Kathy Truesdale and her husband, Tom, wanted to celebrate their 50th wedding anniversary with their three children and four grandchildren. So the Bensalem, Pennsylvania, couple booked a six-bedroom house in Cape May where the whole family could enjoy a June beach retreat.
Finalizing the $7,000 reservation last August, Kathy had two specific plans for the week: rent golf carts to drive the grandkids to the beach and try out local restaurants. But then came an email from the owner. Due to a new state surcharge on short-term rentals, the family owed an extra $813.
“It was shocking,” Kathy, a retired secretary, said in a recent interview. “That’s our spending money. Now, eating out, boosting the local economy with activities, well, that kind of shoots that right out the window.”
As for the golf carts? “We’re pretty much nixing that idea,” she said.
The Truesdales are not alone in feeling burned before they even head to the Jersey Shore this summer. Renters and owners alike are fuming about a New Jersey law intended to make accommodations booked through websites such as Airbnb subject to the same taxes as hotels and motels.
But the law also imposed a new 11.6% tax on all rentals lasting less than 90 days. Beach-goers and homeowners who have long relied on yard signs, classified ads and personal connections to make their bookings were caught off guard when the law took effect in October.
“I just don’t think it’s very thoughtful,” said George Triebenbacher, who owns seven rental units in Long Beach Township. That’s especially the case after Superstorm Sandy, he said, “where people had to spend significant sums to put their homes back in good condition.”
The “Airbnb tax” was approved in June as part of a last-minute budget deal between Gov. Phil Murphy and fellow Democrats in the Legislature to avoid a government shutdown.
The measure had been pushed by Airbnb’s rivals in the hotel industry, who said short-term rentals had an unfair advantage and were hurting local housing markets. It was supported by Airbnb itself as the company sought to gain legitimacy in the face of growing criticism from residents and local officials.
Murphy also framed it as part of an initiative to “modernize” the tax code. He enacted new taxes on liquid nicotine and ride-hailing apps including Uber and Lyft to create parity with traditional tobacco products and taxi rides.
Will it hurt tourism?
But the $8 million the administration estimates the state will bring in from taxing short-term rentals this fiscal year — and about $12 million to $15 million next year — could come at a cost to the state’s $44 billion tourism industry.
Bob Long, a Pennington, New Jersey, resident who has rented out his home in Surf City for more than 20 years, attributes his soft bookings in the “shoulder” months of June and September to the new tax.
“When you’re tacking on the 12% to the existing [price], that’s a substantial increase to some people, and they seem to be showing us that they’re concerned,” said Long.
Triebenbacher said awareness about the tax is high among renters, contributing to a situation where his units were about 65% rented for the peak season at a time in April when they are typically fully booked.
“They ask very detailed questions, and you get comments like, ‘Well, at this rate, it makes more sense to go to the Hamptons,’” he said of his prospective guests.
Asked if she would plan another family vacation to the shore, Kathy Truesdale was emphatic.
“This is a once and done,” she said. “I would not do this kind of a vacation at the Jersey Shore again for a big family. I would look in Delaware. I would look in some other place where you get much more for your money.”
Real estate brokers, however, are doing all right under the new law. Rentals arranged through such brokers were exempted from the new surcharge.
Two brokers contacted for this story said they hadn’t noticed a meaningful uptick in business. A third, Andrea Schlosser, president of Schlosser Real Estate in Lavalette, said listings by owners are up about 16% this year due, at least in part, to the incentives created by the law.
But brokers charge their own commission — typically between 10% and 15% — leaving many renters and owners feeling like they’ll be paying more whether they go through a broker or don’t.
After fielding complaints for months, lawmakers are poised to revisit the issue. A state Senate committee is scheduled to consider a bill Monday that would exempt rentals from the tax as long as they are not booked through a “marketplace,” online or otherwise.
A marketplace, according to the bill, S-3158, “allows accommodations to be listed and provides a means for arranging the rental.”
The measure could provide relief to many families, but questions remain over whether it would survive legal challenges if enacted.
William Skaggs, a spokesman for the state Treasury Department, said the existing law was interpreted to apply to all Shore rentals for a reason.
“If we were to administer the law to only apply to rentals done online it may put us in conflict with the federal statute (Internet Tax Freedom Act) that prohibits taxing online transactions differently than brick and mortar,” he wrote in an email.
Assembly Speaker Craig Coughlin, D-Middlesex, hinted at a similar concern when asked this week about legislative efforts to address the issue. He said his policy team “has not settled on how to legally carve out shore rentals.”
“We are continuing to work with the sponsors to craft legislation that meets constitutional muster,” he said in a statement.
Triebenbacher stressed the urgency of the situation.
“Not to say it’s not too late for the state to sort of fix this,” he said, but “time is of the essence for sure, because we’re about the hit the summer season, and homeowners need to know what to do.”