Understanding the new NJ rental tax law
Please keep in mind that I am not an attorney or an accountant, this is just my interpretation of the law as written. This should not be considered legal or accounting advice and you should consult a lawyer or accountant before making any decisions on your property.
There’s been a great deal of confusion over the recent change to the NJ taxes on rental properties. It is a little complicated because everything is amending or modifying existing laws so there are a lot of references to those laws. The actual “tax” part isn’t even included in the newly signed law because that is part of a prior law that implemented the occupancy and sales tax.
22. Section 1 of P.L.2003, c.114 (C.54:32D-1) is amended to read as follows:
1. a. In addition to any other tax, assessment or use fee authorized by law, there is imposed and shall be paid a hotel and motel occupancy fee of 7% for occupancies on and after August 1, 2003 but before July 1, 2004, and of 5% for occupancies on and after July 1, 2004, upon the rent for every occupancy of a room or rooms in a hotel or transient accommodation subject to taxation pursuant to subsection (d) of section 3 of P.L.1966, c.30 (C:54:32B-3),…….(edited)
20. Section 3 of P.L.1966, c.30 (C.54:32B-3) is amended to read as follows:
3. There is imposed and there shall be paid a tax of 7% on or before December 31, 2016, 6.875% on and after January 1, 2017 but before January 1, 2018, and 6.625% on and after January 1, 2018 upon:
(d) The rent for every occupancy of a room or rooms in a hotel or transient accommodation in this State, except that the tax shall not be imposed upon a permanent resident.
Above are the sections of the existing law that imposes the two taxes. The first imposes the 5% occupancy tax on “transient accommodations” and the second imposes the 6.625% sales tax on “transient accommodations”
“Transient space marketplace” means a marketplace or travel agency through which a person may offer transient accommodations to customers and through which customers may arrange for occupancies of transient accommodations. “Transient space marketplace” does not include a marketplace or travel agency that exclusively offers transient accommodations in the State owned by the owner of the marketplace or travel agency.
“Obtained through a transient space marketplace” means that payment for the accommodation is made through a means provided by the marketplace or travel agency, either directly or indirectly, regardless of which person or entity receives the payment, and where the contracting for the accommodation is made through the marketplace or travel agency.
As the existing laws impose those taxes on ‘transient accommodations’, the definition of what constitutes a ‘transient accommodation’ is what matters. I’ll try to simplify the newly passed law and how it applies here. First, they define or re-define the terms they use. When something is removed from existing law they put that language in [brackets] and when it is newly added they underline it. I’ll leave the original text at the bottom, but edited it for ease of understanding.
The first two sections above define a “transient space marketplace” and what it means to “obtain” a rental through a transient space marketplace (basically AirBnB, VRBO or a travel agent). To be taxable, the service must process the payment AND coordinate the contract. This definition differentiates a site like VRBO from a site like Facebook, Craigslist, VRBLI, or ShoreSummerRentals. The second sentence about a marketplace owned by the owner of the accommodation is a complicated way of saying that a property owner can have their own website offering their home for rent, and they can collect payments and contract the rental online without being considered a “transient space marketplace” and thus being taxable.
“Professionally managed unit” means a room, group of rooms, or other living or sleeping space for the lodging of occupants in the State, that is offered for rent as a rental unit that does not share any living or sleeping space with any other rental unit, and that is directly or indirectly owned or controlled by a person offering for rent two or more other units during the calendar year.
This is the section that defines a “professionally managed unit”. The wording is very convoluted. Basically it says that if a person owns or controls a rental unit (1) AND owns or controls two or more OTHER rental units (so 3 or more in NJ total), then all of the units are considered “professionally managed”. It’s a really roundabout way of saying that if you own and rent out 3 or more short term units, they are all taxable. There’s a lot of grey area here, so we will need to wait for Treasury to release their interpretation and guidance, but that is how I read it.
