Tax on Short Term Rentals Nears Reality

Jane Seagrave Landry Harlan Thursday, August 2 2018 - 6:07pm

<p>Legislation passed this week by Massachusetts lawmakers would extend state and local occupancy taxes to short-term rental properties.</p>

Legislation passed this week by Massachusetts lawmakers would extend state and local occupancy taxes now paid by hotels and motels to short-term rental properties, a long-debated move aimed at leveling the playing field with the increasing popularity of Airbnb and other online rental platforms.

But an amendment made by Gov. Charlie Baker after the Legislature adjourned on Tuesday has cast doubt over the future of the bill, which was hammered out in conference committee after months of negotiation. Among other things, the governor’s amendment would exempt people who rent their properties for 14 or fewer days each year. Under the bill passed by legislators, the only exemption is for owner-occupied bed and breakfasts with fewer than four bedrooms.

“I remain optimistic that Governor Baker will sign the short-term rental legislation, Cape and Islands Sen. Julian Cyr, who helped negotiate the final bill, said late Thursday. “This bill is important for every homeowner on Martha’s Vineyard, Nantucket and Cape Cod, as the new revenue would provide real property tax relief.”

Regulation of short-term rentals could have far-reaching effects on the Vineyard, where many homeowners rent their properties for part or all of the summer season. A study commissioned by the Island Housing Trust in 2014 estimated that about 2,270 housing units are rented seasonally on the Island.

While some homeowners who rely on vacation rental income worry that a new tax would cut into their profits, housing advocates and others say the tax would provide an important new stream of municipal revenue and could nudge some landlords into shifting from seasonal to year-round rentals.

“Truthfully, this could really be a tremendous game changer for our area,” said Nancy Gardella, executive director of the Martha’s Vineyard Chamber of Commerce. “At the end of the day it increases our tax revenue without it coming out of any Islander’s pocket, and I’m a big fan of other people’s money infusing our economy.”

Under the bill that passed the legislature (H. 4841) the new tax on short-term rentals would range from 5.7 per cent in West Tisbury, which has not adopted an optional local rooms tax, to 11.7 per cent in Oak Bluffs and Tisbury, which have opted to charge a six per cent local tax, the maximum allowed by state law. In Chilmark and Aquinnah, the rate would be 9.7 per cent. If the bill becomes law, the new tax would take effect in January.

The bill would also allow towns to levy another three per cent tax on owners who rent out two or more professionally managed short-term rental units in the same town. Towns that opt into that additional tax would be required to spend not less than 35 per cent of the money ge nerated from it on either affordable housing or local infrastructure.

And in an amendment championed by Senator Cyr and another Cape Cod legislator, the bill also would create a Cape Cod and Islands Water Protection Fund to be financed by an additional 2.75 per cent excise tax on both short-term rentals and traditional lodging. Senator Cyr and Sen. Sarah Peake from Provincetown said the surcharge offers a mechanism for visitors who enjoy Cape and Islands beaches to help pay to keep them clean. Funds from the excise tax are earmarked for use in wastewater treatment and other efforts to reduce nitrogen pollution. While Cape Cod towns — under court order to build a wastewater management system — would be automatically be eligible for the funding, towns on the Vineyard would need to opt in and have their plans for wastewater mitigation approved by the state Department of Environmental Protection.

Rental agents and others contacted by the Gazette offered varying views on the effect of a new tax on short-term rentals.

Patty Leland, owner of Martha’s Vineyard Vacation Rentals, said the bill came as no surprise as many states have already begun to regulate short-term rentals and renters are accustomed to paying taxes and fees.

“The Vineyard economy is strong and the demand in the height of the season often outweighs the supply,” she said. “Travelers from other areas of the country and the world coming to the Vineyard for the first time are used to lodging taxes.”

But Joan Talmadge, co-founder of weneedavacation.com, an online vacation rental site that focuses on the Cape and the Islands, noted that the tax on some properties could go from zero to 15 per cent or more, depending on the town.

