We’ve long felt it was unfair and detrimental to the hospitality industry for New Jersey to pile room taxes and fees on hotels while giving online room renters such as Airbnb a free ride. So we were glad that legislators and the governor finally leveled that playing field in this year’s budget agreement.
Unfortunately, Democratic leaders did this in a way that created a loophole for one accommodations segment and handed the real estate industry a big gift.
Now everyone who rents out rooms and homes on a short-term basis will pay the state sales tax of 6.625 percent, the state occupancy 5 percent tax, plus local room taxes — a total that can approach 14 percent — except those who pay a licensed real estate broker to hand guests the key.
Really. That doesn’t make any sense, and the Democrats who reached this compromise didn’t offer an explanation or argument in support of this combination tax exemption and real estate industry subsidy. That suggests it’s a shameless ploy for support from brokers and certain vacation property owners.
Democrats may have arrived at this freakishly distorted tax policy, however, somewhat by accident. And the alternatives, such as they are, probably won’t appeal to those on the losing side of this unfair tax scheme.
Back in June, when Democratic leaders were desperate for new state revenue but couldn’t agree where to get it, a consensus developed to tax room rentals by online services.
Then state Senate President Stephen Sweeney proposed taxing all vacation room and home rentals equally, potentially raising $250 million a year.
Sweeney said every other state on the East Coast taxes short-term rentals the same and to do otherwise would be unfair.
A howl went up from Jersey Shore legislators. We opposed balancing the budget on the back of Jersey Shore tourism. Even tax-loving Gov. Phil Murphy criticized the proposal as a dumb alternative “when you can easily tax millionaires.”
Sweeney’s proposal quickly died. But how could the state tax online rental services while leaving the shore’s vast traditional vacation rental market untaxed? Perhaps some real estate lobbyist whispered in Democrats’ ears that most of them still use an agency to manage the rentals and hand out the keys to arriving vacationers. Their big key racks have long been a favorite photo to accompany summer rental stories.
It may seem like only a politician could love such an unfair solution that just happens to reward a narrow constituency. But the property owners who rent their rooms and homes on their own might come to prefer it as well.
The only legislative alternative we see is, as Sweeney proposed, to tax all short-term renters of rooms and houses equally. Just strike the words from the new law that rentals aren’t “considered transient accommodations … where the keys to the property … are provided to the lessee at the location of an offsite real estate broker.” That’s a ridiculously untrue statement anyway.
That would be the fairest approach and surely state officials would welcome the additional tax and fee revenue.
There is no escape from the taxes and fees for hotels, motels and those renting through Airbnb-style services. But other private owners who rent rooms and homes could use the real estate agent loophole themselves.
Discount rental key offices will probably arise up and down the shore, competing on price for the simple business of handing out keys. Condo associations may even find it worthwhile to get together and get someone licensed as a real estate broker to hand out keys.
Keeping an additional 12 percent or more of rental revenue will be quite appealing.