‘Shore Tax’ on Online Rentals Targets Rent-It-Yourself Homeowners

File Photo by: Ryan Morrill
Currently the law requires private homeowners renting out space for less than 90 consecutive days to register with the state and collect the taxes.

A new state tax on short-term rentals done through private owners and online marketplaces, set to go into effect Oct. 1, is facing enough opposition that some sources say its enforcement may be delayed – and amid discussions, a web page for required registration by private owners has been taken offline.

Leading a charge for revision and clarification of the law is Duane Watlington, founder of VRLBI (Vacation Rentals Long Beach Island).

Watlington was interviewed Tuesday morning by News 12 New Jersey television, saying the 11.6 percent levy on transient rentals could hurt tourism and “cut out a significant amount of vacationers’ budget” that they could spend locally.

First, it should be made clear that shore rentals where the keys are provided through a Realtor are exempt.

The new law is PL 2018, Chapter 49, based on Assembly Bill 1753 and Senate Bill 749, which imposes the state sales and use tax (6.625 percent) and hotel and motel occupancy fee (5 percent) on transient accommodations and authorizing municipal taxes and fees on transient accommodations.

The intent of earlier “Airbnb” legislation was to tax online bookings, but it was not to include private homeowners. However, the version that passed on July 1 does, Watlington noted last week.

It requires private homeowners renting out space for less than 90 consecutive days to register with the state and collect the taxes.

The way the law is written, a “private residential property” is included in the taxation unless a key or access to a keyless locking mechanism are provided by a licensed real estate broker.

Also, the law requires registration with the state Division of Revenue and Enterprise Services if the private homeowners rent the accommodation themselves.

VRLBI is a listing website that does not do bookings, so it is not included in the law, but sites like Airbnb and VRBO are affected and would have to collect the new tax from customers.

Watlington said that by contacting legislators on behalf of his company and clients, “we’re not mad at the Realtors,” but the goal is to find a solution whereby the affected homeowners don’t have to pay a tax.

“In a free market, if you as an owner want to rent your house out on your own and take care of all the leases and collecting payments, you have every right to do so; you shouldn’t feel forced to now have to use a Realtor so you can save your guests almost 12 percent in sales tax,” he said.

“My big beef is that I want the ‘for rent by owners to be treated the same way as those who choose to use a Realtor. What is the reason that renting through a Realtor makes you tax-exempt?” He feels the state is “unevenly applying the tax statute by doing that.”

After meeting with state Assembly Deputy Speaker Wayne D’Angelo in his home district of Middlesex-Mercer Sept. 18, Watlington feels “our voices are being heard.”

The New Jersey Division of Taxation has removed an interpretation of the law, he said Monday. “They put out a taxpayer bulletin, TB 81, that had all the instructions to follow the law, and they took that down last Tuesday. The link to register is not active anymore, either, even if you wanted to register.”

D’Angelo’s “office has agreed to take on getting a clarification from the state of New Jersey Division of Taxation with regards to their interpretation of the bill,” Watlington announced. “He’s also trying to get a delay in the starting of enforcement of it for later in the year or early next year so we can sort out the clarification.”

State Sen. Robert W. Singer (R-30th), deputy minority leader, was quoted this week as saying the rule is “still under discussion.”

Channel 12 news also stated it was told by legislators the law might not go to enforcement because of backlash and vagueness surrounding it.

At any rate, the discussion around the law is occurring daily this week as Oct. 1 approaches.

If those reading this are scratching their heads, they can join a slew of others at all levels.

The law passed July 1 “in the hectic final hours of the budget negotiations,” a columnist for the Star-Ledger described. That seasoned writer added that the law is “so convoluted that it took me two pots of coffee and several hours on the phone with legislators to figure it out.”

In major media, the law has been tagged the “shore tax.” Until days ago, as the Oct. 1 start date neared, many people hadn’t heard about it. “Most of the public doesn’t know about it,” Watlington said last week.

Meanwhile, if the law does not change, for-rent-by-owner cases might be able to use a loophole whereby the lessee can pick up the keys or key code from an offsite New Jersey licensed real estate broker and avoid the tax.

“A lot of forward-thinking agents are saying, ‘we’ll do a key service so people cannot have to collect this tax,’” Watlington said last week. He mentioned Roberta Brackman of Pacesetter Realty in North Beach Haven and Manahawkin at the forefront of this solution.

Brackman told The SandPaper Tuesday, “When we first read this law it became clear that it was not going to be good for our Island. Those who rent homes here would have significantly less money available to spend on enjoying our Island and supporting Island businesses after paying this tax.”

She continued, “In an effort to offer homeowners an option that might allow them not to have to charge the tax to their tenants (at least by the letter of the law as it its currently written), we added to our traditional vacation rental services and decided to offer homeowners certain property management services, including a key distribution service. For this service alone we are charging homeowners a nominal fee of $25 per key distributed.”

Watlington sent a notification to VRLBI’s 800-plus vacation homeowners asking them to contact legislators in their home and vacation district. Also, he said he is working with the local chamber of commerce to ask for a more favorable interpretation from the Division of Taxation.

Southern Ocean County Chamber of Commerce Chief Executive Officer Lori Pepenella is also second vice president of the New Jersey Tourism Industry Association. She told The SandPaper last week that “we have been monitoring the bill since its introduction, and have been keeping Southern Ocean Chamber members informed.”