Airbnb Says Ocean City's New Occupancy Tax is Illegal

Airbnb is fighting back against Ocean City’s newly approved 3 percent occupancy tax on guest rooms and lodging booked through online vacation services – going so far as to warn of the possibility of costly litigation ahead.

Airbnb, the online travel giant, argues that the tax violates New Jersey state law because it is not applied to Ocean City’s hotels and motels. The tax will be imposed only on so-called “transient accommodations,” a term that applies to online vacation platforms such as Airbnb and Vrbo.

“Any tax adopted by Ocean City on short-term rentals must also apply to hotels and motels to comply with state law,” Alain Xiong-Calmes, public policy manager for Airbnb, said in a statement Monday.

Vacationers and other overnight guests will have to pay more for their stays in Ocean City if they book their lodging through online travel services such as Airbnb.

Xiong-Calmes maintained that the occupancy tax could end up harming Ocean City’s tourist-dependent economy by making vacations too expensive for families.

“In Ocean City, where most guests come from within the New Jersey region, this short-term rental tax risks pricing out families seeking affordable stays with access to the coast and threatens the local businesses and attractions that rely on visitor spending from short-term rentals,” he said.

Airbnb released a copy of a July 16 letter that its attorneys sent to Ocean City saying that the new occupancy tax is “contrary” to state law because it does not uniformly apply to hotels and motels.

The letter argues that it is illegal for Ocean City to single out the “transient space marketplaces” for the tax and could end up getting sued.

“Passing the ordinance as drafted would likely result in costly litigation for the city, including legal fees and costs when the city is inevitably found to have differentially taxed short-term rentals obtained through transient space marketplaces in a manner not authorized by state law and which violates hosts’ equal protection rights,” concludes the letter from the law firm Lowenstein Sandler.

Ocean City spokesman Doug Bergen said Monday the city would have no comment about Airbnb because of the possibility of pending litigation.

    The local occupancy tax will not apply to Ocean City's hotels and motels, such as the Flanders Hotel.
  

At its meeting last Thursday, a divided City Council narrowly approved a 3 percent local occupancy tax on transient accommodations, such as Airbnb, Vrbo and other online vacation booking platforms.

A new ordinance legalizing the occupancy tax was adopted by the seven-member Council in a 4-3 vote – the slimmest majority to make it a new law.

Rooms at hotels, motels and bed-and-breakfast spots in Ocean City would be exempt from the occupancy tax. The tax also would not apply to vacation rentals booked through local realtors.

In an earlier version of the ordinance, Council had proposed imposing the 3 percent occupancy tax on hotels and motels, too. But that version of the ordinance died in December following intense opposition from the city’s hotel industry and the Ocean City Regional Chamber of Commerce.

The state already charges a 5 percent occupancy tax on hotel and motel stays, as well as the 6.625 percent state sales tax, according to the New Jersey Treasury Department website. Online vacation platforms, though, currently don’t pay any taxes in Ocean City.

More than $60 million in vacation rentals were booked in Ocean City in 2024 by Airbnb, Vrbo and other online travel services, city officials said. Based on that number, it is estimated that the new 3 percent occupancy tax would generate an additional $1.8 million in annual revenue for the town.

Supporters believe the extra revenue will help to ease the financial burden on local taxpayers by providing additional revenue for the municipal budget.

Terry Crowley Jr., Pete Madden, Dave Winslow and Jody Levchuk, the Council members who voted in favor of the ordinance, described the occupancy tax as part of a broader strategy to generate extra revenue for the city without raising taxes on Ocean City property owners.

Tony Polcini, Sean Barnes and Keith Hartzell, the Council members who voted against the occupancy tax, questioned the timing of imposing a new fee on tourists and other overnight guests. They also characterized the tax as unfair.

“Times are tough right now, and people are scared of spending money,” Polcini said of the economy.

Hartzell said he simply could not support a new tax until the city examines its spending practices.

“We keep taxing and taxing and taxing. It never ends,” Hartzell said.

    Councilman Sean Barnes, in white shirt, argues that the occupancy tax is unfair because it does not apply across the board, including on Ocean City's hotels and motels.
  

Barnes argued that the occupancy tax isn’t fair because it wouldn’t be uniformly applied to other lodging in town, such as hotel and motel stays.

“Flat out, it’s not fair,” he said.

Barnes also believes that Ocean City could generate even more additional revenue by applying the 3 percent occupancy tax – or perhaps a lower rate – across-the-board to all types of lodging in town.

“We should have parity across the board,” he said.

Now that Council has adopted the occupancy tax, it will next go to the New Jersey Treasury Department for its review and approval, a process expected to take 90 days. If the state gives its approval without any serious delays, the new tax would be ready to go into effect in Ocean City late this year.

New Jersey Treasury Department records show that 209 New Jersey municipalities currently have an occupancy tax for hotels and motels. Among them, 20 also charge an occupancy tax on online vacation platforms. Airbnb didn’t immediately say whether it was disputing the legality of the occupancy tax in other New Jersey municipalities, in addition to Ocean City.

Deflecting criticism that the occupancy tax might hurt Ocean City’s tourism, Councilman Winslow said that the 209 other New Jersey communities with a local occupancy tax have not seen their business suffer.

Short-term rentals are an important part of New Jersey’s economy, generating nearly $1.3 billion in economic activity for the state and fueling guest spending in local communities, particularly in places with limited affordable hotel options, according to Xiong-Calmes, the Airbnb public policy manager.