On August 9, 2019, Gov. Phil Murphy signed legislation into law that amends the State’s regulations governing transient accommodations. The amendments change which rentals are subject to Sales Tax, the State Occupancy Fee, and other applicable taxes and fees, primarily by excluding transactions made directly between property owners and renters.
Given the complexity of the changes, the New Jersey Division of Taxation recently published a FAQ regarding the taxation of transient accommodations under the new law. The FAQs also discuss the potential for property owners to be owed refunds and set forth the process for obtaining a refund.
New Jersey’s Rental Tax Law
In 2018, New Jersey enacted a new law that imposes the State sales and use taxes, as well as several local taxes, on rentals made via “transient space marketplaces.” It further mandates that transient space marketplaces like Airbnb collect and pay the tax on behalf of the property owner. Transient space marketplaces are also subject to certain record-keeping requirements. They are required to maintain certain data for at least four years, including the name of the person who provided the rental, the name of the renter, and the rental rate.
Amendments to New Jersey’s Transient Accommodations Tax
As originally enacted, New Jersey’s transient accommodations law (P.L. 2018, c. 49) defined transient accommodation as a “room, group of rooms, or other living or sleeping space for the lodging of occupants, including but not limited to residences or buildings used as residences.” Under A4814/4520, which took effect upon signing, New Jersey’s transient accommodation law now only applies to “rentals of professionally managed units and rentals obtained through a transient space marketplace or travel agency, as long as the transient space marketplace or travel agency does not exclusively offer transient accommodations owned by the marketplace or travel agency.”
A rental is “obtained through a transient space marketplace” where the agreement for the rental is made through the marketplace or travel agency and where payment for the accommodation is made through a means provided by the marketplace or travel agency, regardless of who receives the payment.
As highlighted in the FAQs issued by the Division of Taxation, the following rentals are no longer subject to Sales Tax, the State Occupancy Fee, and other applicable taxes and fees as long as the owner does not offer three or more units for rent (a professionally managed unit):
- A rental of a transient accommodation obtained directly from the owner (such as through local newspaper ads, personal referrals, signage, etc.); or
- A rental of a transient accommodation which is not obtained through a transient space marketplace.
The FAQs also note that owners of “professionally managed units” remain subject to the rental tax even if they deal directly with renters. A professionally managed unit is defined as a transient accommodation that is directly or indirectly owned or controlled by a person who offers three or more units for rent in New Jersey, and the rental unit does not share living or sleeping space with other units. Under the new law, rentals executed by a real estate broker remain excluded from taxes and fees.
Rental Property Owners May Be Owed Refunds
The Division of Taxation also advises that some property owners may be entitled to refunds. Specifically, if the rental was obtained directly from the owner, and is not a professionally managed unit, and the rental period includes days on and after August 9, the renter is entitled to a refund of the taxes and fees paid for the dates of the rental on and after August 9. As the Division of Taxation explains in the FAQ:
The renter should request the refund from the owner that collected the taxes. The taxes due on rentals for the month of August are not filed and paid until September, so the owner should be able to refund the appropriate tax amount directly to the renter. If the owner has already remitted the taxes to the Division, the renter may request a refund directly from the Division by filing a Claim for Refund (Form A-3730). When submitting the refund request, the renter should include a copy of the rental agreement showing the date or dates of the rental and the taxes paid. The renter must also include proof of payment (e.g., copy of cancelled check, credit card statement, etc.).
According to the Division of Taxation, if a rental started before August 9, 2019, and ended on or after August 9, 2019, the refund will be determined by apportioning the total applicable taxes and fees between the number of days falling within the taxable period and the number of days after the taxable period.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Ashley Brinn, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.