Ocean City Introduces Occupancy Tax for Online Vacation Rentals

More than $60 million in vacation rentals were booked in Ocean City in 2024 by Airbnb, Vrbo and other online travel services.

Ocean City didn’t get a dime of that money. Now, the city wants its cut.

City Council took the first step Thursday night in approving a new 3 percent local occupancy tax on lodging booked through online vacation platforms.

Voting 5-2, Council introduced an ordinance that would impose the tax on “transient accommodations,” a term that applies to online booking companies such as Airbnb and Vrbo.

The ordinance will be up for a public hearing and final vote at the July 17 Council meeting.

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.

City officials estimate that, based on the $60 million in Ocean City vacation rentals booked online in 2024, the 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.

“The bottom line is that it’s a great opportunity to reduce the burden on all the local taxpayers,” Michael Allegretto, aide to Mayor Jay Gillian, told the Council members.

Council members who voted in favor of the ordinance’s introduction echoed Allegretto’s sentiments.

“The fee is certainly going to be a catalyst to reduce the burden on our taxpayers,” Councilman Dave Winslow said.

Deflecting criticism that the occupancy tax might hurt Ocean City’s tourism, Winslow said more than 200 other New Jersey communities have a local occupancy tax or something similar to it and have reported no adverse impacts on their tourism.

“I don’t see it driving away tourism,” Winslow said.

Reflecting its strong tourism bookings, Ocean City was named the most popular family destination in New Jersey by Airbnb in the summer of 2023.

Councilman Jody Levchuk said online travel services are becoming increasingly important to the city’s vacation bookings.

With more and more vacationers coming to town through online bookings, Levchuk believes that the occupancy tax will be a critical way of generating extra revenue to help pay for the “wear and tear” on the community, including trash collection.

    Councilmen Keith Hartzell and Sean Barnes vote against the proposed occupancy tax ordinance.
  

Councilmen Sean Barnes and Keith Hartzell, though, voted against the ordinance’s introduction after raising concerns that the occupancy tax wouldn’t be uniformly applied to other lodging in town, such as hotel and motel stays.

“I’m not going after hotels and motels. I’m just looking for equity,” Barnes 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.

“There’s a lot more money we’re leaving on the table,” Barnes said.

Hartzell said he could not support any new tax or fee increase until the city examines its spending practices.

“We don’t have a revenue problem. We have a spending problem,” Hartzell said.

This is the third time in the past year that the city has made an attempt to implement a local occupancy tax.

In November, Council considered an ordinance to have a 3 percent occupancy tax on rentals booked through online services. But four members of Council expressed concerns that the city was not being consistent with the tax, so hotels and motels were added to an amended version of the ordinance that was introduced by a 4-3 vote.

Following intense opposition from the city’s hotel industry and the Ocean City Regional Chamber of Commerce, the proposed amended ordinance died in December after none of the Council members supported it.

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.

Assuming that Council gives the ordinance final approval on July 17, the measure would go to the state Treasury Department for its review and approval, a process expected to take three months. If the state gives its approval, the new tax would be ready to go into effect Nov. 1, said Frank Donato, the city’s chief financial officer.

The ordinance specifies that vacationers, not the property owners, would be responsible for paying the occupancy tax for lodging booked online.

During the Council meeting, two members of the public who spoke against the proposed occupancy tax warned that the extra cost could discourage price-conscious guests from vacationing in Ocean City.

“Although this is a tax levied in other places, it is yet another cost increase facing a select group of tourists, in addition to the beach tag and parking fee increases of last year,” Ocean City resident Susan Cracovaner said.

Cracovaner characterized the occupancy tax as another example of the city’s “tax and spend mentality.”

Jim Kelly, a leader of the local community group Ocean City 2050, urged Council to have an independent analysis done to gauge the impact of the occupancy tax on the tourism industry.

“Price increases have an adverse effect on demand when substitutes exist. Our vacationers have choices, so this price increase will affect demand for Ocean City rental properties,” Kelly said.

    Ocean City hotels such as the Flanders would be exempt from the 3 percent occupancy tax.