06 Dec Do I owe extra taxes when I rent my shore property?

Q. I own an investment property on the Jersey shore and rent it out through HomeAway. I just realized a tax is levied against shore properties using online rental services. I have already have signed rental contracts for the summer of 2019. Can I re-issue the contracts with updated rates to include the tax, giving the renters the option to cancel? Or do I have to eat the cost?
— Landlord

A. The tax you’re talking about falls under Tax Bill 81R. 

You’re correct that you’re subject to the tax, which covers people renting their residences, either on their own or through sites like Airbnb or VRBO, said Michael Karu, certified public accountant with Levine, Jacobs & Co. in Livingston.

If you instead used a real estate agent who acts on your behalf, collects the rent, and handles all of the transactional details, then the transaction is exempt, he said.

“If you do it on your own, you have to register with the state, and collect sales tax, the state occupancy fee, and the Meadowlands regional hotel Use Assessment, if applicable,” Karu said.

There are exceptions for rentals of at least 90 consecutive days, if the lessee is a charity or government agency, or if a realtor handles the transaction, he said.

“In addition to the sales tax of 6.625 percent, the occupancy fee is 5 percent,” Karu said. “Simply, this is New Jersey’s way of leveling the playing field for hotels and realtors.”

The problem you face is more contractual than anything else, Karu said, and you should consult your attorney as to whether you can add the taxes to the contracted rental.

“However, if I were your tenant and the lease did not specify that I am subject to the tax, my response would be that I have a signed lease for a set rental and it is your problem,” he said. “To calculate the tax, divide the total amount received, by 1.11625. That way, you will only pick up income on the net amount after the tax.”

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