“Transient accommodation” means 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, that is obtained through a transient space marketplace or is a professionally managed unit. “Transient accommodation” does not include: a hotel or hotel room; a room, group of rooms, or other living or sleeping space used as a place of assembly; a dormitory or other similar residential facility of an elementary or secondary school or a college or university; a hospital, nursing home, or other similar residential facility of a provider of services for the care, support and treatment of individuals that is licensed by the State; a campsite, cabin, lean-to, or other similar residential facility of a campground or an adult or youth camp; a furnished or unfurnished private residential property, including but not limited to condominiums, bungalows, single-family homes and similar living units, where no maid service, room service, linen changing service or other common hotel services are made available by the lessor and where the keys to the furnished or unfurnished private residential property, whether a physical key, access to a keyless locking mechanism, or other means of physical ingress to the furnished or unfurnished private residential property, are provided to the lessee at the location of an offsite real estate broker licensed by the New Jersey Real Estate Commission pursuant to R.S.45:15-1 et seq. ; or leases of real property with a term of at least 90 consecutive days.
This is just the definition of a transient accommodation. Little is changed from the original law. The most important change is in bold and underlined. This is critical because “transient accommodations” are what the law taxes (as noted in the beginning). So to be exempt from the tax, this definition must exclude your rental. This definition says that rentals are transient accommodations (and thus taxed) IF they are obtained through a transient space marketplace (as defined above) or are professionally managed units (as defined above). The rest of the paragraph clarifies what else is NOT a transient accommodation and thus what is also exempt from the tax (including Realtor rentals and rentals of 90 days or more).
I hope this helps to clarify the laws as they now stand. Feel free to post questions below. Any attacks on politicians or unnecessary comments will be removed. Please keep things civil.
If you’d like to read the new law as it appears unedited… I’ve posted it .
Wouldn’t a real estate person be “Professionally Managing Units”? Before they were exempt. Now it looks like they got hit.
Why would guests acquired through advertising with Shorevacationrentals not have to pay the tax but VRBO and Homeaway would have to pay?
Hi, This was very helpful, but I own a shore house that I rent out about 7 weeks every year.
This would be “transient” I also have several year-round homes that I rent.
Would I fall under the “professionally managed” units? Or no, because only one is “transient” or under 90 days?
We have 4
units but only rent 3 for weekly summer rentals.
and keep one open for personal use. If we did one year around rental and two summer weekly rentals would we be exempt from the tax.
Question regarding your comment “If a person owns and rents 3 or more units in NJ.” I do not see language that limits the ownership to just NJ units. What if I own 2 in Delaware and subsequently purchase one in NJ?
Would that trip me into having “professionally managed” units?
The site where we list our condo does not handle the transactions.
It lists our email address and prospective renters contact us from that point onward, book their rental and pay us directly.
Our original understanding was simply since we listed our condo on such a site, we were subject to pay the shore taxes, so we registered with the State and collected taxes from all our renters this past summer.
Many renters are return customers and contact us directly now, do not go through the site at all, but we still collected taxes due to the confusion.
Were we misguided, can we return the taxes to our customers instead of paying the State?
If the rental properties are owned by an LLC (three properties, owned by three separate LLCs), do you think that ownership by the LLC would be the guideline as to whether more than 2 units are owned and thus taxable?
Or, does the fact that I own all the LLCs still make the 3 properties all taxable.?
Does anyone have any information on where to register and how and where to send the collected fees and taxes?
Thank you for this helpful article. I just have a question regarding taxes we’ve collected. We registered with NJ.Gov and called via phone to see how to go about paying the tax. The woman working wasn’t quit sure and not very helpful. I spoke with Duane and he went through a realtor, suggested I reach out to you as you might know. Thank you in advance!
Tim, we own 2 duplexes which are 4 units total.
Is there a way that my wife owns 2 and I can own 2 to avoid Professional
They are separate buildings, each with an upper and lower floor.
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