Podcast – NJ Short Term Rentals Now Subject to Sales Tax & State Occupancy Fees

This law is repealed BUT – THIS WILL NOT BE RETROACTIVE TO 10/1/2018. 

From 10/1/2018 through August 9, 2019, there is still an obligation to pay the short term rental sales tax if it applies to you. 

To read the text version of this podcast click here —> Text Version

Governor Murphy has signed the repeal of this law.

The final question we need answered is: “Will this be retroactive to 10/1/2018?”

Both the Assembly Bill A4814 and Senate Bill S3158 Passed. 

This repeal makes transient accommodation taxes and fees only applicable if rented through a transient space marketplace.  (meaning Airbnb and VRBO, etc.) Individual landlords would not have to collect and remit sales tax.

This is great news! 

Follow the details here:   NJ Bill Number S3158

Please read the following important points before listening to the Podcast. Podcast link just below.

IMPORTANT NOTE 1: It is NOT enough for a real estate broker to only hold the keys or other means of physical entrance to the property to avoid a sales tax liability. See detailed requirements below. Remember, if the division of taxation audits you, and finds sales tax should have been collected, the landlord, NOT the real estate broker, will be liable for the taxes and associated interest and penalties.

IMPORTANT NOTE 2: Room rentals in Wildwood, Wildwood Crest, and North Wildwood are subject to a grand total in taxes of 13.625%. This is derived from 10.475 percent in taxes and assessments (6.625 percent New Jersey Sales Tax; 2 percent Tourism Tax; 1.85 percent Tourism Assessment), in addition to the Occupancy Tax of 3.15 percent. 

IMPORTANT NOTE 3: There is no Sales Tax Due if the occupancy occurs for at least 90 consecutive days (permanent resident exemption), even if there is no lease.

IMPORTANT NOTE 4: I worked with the NJ Division of Taxation to help them clarify rules related to this new law, especially as it relates to the transactions executed by a Real Estate Broker.

Here is the email I received directly from them. This information augments the information in this podcast below.

To:                  chriswhalencpa@gmail.com

                        Chris Whalen

Date:               November 2, 2018

This is in response to your inquiry to the New Jersey Division of Taxation regarding the application of the New Jersey Sales and Use Tax Act (N.J.S.A. 54:32B-1 et seq.) to charges for the rental of transient accommodations.

Effective October 1, 2018, charges for the rental of transient accommodations are subject to Sales Tax (N.J.S.A. 54:32B-1 et seq.) and the State Occupancy Fee (N.J.S.A. 54:32D-1 et seq.). Depending on where the occupancy occurs, the transient accommodation may also be subject to various other state and municipal taxes, assessments, and fees.

A transient accommodation is 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, 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.

In response to your specific inquiries:

1)     What are the requirements for the real estate broker exclusion?

Charges for the rental of a transient accommodation are not subject to tax when the following criteria (the real estate broker exclusion) are satisfied:

• The sale is executed by a real estate broker licensed by the New Jersey Real Estate Commission;
• The keys or other means of physical entrance to the property are provided to the lessee at the location of the offsite real estate broker;
• The rental property is private residential property; and
• The lessor does not provide common hotel services such as maid service, room service, or linen-changing service.

[See N.J.S.A. 54:32B-2(ggg); see also Taxes Imposed on Charges for the Rental of Transient Accommodations, TB-81(R).]

2)     What is required for a sale to be “executed by a real estate broker?”

A real estate broker is a person, firm, or corporation who, for a fee, commission, or other valuable consideration, or by reason of a promise or reasonable expectation thereof, does any of the following:

• Lists for sale, sells, exchanges, buys or rents, or offers or attempts to negotiate a sale, exchange, purchase or rental of real estate or an interest therein; or
• Collects or offers or attempts to collect rent for the use of real estate or solicits for prospective purchasers; or
• Assists or directs in the procuring of prospects or the negotiation or closing of any transaction which does or is contemplated to result in the sale, exchange, leasing, renting or auctioning of any real estate; or
• Negotiates, or offers or attempts or agrees to negotiate a loan secured or to be secured by mortgage or other encumbrance upon or transfer of any real estate for others, or any person who, for pecuniary gain or expectation of pecuniary gain conducts a public or private competitive sale of lands or any interest in lands.”

[N.J.S.A. 45:15-3.]

In order for the sale to be “executed by a real estate broker,” the broker must perform one or more of the functions described above.

3)     Does it matter whether the rent check is written to the real estate broker or the property owner?

No. A rental transaction that satisfies all four requirements for the real estate broker exclusion is not taxable, regardless of the person to whom the check is written.

4)     With reference to the example on the bottom of page 4 of TB-81(R), does it matter whether the rent check is written to the real estate broker or the property owner?

See response to question 3) above.

5)     Is a rental transaction subject to tax when the customer obtains the property key (or digital access code) from a lockbox that is not located at the real estate broker’s office?

Yes. A rental transaction is subject to tax unless all four of the criteria listed in the response to question 1) are satisfied. Specifically, one of the four criteria requires that “the keys or other means of physical entrance to the property are provided to the lessee at the location of the offsite real estate broker.”Accordingly, a transaction does not qualify for the real estate broker exclusion when the lessee obtains the property keys from a lockbox that is not at the location of the real estate broker. The transaction is therefore subject to tax.

Click the video below to listen to this episode of The Street Level Business Podcast with Chris Whalen, CPA where he discusses:

NJ Short Term Rentals Now Subject to Sales Tax

Do you have questions? Call me: 732-673-0510.

Starting October 1, 2018 NJ will impose taxes on short term property rentals.

This is a substantial change to NJ law. If you have short term real estate rentals I urge you to schedule a consultation with my team right away.

Click here to request a consultation or ask me a question.

Please reach out to me without hesitation with any tax, business or

accounting question, and to schedule a consultation.

Tax Laws are complex.

It is very easy to make mistakes that can incur penalties.

Do you have a Tax, Accounting or Business Question?

Call Me Immediately. (732) 673-0510.

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ignoring your Phone Calls and Emails?

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Remember,

“If We Aren’t Working For You, Then You Aren’t Working At Your Best”

Chris Whalen, CPA
(732) 673-0510
79 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com

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