Early Numbers for Rental Tax Revenue Indicate No Windfall Yet

Early returns are in for the Island’s first short-term rental tax, and while they show a marked increase, they haven’t quite matched up with lofty predictions.

Early returns are in for the Island’s first short-term rental tax, and while they show a marked increase over past quarters, they haven’t quite matched up with lofty predictions — leaving town officials still wary about speculating on the true impact of the tax.

Edgartown saw the largest boost, about $137,000, for the first effective quarter of the new tax (June 30 to Sept. 30). For that quarter, returns rose 30 per cent from $455,000 in 2018 to $592,000 in 2019.

In Tisbury, the addition of the short-term rental tax to the existing rooms occupancy tax increased rooms tax revenue for the summer quarter by about 11 per cent, $141,000 to $157,000.

Oak Bluffs town administrator Bob Whritenour said the town had not yet received returns from the summer quarter.

Up-Island, Chilmark saw a 45 per cent increase in its summer quarter returns, with revenue increasing from $39,000 in 2018 to $56,000 in 2019.

West Tisbury, which did not have a rooms excise tax before this year, brought in $33,000 from the tax on hotels and short-term rentals.

Numbers from Aquinnah were not immediately available.

But town accountants and financial administrators around the Island said the numbers tell only part of the story. There is a lag in how the tax is collected, meaning that for most towns the 2019 summer quarter only includes tax revenue from May 1 through July 31, 2019. And because the short-term rental tax took effect on July 1, the first returns most likely show the effects of just one month — this past July — of new tax collection.

Edgartown town administrator James Hagerty said the intricacies of the tax and its lag-time collection methods leave him cautious about using the returns as a basis for any sort of financial projections.

“There are so many variables,” Mr. Hagerty said. “I don’t know the exact reporting lag time. I don’t know when exactly hotels and rentals report the tax and can’t differentiate between them because the returns come back as one lump sum . . . There’s not enough history behind it to really forecast.”

He continued:

“All I can say is that from what I have, there was a 30 per cent increase in the supposed busiest time of the year. But that thirty per cent increase isn’t going to allow me to predict a 30 per cent increase every quarter, like people claimed.”

Signed into law last December, the short-term rental tax allows towns to levy an excise on any rental of 90 days or less. Rentals of up to two weeks are exempt from the tax. The new tax took effect July 1 but applied to all short-term rentals booked after Jan. 1. Although it was aimed at regulating the rapidly expanding AirBnB market in and around Boston, the tax had a direct impact on the seasonal tourist economies on the Cape and Islands, where short-term rentals have long been a lodging option for travelers and a source of income for homeowners.

Because five of the six Vineyard towns — Edgartown, Oak Bluffs, Tisbury, Chilmark and Aquinnah — already had a hotel and rooms excise tax, the new tax was an add-on. Oak Bluffs and Tisbury decided to tax short-term rentals at six per cent, while Edgartown, Chilmark and Aquinnah decided to tax them at four per cent. West Tisbury, which did not have a hotel and rooms tax, voted to add a six per cent local option to the mandatory 5.7 per cent state tax.

The new law spurred a grassroots movement to use a portion of the funds from the tax for the creation of an Islandwide housing bank. The proposal was defeated at town meetings after it saw considerable pushback from local officials amid so many unknowns about the new tax.

Over the winter, the Martha’s Vineyard Commission released revenue projections based upon the estimated number of seasonal homes on the Island, estimating the additional tax revenue from short-term rentals at approximately $7 million annually Islandwide. Now Islanders have their first actual window into what the tax could portend for towns.

Based on numbers gathered from the most recent financial reporting quarter, the tax will generate substantial revenue but far short of the commission’s projection. For example, while the MVC estimated that Edgartown alone would bring in $2 million in additional revenue annually, the $137,000 increase this July doesn’t suggest the town will reach that number, Mr. Hagerty said.

“Using what I have right now, it’s not achievable,” Mr. Hagerty said, speaking of the MVC projections. “That doesn’t mean it’s not going to be achievable in the next year or two once the process is more well defined and well regulated.”

He said Edgartown has relied on revenue from the hotel and rooms excise tax — which has come in just short of $1 million for the past few years — to balance its budget. He said all the revenue generated from the short-term rental tax is collected by the state and then returned to the towns. Because town budgeting took place before the tax took effect, the extra money from this year’s tax will go to free cash, Mr. Hagerty said. Tisbury town accountant Jon Snyder was similarly cautious about using the recent data to extrapolate for annual revenue predictions. Although the commission predicted Tisbury would generate an additional $1.3 million in yearly tax revenue, July returns only provided approximately $16,000. Mr. Snyder said a number of factors could be at play, including the closure of two bed and breakfasts in town, making the numbers difficult to interpret.