“It cannot help but have unintended consequences,” she said. “There are many homeowners who are strapped as it is. Vacation home rental owners rarely make a profit. Their expenses in terms of maintenance, taxes, insurance continue to increase and yet the average price increase is two per cent.”

Mrs. Talmadge was also critical of a feature of the bill that would set up a statewide registry of short-term rental units.

“We’re hearing from a lot of homeowners that this puts them in a vulnerable position security wise if there’s a list of homes that are empty part of the year. I know there are a lot of people opposed to that,” she said.

Currently, the five Island towns that have adopted a local rooms tax receive about $2 million annually from hotels and other traditional lodging, according to state records. The 2014 study commissioned by Island Housing Trust estimated that extending local room taxes to other short-rentals could bring an estimated $6.3 million more.

Richard Leonard, chairman of the board for the Island Housing Trust, noted that the Vineyard economy is closely linked to the seasonal rental market. The ability to rent homes for a high price drives up the value of those homes, raising prices and reducing the availability of homes for year-round Islanders.

While acknowledging that a new tax could reduce the amount people get from renting their homes, he said: “This could be an opportunity for a dependable source of revenue that in part could address that need . . . perhaps there’s an opportunity to utilize some of those funds to help fund housing on the Island.”

David Vigneault, executive director of the Dukes County Regional Housing Authority, took things a step further.

“We have a super-heated resort economy going on here. That’s our bread and butter, but it’s an Island so those demands are also adding to displacement,” he said. “There are a lot of folks who very understandably have moved from year-round rentals to seasonal rentals. Perhaps this will cool that down just a smidge.”

Martha’s Vineyard Commission executive director Adam Turner said he and a handful of leaders at the MVC have been closely tracking the legislation and were involved in fine tuning language in the wastewater clause to make it specific to the Vineyard. “We had several meetings, including making sure that that particular part of the legislation applied to the Island,” Mr. Turner said, noting that wastewater issues on the Cape differ from the Vineyard.

“Our issues are not necessarily related to section 208,” he said referring to the Capewide regional wastewater management plan. “We have a different method — we do monitoring and address issues not necessarily through 208.”

Mr. Turner said commission member Gail Barmakian and chairman Jim Vercruysse were also involved. He especially praised the work of Senator Cyr.

“He really listened and really worked hard to address our concerns,” he said.

Governor Baker has long favored passage of legislation regulating short-term rentals, but has also sought protection for people who only rent rooms for part of the year. In his January budget package, the governor had proposed limiting the rooms tax to people who rent rooms for 150 or more days per year.

Senator Cyr said Thursday he supports the governor’s proposal to the exempt people who rent for two weeks or fewer each year, calling it a “modest, practical change.”

“I am in support of the governor’s amendment, I believe my senate colleagues are in support of it,” he said.

Because the legislature is now out of formal session, legislators must unanimously agree to adopt the governor’s amendments.

Comments

So, people who own homes, pay

Chris OB

So, people who own homes, pay taxes, pay a commission to buy on the island will now have to pay more in taxes just to rent out their home for a few weeks. They are taxes on par with a hotel? Does that make sense at all? Fine, you want a tax then make it a little less. Keep sucking people who live off island dry and watch the market dry up. Why come here and pay an additional 15% (mind you that you pay 15% to have a rental agency find you a guest). So you would lose 30% of any profit plus have to pay income tax and property tax and have extra insurance. Why would you rent? Better off selling your home. Really, it would be a losing business. PS: why should a seasonal owner have to pay full property taxes for schools, etc, when they don’t use them? Seems like we get the benefit from seasonal owners and yet want to keep screwing them over. By the way, this will do nothing for the market. Most people who rent their homes for a few weeks will not rent yearly because they want to use the home in the summer. The argument is a fallacy!

The golden goose smells

A Summer Person from Kansas Leawood, Kansas and West Tisbury June and July

The golden goose smells fantastic please pass the gravy

Well, feel free to move then.

