New ‘Airbnb tax’ may affect Shore rentals

Vicki Allison's family has owned a home in Cape May for nearly 90 years. Her grandparents bought the house on Beach Avenue in 1935 and used the property to entertain business clients. Now, she and her sister maintain it — and they rent it out to afford the expenses that come with the second home.

This summer, however, the New Jersey Legislature added a complication to their longtime practice: Lawmakers voted to impose taxes on short-term property rentals everywhere in the state. The measure is expected to raise millions in new revenue by charging travelers.

There was one exception: Properties rented through licensed real estate brokers — the case for so many Jersey Shore homes — were specifically exempted from the tax.

That carve-out was no consolation to Allison and other homeowners who handle their Shore rentals themselves. Rather, it was a source of confusion and frustration as they scrambled to learn the regulations so they could incorporate the tax into their rental rates before the law takes effect Monday.

"We were kind of taken aback," said Allison, who lives in Connecticut and uses the website VRBO as well as relationships with longtime customers to book rentals.

Last week, the confusion deepened. The state Department of Taxation removed from its website the previously posted guidelines for the tax and information about how homeowners could register to pay the tax.

Jennifer Sciortino, a spokesperson for the state Department of Treasury, said the information was removed because officials are "reviewing options" related to the law and its impact on short-term rentals by homeowners.

She said the tax had been intended to level the playing field between hotels, which already have such a tax, and rental websites, but federal law prevents states from levying "internet-only taxes."

Concerned Shore homeowners had hoped that — because they had complained about the tax — a solution was on the way. Friday evening, the Department of Taxation had reposted the guidelines, but without any changes that appeared to help the Shore rentals in question.

"Really, all we've got right now is a lot of questions and no answers," said Paula Krasover of East Vineland, Atlantic County, who owns a condo in Cape May.

The law that takes effect Monday had been widely referred to as a tax on Airbnb, the billion-dollar home-sharing service that has upended the traditional hotel and vacation-property industry. Many states, including Pennsylvania, already have taxes on Airbnb and similar services.

New Jersey's law requires affected properties to apply the 6.625 percent state sales tax and the 5 percent occupancy fee to their short-term rentals.

For some vacationers, that could mean a noticeable bump in their invoices. The average cost of renting an Avalon house for a week in July, for instance, was more than $3,500, according to one vacation website. The newly imposed tax would add more than $400 to that bill.

Even before the state began reviewing its guidelines, there had been questions over the impact of the tax on Jersey Shore properties. One source of confusion was that Democratic legislative leaders over the summer introduced an eleventh-hour budget proposal to tax seasonal rentals, but Gov. Murphy quashed it. That led lawmakers to declare that Shore rentals had been spared.

Krasover, a retired tax consultant, said she found out that the tax would apply to rentals at her Cape May condo only after the bill had passed.

"I find it very hard to believe that everybody involved in the process, either they didn't know the devil in the details here, or how could they be under the misapprehension that … all [Shore owners] go through Realtors?" she said. "Somewhere in there, there's a disconnect."

Airbnb, which has generally cooperated with state and local tax measures, supported the new tax in New Jersey.

Last year, when Gov. Chris Christie vetoed a version of the same bill, Airbnb estimated that its bookings alone would raise more than $10 million in annual state and local taxes. State officials had no further estimate of how much money the tax could raise.

Jarrod Grasso, CEO of New Jersey Realtors, said real estate agents provide an additional level of screening and service for homeowners. He said he had spoken with lawmakers about the work done by agents, and he said he did not see the carve-out for licensed brokers as unfair.

"I don't think that this is a way to push anybody toward using a real estate professional to lease out their property, because people always had that choice," he said.

Grasso said he does not have an estimate of how many Shore homes are rented through real estate agencies. Nor is there a way to quantify how many people rent their homes through other means — although some have tried to form online groups in recent weeks to discuss the new tax.

Krasover said her condo association's building manager handles rental leases, and the setup and regulations of her building would make it difficult to hire a real estate agent. 

The new law, Krasover said, "gives an unfair advantage to Realtors over people who use word of mouth or newspapers or their condo association."

Others may not have heard about the tax or made sense of whether they need to charge it to their tenants. Russell Deighton of Bethesda, Md., owns a condo and a home in Stone Harbor, both of which he lists on VRBO. He said he recently read about the new tax, yet had not considered how it would affect his rentals. 

"I do think in the end the user will be paying more," he said.

Allison, who rents her family home in Cape May, said real estate brokers keep about 12 percent of the rental total as a fee — which in her case could be more than $1,000 for a weeklong rental —  so she prefers to list her home herself.

But she is nervous that she may lose clients due to the tax. When she heard about the levy, she said, she already attempted to contact renters who booked this fall and asked them to pay it. Some claimed she was breaching their contract, which didn't mention the tax.

"I'm going to continue to rent with the people who I rent with and hope that they'll go for the extra 10 percent" tax, she said. "I know that I'm going to lose some of them, and some of them are going to go to Delaware, because they have beaches there."