posted by: Radnor Financial Advisors
If you’ve ever looked at your hotel bill, you have probably noticed the lodging tax or hotel occupancy tax, which can be a significant portion of the total charge. In an effort to generate revenue from the growing online marketplace of privately owned short-term rentals (Airbnb, VRBO, etc.), states across the country are imposing a lodging tax or equivalent fee on rental revenue received from such properties.
A few years ago, the state of Pennsylvania made a concerted effort to collect a 6% Hotel Occupancy Tax on properties rented via Airbnb, et al., and its local municipalities have followed suit.
In October 2018, the state of New Jersey imposed a Sales Tax of 6.625% and State Occupancy Fee of 5% on qualifying short-term rentals (“transient space accommodations”). The law also authorized certain municipalities to impose related taxes and fees.
If you rent your beach house at the Jersey Shore, you will likely be affected by the new law. As noted above, the new law applies to “transient space accommodations,” which are defined 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. This definition includes rentals made through “transient space marketplaces” (defined below), as well as rentals that are made directly by the homeowner through classified listing sites, local newspaper ads, referrals from friends/family, or placing a sign on the home, etc.
A “transient space marketplace” means an online marketplace through which a person may offer transient accommodations or hotel rooms to individuals.
An important exception to the new law is a residential property that A) where no maid service, room service, linen-changing service, or other common hotel services are made available by the lessor, AND B) the rental transaction is executed by a real estate broker, AND C) where the keys to the property, whether a physical key, access to a keyless locking mechanism, or other means of physical entrance to the property, are provided to the lessee at the offsite location of the licensed real estate broker.
Additionally, transient space accommodations are not subject to the Sales Tax and Occupancy Fee if a lessee’s occupancy lasts more than 90 consecutive days (triggering the permanent resident exemption).
If applicable, it is always the lessor’s responsibility to register with the state and municipality to collect and pay any lodging taxes and fees. Some of the online marketplaces may offer to collect the required taxes on the lessor’s behalf, but the lessor is ultimately responsible to pay any taxes due and be properly registered with the tax authorities.
For more information on the new law, New Jersey has issued some guidance for its taxpayers: – TB-81R2.
By now, most states have issued some version of a lodging tax for short-term rentals. If you currently rent out your home or plan to do so, you should research the applicable state and municipal laws.
Author: Mike Valenti, Senior Tax Associate