Bob

Well, feel free to move then. Maybe it'll help the housing market for year-round residents if people who buy properties just to rent them out go away

The tax will be on top of the

YH CH

The tax will be on top of the weekly rental rate. How is it fair that the local B&B's have to pay the tax, the motels/hotels have to pay it, and someone who inherited a stunning waterfront home, and rents it for say $20,000 a week does not? What more, with so many rental homes on the market, the hard working B&B owners end up having empty rooms. I've traveled all over, and this is the norm. Airbnb has a fee, hotels have them, and this is just a loop hole which homeowners got to enjoy, until now. It's badly needed revenue which will help the towns bottom line, and paid for by visitors.

Let's normalize the

Susan of OB West Hartford, CT

Let's normalize the conversation. There may be $20,000 wk rentals and for that consumer, a tax may be a non-issue. How about the other end of the spectrum -- a family looking to rent a summer cottage for $2,000 - $3,000. I wish I could be confident that funds would be fairly distributed/spent and that taxation would be equitable across this very small island.

I urge you to walk up and

YH CH

I urge you to walk up and down Water Street, Summer St in EDG, Katama, waterviews in Chilmark/Aquinnah, or anywhere else, and I think you'll find the rate is closer to 20 than 2,000. whatever the average rate is, I just don't see how it is fair that B&B's/hotels/motels have to pay a tax(again this is above the advertised rate) and homeowners do not. They charge $2,000 per week, then fine. They charge $2,000 per week, and there will be a tax on top. I don't understand what the ranting is about, when this is normal elsewhere, and the funds support the infrastructure which entices vacationers to come here in the first place.

Chris, it doesn't come out of

Not My Pocket

Chris, it doesn't come out of your pocket. It's passed on to your customers / renters. So you don' t pay more in taxes , your guests do.
Know what else, it's keeping up with the markets all over the US who charge taxes too, Florida etc. The island once again is way behind the times in getting this. The question you should be asking is why are not for profits paying NO or little taxes when they use the town's services most? Why do people who live in affordable housing through island not for profit housing groups pay little to none in real estate taxes? That's why your taxes are high.

The argument "why pay full

thomas hodgson WT

The argument "why pay full taxes if you don't send kids to school" has been beaten to death, and the answer is that everyone benefits when a society has free public education for its children. Your property taxes aren't some "a la carte" menu, where you get to pick and choose what your payment goes to fund.

Most year round residents don

Agreed MV

Most year round residents don't have kids in school. Many never have or will. All seasonal homeowners have the right to send kids to school here. They just don't choose to use that right. Nearly all seasonals had a right to a free education paid for by many people who didn't have kids. Seasonals do not use up as many services as year rounders, but capacity must be built out t meet peak demand, so it isn't as far apart as one might think. Most importantly, seasonals push up property valuations drastically, which is a core component of the funding formula the state uses in returning income and sales tax, lottery takings...everything...to the island. Typical town with our income levels gets 30% of its budget from the state. Island towns? About zero.

It should be noted that

thomas hodgson wt

It should be noted that federal tax law exempts fourteen days of rental income. It may be that Baker would prefer that state and national taxation practice match each other.

Of course Vineyard Haven is

RR Vineyard Haven

Of course Vineyard Haven is proposing a higher tax. Vineyard Haven always seems to need to be in the lead with taxes. Some day people will start to ask why and "to what end". Will it be the day that people realize that these costs are driving the values of the properties down in the town? When you try to sell, taxes are a factor and the benefits of being in VH as opposed to the other towns on island are not measurable. Or the one where people ask why the town costs so much more to administer, with no real visible difference in benefit from other towns? Why are the taxes, including this proposed tax, higher in VH? and not higher by a small amount but, rather, by a significant amount?

