On appeal from the Tax Court of New Jersey, Docket No. 010510-2008.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Payne and Fasciale.
On July 31, 2008, plaintiff, Greater Wildwood Hotel Motel Association, filed a complaint in the Tax Court pursuant to Rule 8:2(a) against the Director of the Division of Taxation. In its complaint, the Association sought a declaration that "the policy of the New Jersey Division of Taxation to charge sales tax on hotel and motel room rentals but not on condominium room or transient room rentals a) violates the governing statute and regulations; b) exceeds any authority granted the Division by the statute and regulations; c) is arbitrary, capricious and unreasonable; and d) violates the equal protection clause in the state constitution." It sought a judgment declaring that the current policy of the Division excluding all transient rentals that are not conventional hotels or motels from the imposition of state sales tax violates N.J.S.A. 54:32B-3(d) and N.J.A.C. 18:24-3.1(a) and exceeds the Division's delegated authority under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 through -54, and enjoining the Division from implementing that policy or in any way distinguishing between hotels or motels and other transiently rented property in the application of the state sales tax.
On April 1, 2009, the Association moved for summary judgment, and on June 4, 2009, the Division filed a cross-motion. Oral argument occurred on June 26, 2009. Thereafter, the tax judge issued a letter opinion, dated July 24, 2009, denying the Association's motion and granting that of the Division. A motion for reconsideration was denied following further oral argument. This appeal followed.
The Association is "a trade organization comprising more than 167 lodging businesses. Its members are hotel and motel owners in the greater Wildwood area, including North Wildwood, Wildwood, Wildwood Crest, and Diamond Beach." The Association's President, Stephen Tecco, has certified that: "Members of the [Association] rent their properties out to tourists or transients on a daily, weekly or monthly basis. Some of these properties are open year-round; others are open seasonally, principally in the summer." He has certified further that "these properties offer a variety of services and amenities to their guests, although the particular services vary from property to property." The members of the Association, as hotel and motel owners, are required to collect the State's seven-percent sales tax, N.J.S.A. 54:32B-3(d), and its five-percent room occupancy tax. N.J.S.A. 54:32D-1. However, according to Tecco's certification:
8. Over the last decade, in the Wildwoods and in other resorts, there have been numerous conversions of existing hotels and motels to condominiums. In addition, many hotels and motels have been razed and condominiums built in their place.
9. Many if not most of these buildings rent to tourists on a daily, weekly or monthly basis. Some are available for rental year-round; others are rented seasonally, principally in summer.
10. Many of these properties provide one or more of the services that the Division considers indicative of whether a rental property is a "hotel" for purposes of subjecting it to the sales tax.
11. Nevertheless, many of these properties are not considered "hotels" by the Division and are therefore . . . not subject to either the 7% sales tax or the 5% room tax.
The Association's concern arises from the fact that, because "condotels" are not subject to sales and occupancy taxes, they can charge lower rates, thereby placing "traditional" hotels and motels at a competitive disadvantage.
N.J.S.A. 54:32B-3(d) imposes a tax on "[t]he rent for every occupancy of a room or rooms in a hotel in this State, except that the tax shall not be imposed upon a permanent resident."
N.J.S.A. 54:32D-1 provides that: "In addition to any other tax, assessment or use fee authorized by law, there is imposed and shall be paid a hotel and motel occupancy fee of . . . 5% for occupancies on and after July 1, 2004, upon the rent for every occupancy of a room or rooms in a hotel subject to taxation pursuant to [N.J.S.A. 54:32B-3(d)].
A "hotel" is defined in N.J.S.A. 54:32B-2(j) as "a building or portion of it which is regularly used and kept open as such for the lodging of guests. The term 'hotel' includes an apartment hotel, a motel, boarding house or club, whether or not meals are served." Paragraph (m) of that statute defines a "permanent resident" as "any occupant of any room or rooms in a hotel for at least 90 consecutive days . . . with regard to the period of such occupancy."
Regulations promulgated by the Division track N.J.S.A. 54:32B-3(d) in connection with the imposition of a sales tax on hotel room occupancy. N.J.A.C. 18:24-3.1. The regulations define a "hotel" to mean a building or portion thereof, which is regularly used and kept open as such for the purpose of furnishing sleeping accommodations and related services*fn1 for pay to tourists, transients, or travelers. It includes, but is not limited to the following:
1. An apartment hotel, bed and breakfast, motel, inn, tourist home, tourist house or court, tourist cabin and club;
2. A boarding house or rooming house containing eight or more units; and
3. Any other building or group of buildings in which sleeping accommodations are normally available to the public on a transient basis. [N.J.A.C. 18:24-3.2.]
The Division has formulated a policy for determining whether an establishment qualifies as a "hotel" for purposes of imposing the statutory sales and occupancy taxes. A 2005 publication by the Division's regulatory services section states: "Implicit in the definition of hotel is transient use, that is, hotel rooms are available at any time to travelers and other transients and include linens, maid service and often room service. Such ...