t only charge the tax to bookings done through online marketplaces.

“Our goal from the onset was to level the playing field statewide between existing hotels and motels and transient accommodations conducted through new online marketplaces,” Sciortino said. “However, the federal Internet Tax Freedom Act prohibits internet-only taxes. Thankfully, the law as written, provides an exemption for a majority of reported short-term rentals.”

Under the new rules and a law that took effect Monday:

• Full summer rentals, or those lasting more than 90 days, remains exempt from the taxes.
• Sales and occupancy taxes are now charged on online bookings through portals such as Airbnb. These taxes total 11.625 percent in most municipalities, though can be higher in places with a local occupancy tax.
• Those taxes are not charged on rentals booked through a licensed real estate broker, as provided for in the law enacted July 1.
• Those taxes are charged on other ‘for rent by owner’ transactions – to the surprise of property owners who rely on local websites, posts in Facebook groups, newspaper classified ads and lawn sides to complete transactions.

Assemblyman John McKeon, D-Essex, said that last group was not meant to be covered by the tax and that the Legislature will step in to fix things.

“At the end of the day, that’s unacceptable. The legislation was never intended to do that, and so there’s no question, administrative or otherwise, we’ll put a bill on the governor’s desk that will clarify and make certain those fees aren’t due and payable,” McKeon said.

McKeon predicted a bill he has proposed, A4520, that would exclude transient accommodations in Shore counties from various state and local taxes, will be approved by significant bipartisan majorities in the Senate and Assembly.

“Certainly by the first of the year, if not before, we’ll have a bill on the governor’s desk to sign,” McKeon said.

Dan Friendly, who rents out a vacation home he owns down the block from where he lives in Point Pleasant Beach, says the fix should have been made “about two months ago.”

“I’ve already gotten three weeks of next summer booked – already, that got in just before the cutoff,” he said. “I’m getting requests and inquiries every day now for next summer already.”

Friendly is likely to wind up disappointed by the Legislature’s proposed fix, which is likely to keep in place the taxes on homes rented through online marketplaces. Representatives for some of those companies testified in favor of collecting the taxes before legislative committees.

Friendly has owned his rental home for four summers now and had much more success through web portals.

“For the first year, I went through real estate agents, and I think I got three weeks out of the whole summer booked,” Friendly said. “The following year I did it all myself, I was 100 percent booked. I got my winter rentals through there. The house was pretty much full 365 days the following year by doing it through these online platforms.”

“They’re not interested in renting weekends in May or June or any of the other supplemental income, so you still need that online presence,” he said. “And then if you do rent through a real estate agent, then we’re eating 11 percent on our end. So either way, either way you’re screwed.”

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Michael Symons is State House bureau chief for New Jersey 101.5 and the editor of New Jersey: Decoded. Follow @NJDecoded on Twitter and Facebook. Contact him at michael.symons@townsquaremedia.com