Many shore condominium properties are operated in a way that is virtually indistinguishable from traditional hotels or motels: Rooms are rented for short-term stays by tourists. The only difference is the property's form of ownership. In the condo "hotels," the units are individually owned.
Oh, there's one more difference: The condos don't have to charge sales or room taxes - a distinction that has irked the owners of traditional hotels and motels in Wildwood for more than 10 years. Their guests must pay a 14 percent tax - the 7 percent state sales tax, the 5 percent state room tax and Wildwood's own 2 percent room tax - while the guests at condo hotels do not.
The taxing structure, which is the result of the state Division of Taxation's interpretation of the law, obviously puts the traditional hotels and motels at a competitive disadvantage.
The Greater Wildwood Hotel & Motel Association sued the Division of Taxation and lost the first round in state Tax Court. But as Business editor Kevin Post reported in his May 30 column, the association believes it has a good chance of prevailing on appeal. The case will be argued Wednesday in the Appellate Division.
Frank Corrado, the association's lawyer, says the group is simply seeking equal treatment and that the existing law applies to all properties rented for less than 90 days. The Division of Taxation exceeded its authority by exempting condos, Corrado says.
Besides the obvious inequity, the state is losing a considerable amount of revenue by not taxing the short-term condo rentals - as much as $300 million a year, by one estimate.
But some believe the best approach would be to apply a lower tax to both kinds of rentals in an effort to make the Jersey shore more competitive overall. That's worth considering. A 14 percent tax is certainly a turnoff to many prospective renters.
A bill introduced in the Legislature on May 13 - the "Seaside Lodging and Rental District Act," sponsored by Assemblyman Reed Gusciora, D-Mercer - would do exactly that. It would allow resort municipalities to create "Seaside Lodging and Rental Districts" where a 5 percent state sales tax and a 2 percent municipal tax would apply instead regular sales and room taxes. One-third of the revenue would be dedicated to tourism marketing.
We hope the Greater Wildwood Hotel & Motel Association wins its lawsuit. It is blatantly unfair and makes no logical sense to exempt condo hotels from sales and room taxes. But Gusciora's bill - or something similar to it - may, in the end, be the best way to address this inequity.
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