When New Jersey changed its hospitality tax regime to include “transient accommodation,” owners of short-term rentals became responsible for collecting and remitting sales tax, occupancy taxes and fees, and possibly local taxes on gross rents received. Effective Aug. 9, 2019, the New Jersey Division of Taxation made an important change to the definition of transient accommodations and provided the following guidance regarding the changes made by L. 2019, A4814 (c.235) that went into effect Oct. 1, 2018.
Taxes, fees, and applicable tax law amendments for sellers and purchasers of transient accommodations
On or after Aug. 9, 2019, rentals of transient accommodations are no longer subject to the sales tax, the state occupancy fee and other applicable taxes and fees on occupancies, unless the rental is either obtained through a transient space marketplace, which includes a travel agency, or is considered to be a professionally managed unit.
A professionally managed unit is a rental unit that is directly or indirectly owned or controlled by a person renting three or more separate units during a calendar year. A professionally managed unit is subject to the sales tax, the state occupancy fee and other applicable taxes and fees on occupancies, whether the rental is obtained through a transient space marketplace, including a travel agency, or directly through the owner (such as through local newspaper ads, personal referrals, signage, etc.). All other rentals that are obtained directly through the owner are no longer subject to the above-mentioned taxes.
New Jersey’s hospitality tax regime
Effective Oct. 1, 2018, New Jersey changed its rules for “transient accommodations” (referred to by some as the “Airbnb Tax”). Short-term rentals are now subject to sales and occupancy taxes, and lessors must collect and remit these amounts to the state, unless they fall under one of the statutory exceptions. One of the exceptions relates to rentals made through a broker, and applies if the owner of the rental property rents it through a licensed real estate broker, where the 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.
Transient space marketplaces
Another exception relates to those renting through an online rental services (referred to in the regulations as “transient space marketplaces”). A transient space marketplace is an online marketplace through which a person may offer transient accommodations, or hotel rooms, to individuals and allows them to be advertised or listed through an online marketplace in exchange for consideration. (Refer to TB-81R-2 for full definition and examples.) When a lessor utilizes one of these online marketplaces, they could be exempt from registering and collecting the tax, as the responsibility will reside with the marketplace provider.
New Jersey sales tax requirements
The division requires that lessors register online by completing Form NJ-REG at the New Jersey Division of Revenue website, at least 15 days prior to the initiation of a rental. Once registered, the lessor will receive a notice detailing the responsibilities and the timing of remittances. (Previously registered entities that are already engaged in the business of renting or leasing transient accommodations may need to update their tax registrations 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.
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, they 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.
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. Eugene Ruvere can be reached at firstname.lastname@example.org and Ray Owens can be reached at email@example.com.