South Dakota Bill Proposes Sales Tax on Self-Storage; New Jersey Weighs 1 Percent Tax Reduction

State legislatures continue to look at the self-storage industry as a source of tax revenue, with South Dakota the latest to propose the imposition of sales tax on unit rentals. Meanwhile, lawmakers in New Jersey have introduced a bill that would lower sales tax by 1 percent on services that include self-storage rentals.

The South Dakota bill, SB 142, was introduced Jan. 24 and would impose a 4 percent sales tax on the gross receipts derived from self-storage unit rentals, and a 4 percent privilege-use tax on the rental payments for use of the property.

The measure is similar to a law struck down three years ago by the South Dakota Supreme Court. In that case, self-storage operators successfully argued storage units were rented real estate and not a service that should be subject to sales tax.

The Self-Storage Association indicated it will battle the legislatures new bill on behalf of South Dakotas self-storage operators, who do not have a state association. The proposed bill is scheduled for a hearing on Feb. 6.

If SB 142 were to pass, it would become the first state bill to inflict sales tax on self-storage operators since New Jersey raised its sales tax from 6 percent to 7 percent in 2006. Although sales-tax legislation that would affect storage operators has been introduced in North Carolina and Illinois in recent months.

New Jersey Democrats Louis D. Greenwald and Paul D. Moriarty introduced a state assembly bill, A1322, on Jan. 10 that would reduce the sales and use tax rate from 7 percent back to 6 percent on certain services, including self-storage. Although the measure would benefit self-storage operators and save customers several dollars per month on unit rentals, the self-storage industry believes the rental of storage units should be exempt from service sales tax altogether because storage units should qualify as rental property.

The sales-tax rollback bill was introduced as an alternative to Republican Gov. Chris Christies proposal to cut state income taxes by 10 percent for all New Jersey residents. The governor said the tax cut would stimulate the states economy as it is phased in over three years. Opponents argue the cut would reduce state tax revenue too much, estimated as much as $1.1 billion. Some opponents believe reducing property taxes and sales tax would be more effective strategies.