So you thought that renting your house on AirBnB sounded like a great way to earn some extra income. Did you consider the tax implications?
New Jersey Tax on Transient Accommodations
Every person who charges for the rental of a transient accommodation is a seller and must register with the State for the collection and remittance of all applicable taxes, fees, or assessments by filing a business registration application (Form NJ-REG). The law requires registration at least 15 business days prior to commencing business. Registration is required unless 1) all sales are solely consummated through a transient space marketplace; or 2) all sales are 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.
To register with New Jersey, visit the Division of Revenue and Enterprise Services (DORES) website. Once registered, you will receive a letter containing additional filing and payment information.
Registered entities already engaged in the business of renting or leasing transient accommodations need to update their tax registration to include Sales Tax, the State Occupancy Fee, the Meadowlands Regional Hotel Use Assessment (if applicable), and any other applicable taxes, fees, or assessments.
“Transient accommodation” means 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” (defined below), 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.
The following are NOT considered transient accommodations:
- Hotel or hotel room (although hotels, motels, and similar facilities are not considered transient accommodations, such facilities are required to collect sales tax and other applicable taxes, fees, assessments on charges for the rental of a room);
- Room, group of rooms, or other living or sleeping space used as a place of assembly;
- Dormitory or other similar residential facility of an elementary or secondary school or a college or university;
- Hospital, nursing home, or other similar residential facility of a provider of services for the care, support, and treatment of individuals that is licensed by the State;
- Campsite, cabin, lean-to, or other similar residential facility of a campground or an adult or youth camp; or
- Furnished or unfurnished private residential property, including but not limited to condominiums, bungalows, single-family homes, and similar living units, where no maid service, room service, linen-changing service, or other common hotel services are made available by the lessor, and the rental transaction is executed by a real estate broker licensed by the New Jersey Real Estate Commission pursuant to N.J.S.A. 45:15-1 et seq., and where the keys to the property, whether a physical key, access to a keyless locking mechanism, or other means of physical entrance to the property, are provided to the lessee at the offsite location of the licensed real estate broker.
Example: Homeowner charges customer for the rental of his house. Homeowner does not provide common hotel services such as maid service, room service, or linen-changing service. Homeowner lists the rental through a licensed real estate broker. The real estate broker advertises the rental and collects the rental payment from the lessee. The Lessee appears in-person at the real estate broker’s office to obtain the key to the property, or to obtain the digital access code that allows access to the property. This transaction is excluded from the definition of transient accommodation, and is not subject to Sales Tax, the State Occupancy Fee, or other applicable tax, assessment, or fee that may be imposed on charges for transient accommodations.
Exemptions on Transient Accommodations Taxes
A State Occupancy Fee is imposed on the rental of a room in a hotel, motel, and transient accommodations such as short-term rentals of rooms, homes or other lodging or similar facility in every New Jersey municipality other than Jersey City, Newark, Atlantic City, Wildwood, Wildwood Crest, and North Wildwood. In those municipalities, the State Occupancy Fee is imposed at a lower rate. In Jersey City, Newark and Atlantic City, it is 1%; in the Wildwoods, it is 3.15%. For a list of the municipalities that have done so, see the Municipal Occupancy Tax list.
In addition, municipalities other then Jersey City, Newark, Atlantic City, Wildwood, Wildwood Crest, and North Wildwood may enact an ordinance imposing a Municipal Occupancy Tax.
There is an exemption from paying the State Occupancy Fee for:
- agencies and instrumentalities of the United States;
- agencies, instrumentalities, public corporations or political subdivisions of the State of New Jersey;
- the United Nations or any international organization of which the U.S. is a member.
Municipal Occupancy Tax
The Municipal Occupancy Tax, if enacted by a municipality, is administered in the same manner as the State Occupancy Fee. If a customer is exempt from the State Occupancy Fee, they are also exempt from the Municipal Occupancy Tax.
Exempt Organization Certificate Holders (ST-5)
Although certain qualified non-profit organizations are exempt from New Jersey sales tax under the New Jersey Sales & Use Tax Act, the new law does not provide an exemption from the State Occupancy Fee or the Municipal Occupancy Tax for these exempt organizations (ST-5 holders).
If you receive or have on file an ST-5 for a particular customer, which is the required documentation for sales tax exemption for a non-governmental exempt organization, you must collect the State Occupancy Fee and the Municipal Occupancy Tax, if applicable, on such room occupancies.
There are certain exempt organizations offering rooms or shelter as part of their operation. Such exempt organizations which, by law, are not required to collect sales tax on occupancies which are directly related to their organizational purposes, are also not required to collect and remit the State Occupancy Fee or Municipal Occupancy Tax (e.g.Y.M.C.A).
New Jersey local school districts and public educational institutions are considered to be instrumentalities of New Jersey and are exempt from the Sales Tax, the State Occupancy Fee and the Municipal Occupancy Tax . New Jersey government entities, including public schools, are not issued ST-5 Certificates. Their official letterhead or official purchase order is sufficient proof that they are exempt from fee. Payment must be made by school check or voucher.
Private educational institutions, as well as out of state school districts, are not instrumentalities of New Jersey. Although they are exempt from New Jersey Sales Tax upon presentation of an ST-5 Certificate, they are not exempt from the State Occupancy Fee or the Municipal Occupancy Tax.
If you receive or have on file a government entity letter issued by the Division of Taxation, the letter is valid documentation that the customer is a government entity, so you are not required to collect the Sales Tax, the State Occupancy Fee or the Municipal Occupancy Tax, if applicable, on such room occupancies.
An official purchase order or contract on Federal or New Jersey government letterhead is also valid documentation for a government entity, so if you receive or have on file such a document, you are not required to collect the Sales Tax, the State Occupancy Fee or the Municipal Occupancy Tax, if applicable, on the room occupancy.
In addition to the appropriate governmental documentation, payment must be made by one of the following methods:
For Federal Employees:
- U.S. Government check or voucher
- U.S. Government IMPAC Card
- U.S. SmartPay Credit Card having #0,6,7,8 or 9 as the sixth digit (charge is directly billed to & paid by the U.S. Government.)
For State of New Jersey:
- State of New Jersey agency, instrumentality or political subdivision check or voucher.
NOTE: If payment is made with a government employee’s own funds, the governmental exemption does not apply, even if the employee will be reimbursed by the government entity.
Permanent Resident Exemption
There is an exemption in the New Jersey Sales & Use Tax Act for the rental of a room to a “permanent resident,” which is defined as a person who occupies a room in a hotel, motel, transient accommodations such as the rental of rooms, homes, or other lodging for 90 consecutive days. The same exemption is available for the State Occupancy Fee and Municipal Occupancy Tax. For more information about this exemption, see the Division’s Notice.
Rooms for Assembly Purposes
The Sales Tax, the State Occupancy Fee and the Municipal Occupancy Tax are not imposed on the charge for the rental of a room in a hotel, motel or any other facility for the purpose of assembly, e.g. a meeting, seminar, wedding, etc.
For more information, read NJ TB-81R or call our offices.