New Jersey Legislature Considers Bills Allowing Regulation, Taxation of “Home-Sharing” Businesses

Airbnb houseThe “sharing economy” has become a feature of daily life for millions of people around the country and in New Jersey. It primarily consists of technology companies that use mobile apps to allow people, at least in principle, to make certain exchanges. Two well-known types of sharing economy services are ride-sharing and home-sharing. These particular business models frequently conflict with established local businesses and local regulations. Ride-sharing companies like Uber and home-sharing companies like Airbnb have often resisted efforts by local governments to regulate them as taxi and hotel companies, respectively. A pair of bills pending in the New Jersey Legislature would impose regulations on home-sharing services. While not expressly classifying them as hotels, the bills would subject them to similar rules and taxes.

Home-sharing services allow homeowners to make their homes available for short-term rental. The home-sharing service acts as a sort of broker between users and homeowners. This type of service has managed to avoid many of the legal pitfalls that some ride-sharing companies have encountered, such as questions of whether drivers are independent contractors or employees. Where home-sharing companies have found trouble, however, is on the question of whether they should be regulated and taxed as hotels.

Hotels, motels, “bed & breakfast” operations, and other businesses providing overnight accommodations are subject to a variety of state and local regulations. New Jersey law imposes a seven percent State Occupancy Fee on rental rates charged by hotels and motels across the state. Most municipalities in New Jersey are also authorized to collect a Municipal Occupancy Tax of up to one percent of rental rates.

These businesses are also required to obtain permits from local governments. Home-sharing companies are not necessarily subject to these requirements, even though they often serve the same basic function as a hotel. While home-sharing services can benefit New Jersey communities, critics have noted that they can also change the character of certain locales, such as an area zoned for single-family residences that experiences a sudden influx of overnight guests.

One of the currently pending bills, A4587, amends numerous areas of New Jersey law to impose state taxes on home-sharing businesses, which it designates as “transient accommodations.” It defines this term to encompass any “living or sleeping space for the lodging of occupants” in a residence or other location, but not in a hotel, motel, dormitory, hospital, residential health care facility, or other location already associated under the law with overnight accommodations.

The bill further defines a “transient space marketplace” as “an online marketplace through which a person may offer transient accommodations or hotel rooms to individuals.” This clearly includes companies like Airbnb. The bill would impose state sales and use taxes, as well as state occupancy fees, on transient accommodations. It would also authorize municipalities to impose occupancy taxes.

The other pending bill, A4441, would allow New Jersey municipalities to impose additional regulations, such as license requirements, on transient accommodations located within their jurisdictions. Airbnb reportedly supports A4587, which is a departure from the position of many sharing economy businesses regarding local regulation. It reportedly opposes A4441, however. Both bills passed out of the Assembly Tourism, Gaming and the Arts Committee in February 2017, and they are awaiting review by the Appropriations Committee.

Real estate attorney Samuel C. Berger represents businesses, business owners, and entrepreneurs in New York and New Jersey. We offer fixed-fee legal-service packages covering a wide range of legal matters for our clients. To schedule a confidential consultation to see how our knowledgeable and experienced team can help you, contact us today online, at (201) 587-1500, or at (212) 380-8117.

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Photo credit: Jimmy Harris [CC BY 2.0], via Flickr.