When New Jersey Governor Phil Murphy and Democrat Senate President Steve Sweeney recently reached an agreement on a budget deal, it was welcome news to many as it avoided another government shutdown. Governor Murphy signed the $37.4 billion bill into law on July 2, 2018.
Much of the negotiations centered on how much to raise taxes. Murphy wanted a tax on income over $1 million but lawmakers felt this would cause millionaires to flee the State. In the end Murphy agreed to an increase in taxes on income over $5 million at 10.75 percent. The other compromise was to raise the tax on businesses making more than $1 million by an average of 2 percent over four years, with the increase expiring after four years. The sales tax also remains unchanged.
So what do we know about how aspects of the deal will affect matters relating to New Jersey real estate?
Although offered by Steve Sweeney during negotiations, a hike in the New Jersey "Mansion Tax" from 1% to 2% on sales of property $1,000,000 and above did not make it into the final budget deal. Sweeney also proposed a tax on all seasonal shore rentals, however much to the relief of coastal towns and second-home property owners, this tax also did not make it into the final bill. Sweeney had claimed that New Jersey was the only state along the East Coast that isn't taxing seasonal shore rentals, saying in June "we're the outlier."
However part of the budget deal does include a new tax on short-term rentals like Airbnb, with "short-term" being defined as anything less than 90 consecutive days, with certain exceptions. Assembly Bill No. 1753 imposes State sales and use tax and hotel and motel occupancy fee on transient accommodations; authorizes various municipal taxes and fees on transient accommodations. This bill was passed by NJ legislature on July 1, 2018 and provides a grace period for implementation until October 2018. Chris Christie vetoed a similar bill in 2017.
Bill No. 1753 requires short-term rental booking websites like Airbnb to collect the state's 6.625 percent sales tax and the 5-percent hotel occupancy fee, plus any other fees municipalities have in place. In Atlantic City, for example, this bill will also mandate the collection of the 9 percent luxury tax and promotion fees.
For a typical New Jersey Airbnb rental for three nights at $150 per night, the 6.625 percent sales tax and 5 percent hotel tax would add around $51 to the bill.
One of the exceptions included in the bill are private residential property accommodations where no maid service, linen service or other common hotel services are made available AND which are listed with a real estate agent or broker who provides the keys to the property off-site.
To read the full list of exemptions and the entire contents of Bill No. 1753, click here.