Time to book a place for your vacation and you’re looking at two similar beachfront hotels in the Wildwoods with one big difference.
One will charge a 14 percent tax on your room rental and the other won’t.
Which would you choose?
The reason one is exempt from charging tax is a difference you can’t see: It’s set up as a condominium ownership.
The state doesn’t collect sales or room taxes from condos, no matter how exactly they are run like a hotel.
That has angered traditional hotel owners for years, enough so that the Greater Wildwood Hotel & Motel Association sued the state Division of Taxation in 2008 in an attempt to stop the different treatment of condo-owned hotels.
“It’s not fair. Taxation should be equal across the board on rentals,” said Joe Salerno, vice president of the hotel association and owner of a traditional motel, the Imperial 500 in Wildwood Crest. “The state is losing revenue and it creates unfair competition for the lodging industry.”
Frank Corrado, the Wildwood attorney representing the association, said that although Judge Joseph Small of the Tax Court of New Jersey ruled against the association (in his last case before retiring), he supported the group’s position.
“The judge’s ruling was that he didn’t have the authority to craft a remedy,” Corrado said. “He indicated that while he thought there was merit in the Hotel & Motel Association’s position, he didn’t think he had the authority to expand the reach of the sales tax.”
The association believes the Tax Court does have such authority, Corrado said, and will argue its case before the Superior Court’s Appellate Division on Wednesday.
“Hotel & Motel is seeking essentially equal treatment. We think the statute as written extends to all properties rented under 90 days, and that to exempt nonhotel and -motel properties from the statute exceeds the Division of Taxation’s authority and may be unconstitutional as well,” Corrado said.
John Siciliano, executive director of the Greater Wildwoods Tourism Improvement and Development Authority, said he has been asking the state since 1999 why condo hotels are exempt from the taxes.
“The answer we’ve been getting for years is that the state treasurer said if rental properties don’t provide maid or linen services, then we don’t see it as a taxable transaction,” Siciliano said.
The state wouldn’t explain how it came up with that decision, he said.
“It has gotten really bad because the state is not enforcing this even though all individuals have done is change the ownership to condo and they’re running them as motels,” Siciliano said.
The state’s position doesn’t make sense, he said, because a condo isn’t a form of business or business practice but merely a form of ownership.
Siciliano, who is also a certified public accountant, figures the state is losing a lot of tax revenue, since its own figures estimated the rental of seasonal and second-home properties generated $2.8 billion in sales in 2008.
“In the newspaper, every day they’re talking about the money they need for the budget and they can’t fully fund the tourism advertising campaigns, and they’re letting more than $300 million sit on the table every year,” he said.
In the Wildwoods, the money at stake goes well beyond the state sales tax of 7 percent.
There is also the statewide room tax of 5 percent and the Wildwoods’ own 2 percent tax on rooms, food and beverages to fund the operation of the Wildwoods Convention Center by the tourism development authority, he said.
Add them up and it’s 14 percent, a painful difference when a competitor is charging 0 percent.
Salerno said the 14 percent rate is a problem itself, one the association hopes might be addressed in conjunction with equalizing the tax treatment of transient housing.
He said instead of making rental condos charge 14 percent, his group would prefer having all accommodation rentals pay 7 percent sales tax no matter how they are owned.
“Gov. Corzine implemented a room tax and in today’s times, people shop around and make decisions on how much it costs to come to a destination,” Salerno said.
“What’s really hurting us is that there is so much competition out there that doesn’t have to charge 14 percent tax,” he said.
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