MSPC CPAs

New Tax Law for NJ Homeowners Renting Through Airbnb

As part of the major tax law changes enacted in July 2018, a new state law requires that New Jersey’s 6.625% sales tax, 5% hotel occupancy fee, and 3% Meadowlands Regional Hotel Use Assessment (where applicable) be paid on “transient accommodations” (i.e., rooms or other living or sleeping spaces for the lodging of occupants, used for fewer than ninety days).  Certain cities are also permitted to impose additional taxes and fees in connection with transient accommodations, which include those provided through “transient space marketplaces” (e.g., Airbnb), as well as rentals that are made directly by a homeowner through classified listing sites, local advertisements, referrals, and signage.  Homeowners must register with the state for tax purposes before they can start collecting lodging taxes and fees from guests, unless all of their transactions go through an online rental platform or a real estate broker, in which case no taxes or fees need be collected either.  Additional limited exceptions are available. 

The new law requires registration at least fifteen business days prior to commencing business, but registration for collection of taxes and fees on transient accommodations is not yet available with the state’s Division of Revenue and Enterprise Services (DORES).  Although limited guidance is available from the New Jersey Division of Taxation (Division) concerning the application of this new law, two examples published in a Technical Bulletin are instructive.

Example 1

Homeowner posts an advertisement to rent out his home on a transient space marketplace, Marketplace A, which does not charge Homeowner to post the advertisement.  Customer rents the home for a week on Marketplace A and Marketplace A collects Customer’s payment via credit card.  Marketplace A deducts its commission and provides the remaining payment balance to Homeowner.  Since this transaction is solely consummated through the transient space marketplace, Marketplace A is required to collect all applicable taxes from Customer and remit the taxes to the Division.

Example 2

Homeowner then decides to also post an advertisement to rent out his home on a different transient space marketplace, Marketplace B, which charges Homeowner a fixed amount to post the advertisement.  The advertisement contains Homeowner’s contact information.  In order to rent the home, Customer must contact and pay Homeowner directly.  Since this transaction was not solely consummated through a transient space marketplace, Marketplace B is not required to collect and remit applicable taxes on behalf of Homeowner.  Since all of Homeowner’s sales were not solely consummated through a transient space marketplace, Homeowner is required to register with the DORES and must collect all applicable taxes from Customer and remit them to the Division for all transactions that result from posting an advertisement on Marketplace B.

Many New Jersey homeowners, such as those who rent summer or vacation homes, are likely subject to this new law, so please contact your MSPC advisor to assist you with all associated planning and compliance matters.