It should be noted that the

Katherine Scott Tisbury

It should be noted that the proposed law exempts people who rent out four or fewer rooms in their own residence. This was the original concept of bed and breakfast: You stay in a person's house and the person cooks you breakfast in the morning. Cheaper and more personal than a hotel; a little extra pocket money for the housewife cooking the breakfast. In a way, Airbnb totally ruined the whole concept by monetizing it. It is my view that Airbnb should be responsible for monitoring these extra taxes. Airbnb is the entity that makes out like a bandit on this whole new industry, collecting fees from both hosts and guests when rooms are booked---but they don't have to pay anything out until after the actual stay takes place. That gives Airbnb an enormous cash "float." What do you think they do with that moulah? According to an article in Vanity Fair magazine, Airbnb is a glorified bank.
But Airbnb is also basically an employment agency.
Airbnb should issue 1099s for all of their "hosts." Then everyone knows how much the host has earned with Airbnb, and appropriate IRS forms have to be filled out, deductions documented, etc. Any taxes owed are easy to calculate. Easy peasy.
This might also have the benefit of beefing up the Social Security accounts of Airbnb hosts.

I have traveled significantly

Jesse Dennerlein Vineyard Haven

I have traveled significantly over my years and the hotel taxes have always felt like "Taxation without Representation" to me. This is just an expansion of that. Tax the other guy because he won't complain! It is just further government greed.

I can't agree more! This is

EdgartownSteve Edgartown

I can't agree more! This is nothing but another way for the government to tax people. Its just greed. There is absolutely no benefit to the home owner by having this "tax" added to their rental fees, whether the renter or home owner pays this tax...I mean fee. And, look at the number of gov agency lining up to take a piece of this new revenue source.

In other news, the

Stacy Walker OB

In other news, the Commonwealth of MA posted a one billion dollar surplus for FY 2018 (let’s spend it) and the casinos are going to save us all!

The State can use the money.

thomas hodgson wt

The State can use the money. Remember that our fair state has a twenty-billion-dollar infrastructure repair backlog. Only DC has more traffic over worse bridges.

If this goes through vote

Ken Edg.

If this goes through vote these representatives out of office.

The argument that "renters

George Edgartown

The argument that "renters will pay the tax, not the owners" is false. Renters of all forms of real estate are keenly aware of their total occupancy cost. This is the true market price, and there is always a limit to what the market will bear. If a property renting for $3,000 per week suddenly becomes $3,300 when a new tax is imposed, many renters will go elsewhere (or forgo a couple of restaurant meals) to get back to their budget. And any ability the owner might have had to increase the rent in a strong market is siphoned off by the government. The plain and simple results are lower property values, more government and less economic growth. We can put the Capital "T" back in Taxachusetts.

I agree. I have been

Lise Connecticut

I agree. I have been vacationing on the Vineyard in the shoulder seasons for 25 years, my husband his entire life. We don't come as frequently, as the cost has risen to the point where it is more economical for us to spend time in Europe. And we do spend less and less when we are there as the cost of a rental has risen. This tax will put our most beloved vacation spot even further out of reach. Pity, one would have thought the budget surplus and recreational marijuana would have produced enough income that this would not be necessary.

I can understand both the

Paolo Aquinnah

I can understand both the pros and cons; but in the balance I would say it's a good thing for the Island towns. My only concern is that the additional revenue gets properly used. That is to say, it should be earmarked for truly worthwhile causes such as low income housing, education, social and economic safety nets for those in need.

GAME CHANGER??? N. Gardella

Susan of OB West Hartford, CT

GAME CHANGER??? N. Gardella states: “Truthfully, this could really be a tremendous game changer for our area,” said Nancy Gardella, executive director of the Martha’s Vineyard Chamber of Commerce. “At the end of the day it increases our tax revenue without it coming out of any Islander’s pocket, and I’m a big fan of other people’s money infusing our economy.”

Folks who rent my summer only house spend a significant amount of money on the island -- money that could go elsewhere. I work through a real estate firm -- a message of "you need to pay more, but it's for a worthy cause..." is just another cost for those trying to have a nice vacation .

How about a graduated tax.....e.g. if your rental is $2,000 a week, tax is smaller percent than those who are getting rental income of more than $4,000 / wk or more?

