Rental of a Transient Accommodation Obtained Directly from the Owner is No Longer Subject to NJ Sales Tax
In our blog post of October 30, 2018, we alerted our readers that New Jersey had enacted legislation that imposed a fee on transient accommodations on or after October 1, 2018. The new law imposed Sales Tax, the State Occupancy Fee, and the Meadowlands Regional Hotel Use Assessment on charges associated with the rental of transient accommodations.
This law supposedly targeted homeowners who rented their investment properties themselves (classified ads, referrals from friends and family, rental signs on the lawn, Airbnb, VRBO, etc.) rather than using a realtor.
Amended NJ Sales Tax Law on Transient Accommodations
Beginning August 9, 2019, the rental of a transient accommodation obtained directly from the owner is no longer subject to Sales Tax, the State Occupancy Fee, and other applicable taxes and fees, unless it is a professionally managed unit, as defined below.
A rental obtained through a transient space marketplace, which now includes a travel agency, or a rental of property that is considered to be a professionally managed unit, is subject to the applicable taxes and fees.
What is a Transient Accommodation?
The amended law revised the definition of “transient accommodation” to limit it to the rental of 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 either:
- Obtained through a transient space marketplace; or
- Is a professionally managed unit.
Therefore, a transient accommodation that is obtained through a transient space marketplace or is a professionally managed unit is subject to New Jersey Sales Tax, the State Occupancy Fee, and other applicable taxes and fees.
What Type of Rental Is NOT Subject to the NJ Amended Sales Tax Law?
The following rentals are no longer subject to Sales Tax, the State Occupancy Fee, and other applicable taxes and fees as long as the owner does not offer three or more units for rent (a professionally managed unit):
- A rental of a transient accommodation obtained directly from the owner (such as through local newspaper ads, personal referrals, signage, etc.); or
- A rental of a transient accommodation which is not obtained through a transient space marketplace.
In addition, rentals executed by a real estate broker remain not subject to the taxes and fees.
When Is a Rental Considered Obtained Through a Transient Space Marketplace?
A rental is “obtained through a transient space marketplace” where the agreement for the rental is made through the marketplace or travel agency and where payment for the accommodation is made through a means provided by the marketplace or travel agency, regardless of who receives the payment. Transient space marketplaces will continue to collect Sales Tax, the State Occupancy Fee, and other applicable taxes and fees imposed on a transient accommodation when the rental is “obtained through a transient space marketplace.”
However, a transient space marketplace does not include a marketplace or travel agency that exclusively offers transient accommodations in New Jersey that are owned by the owner of the marketplace or travel agency.
What Is a Professionally Managed Unit?
A professionally managed unit is a transient accommodation that is directly or indirectly owned or controlled by a person who offers three or more units for rent in New Jersey, and the rental unit does not share living or sleeping space with other units. A professionally managed unit is a transient accommodation that is subject to the applicable taxes and fees, regardless of how the rental is obtained.
An owner who offers three or more units for rent in New Jersey and who directly rents (such as through local newspaper ads, personal referrals, signage, etc.) continues to be required to collect Sales Tax, the State Occupancy Fee, and other applicable taxes and fees because the transient accommodation is a professionally managed unit.
Are Lessors Required to Register with NJ?
An owner who offers three or more units for rent in New Jersey must be registered to collect the applicable taxes and fees unless all of the rentals are obtained through a, transient space marketplace or through a real estate broker. In addition, transient space marketplaces, including travel agencies, must be registered to collect the Sales Tax, the State Occupancy Fee, and other applicable taxes and fees on all transient accommodations obtained through the transient space marketplace. However, d address any conflicts; work with the Office of Chief Counsel to see if they need legislation to use tax data to identify potential conflicts; and better manage the OES, both in terms of requiring employee compliance and management review.
Tax Planning Tip #1:
Lessors of rental properties in NJ need to consult with their tax advisor ASAP. Determinations need to be made if the lessors are subject to the amended NJ sales tax law on transient rentals, if they need to be registered to collect the sales tax, if they need not be registered by nevertheless are required to collect and remit the sales tax, and due to the effective dates of the previously enacted law and the amended law, renters may be entitled to refunds and how lessors should handle those refunds as well as the filing of a Final Tax Return if appropriate.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.