It's tragic that a state with a significant surplus is applying a one-size fits all solution --- MANY rent their homes to keep them in a family, or to use for a couple of wks out of the year. The owners hire plumbers, electricians, cleaning crews, painters, roofers.......keep taking away income from the owner (aka carrying cost of the MV home) and you may not like the outcome, empty homes, weeks not rented, weeks with no guests dining out or shopping. This WILL IMPACT ISLANDERS.

How about we stop any conversation around summer home owners not using the schools? Town where I live in the winter, I don't use the schools. I've lived here 30 yrs. and only used the schools for 14 of them. That's the way life rolls.

If this goes through, summer

renting homeowner west tis

If this goes through, summer rentals will decline and so will the amount of cash owners pay to local labor: landscapers, house cleaners, plumbers, garbage pickup, bike rental businesses, hardware and lumber supply businesses and so on. Many of these employ precisely those individuals who need affordable housing. And what about island residents who move out of their homes in summer to rent (often to island workers) to make a few extra bucks? The very rich, both landlords and renters, will suffer the least from this. The claim that this tax is for the benefit of affordable housing is not proven. It is giving more cash to towns and state government, much or most of it discretionary spending, without assurance of beneficial use to everyone.

Just another tax. Spin it

William ExPBA NYC, Chilmark

Just another tax. Spin it anyway you want.

The comment by the Director

Ric Edgartown

The comment by the Director of the Chamber of Commerce says a lot when she says she likes spending other peoples money! Economics 1-1 when you add costs you often have unintended consequences. So rental prices go up and then people cut back in dining out or shopping. There is no “free money”.
The change that all seasonal residents should be fighting for is the right to vote in local elections to determine how our tax dollars are spend. We pay in big $ with no voice in how the money gets spent!

The real sin here is that

BillyB OB

The real sin here is that most people who rent out don't declare their income, unlike hotels and B&B's. If the backdoor to getting these "landlords" to pay a fair share is to assess tax via the booking agency-- well, I'm all for that. Taking $5-10k a week from tourists and not paying any taxes on it is a recurring island tax scam.

The real sin here is people

Sara Piazza Edgartown

The real sin here is people who judge others and open their mouths without knowing what they're talking about while making blanket assumptions. Taxing the renters, thereby increasing the costs, with no negligible benefit - now that's the real scam. PS - most people who are in the rental business declare every penny.

Amazing that people are

WashAbhorred Edgartown

Amazing that people are cheering that others will be taxed more. Most of the town on the Vineyard are among the lowest property taxes in the State while also providing the highest funding per student to our schools. On Martha's Vineyard the majority of those taxes are paid by the second home owners who don't, or rarely use, our facilities. They're also the people that fund Island non-profits to the tune of over $30 million each year.
When the local hotels complain that they have to pay taxes others don't they don't mention they also get lower commercial rates on power.
The biggest supporter of this tax are companies like AirBnB. They don't pay the tax, but they get to use their size to afford the systems necessary to do the calculations and remittance. Smaller realtors and local rental agencies will be even less competitive.
So, the off-island hotel chains win, the big rental firms win, and more money gets sent to Boston never to return.
That's quite a win

People seem blind to reality

Dean Rosenthal Edgartown

People seem blind to reality that levying this tax will help towns pay for more affordable housing for real Vineyarders, those that help the Island fully function and who have been excluded from the housing market by the wealthy, who buy more and more property at higher prices and drive up home prices. Amazing that ANY true Islander would be against this — unless you rent in the summer, which I suspect many complaining do. But guess what, all those profits you make are on the backs of those who do staff your hospitals, schools, banks, stores, etc. I think it’s fair to say that if you live here as part of the community and you’re against this tax (whether it’s an ideological reaction to any tax or just fear on behalf of not wanting to charge more or who knows what) that you’re essentially against the Island surviving as a year-round community. For shame! For those who haven’t educated themselves as to where these funds would be directed to — it seems some think it goes straight to big government — read the article.

Sounds like socialist Robin

KC Tisbury

Sounds like socialist Robin Hood tactics to me. Rob the Rich and give it to the poor .. It’s still robbery !!

The bill would create a fund for water protection on the Cape and Islands.