“We only have a sliver of the data,” he said.

West Tisbury town accountant Bruce Stone, who has worked closely with the state Department of Revenue since the tax took effect, offered further interpretation for the July numbers. He noted that June 30 was a Sunday, meaning that any rental beginning that day or earlier would not be included in the tax. Others noted that the tax didn’t include any rental booked before Jan. 1, meaning that many who booked early for their July rental were exempt from the tax.

“This makes it very difficult to make accurate projections on what annual collections actually will be,” Mr. Stone said in an email.

The fall quarter often sees larger hotel and rooms tax returns, because it includes August, September and October. Financial reports from years past show that Edgartown took in 15 per cent more revenue in fall 2018 than in summer. In Tisbury the number was about three per cent more.

Chilmark town accountant Ellen Biskis said her summer quarter numbers included rentals through August 19. The $56,000 in receipts from that period already surpassed the entire hotel and rooms tax totals from the 2017, 2018 and 2019 fiscal years, but Chilmark could still fall short of the commission’s predicted $748,000 revenue increase.

In short, Mr. Stone said, it’s still too early to evaluate the numbers.

“We will have a far better idea of the total impact when we receive the state payment on Dec. 31, which would reflect room rental taxes collected for August through October,” he wrote.

Meanwhile, Mr Hagerty said he plans to hold his first public meeting with a representative from the housing bank group this Tuesday. At town meeting last year, Edgartown voted to postpone the housing bank warrant article on condition that the town would work with proponents and hold public meetings before the 2020 town meeting.

He said the meeting Tuesday will include a member of the selectmen, planning board, conservation commission and affordable housing committee, among others.

“There was consensus that we would sit down,” Mr. Hagerty said. “I’m going to present the numbers to them on Tuesday.”

Comments

Submitted by Anonymous (not verified) on Thu, 10/17/2019 - 18:46

Permalink

gina Menemsha/nyc

Hmmm. not sure what formula the MVC people used for their rental tax projections/calculations . but although very early reporting doesn't even come close to those figures .. Maybe they were projecting 3 yrs + out ?? Sure glad the towns haven't any plans to spend that "windfall" yet..

Submitted by Anonymous (not verified) on Thu, 10/17/2019 - 19:14

Permalink

Status Tishan Central Island

“And with three percent of the polling stations closed we can confidently predict...”. Nothing. Nothing about how much money this tax will bring in. This is a bit of a news junkie story, but it was done well with all the terribly appropriate disclaimers. It is a very interesting topic and I appreciate the Gazette getting out in front of it. We should all look forward to the actual data. When it comes. Which it hasn’t. Meanwhile, feel free to engage in a few rounds of i told you so, or, you ain’t seen nothing yet. Let the shack nasties begin...

Submitted by Anonymous (not verified) on Thu, 10/17/2019 - 22:10

Permalink

Mark Edgartown

So even if you double the tax it is not even close to projected proceeds. Seems like this attempted money grab is an unpredictable failure. Why not protect our summer economy and repeal this mistake before it damages the economy of the island. Remember we are currently in the late innings of an economic expansion hopefully this doesn’t adversely impact the island economy in a contraction.

SusanOB

Repeal yes. Economic expansion surely slowing. The MA legislators who pushed this through and the Governor should be ashamed of the poorly executed legislation/tax

Submitted by Anonymous (not verified) on Fri, 10/18/2019 - 12:11

Permalink

T Bone Oak Bluffs

The repeal comments on this page are ridiculous. The Island is a zoo in the summer and it has a big impact on towns and their resources. Why should Inns and hotels have to pay but owners who rent don't pay? Again, ridiculous. I think more effort should be put into enforcement.

Edgartownite Edgartown

Those hotels also pay less than residences for electricity and pay the same rate per drain for sewage as a home user. I could understand if this tax was directed at the people that purchase multiple properties to rent but going after the people that rent/share their vacation home is just greedy. Especially, when the property taxes in Edgartown have doubled in recent years.
If the rentals dip, the property values will dip and then the property tax receipts will dip causing the tax rates to increase. How about we start looking at the expense side of things rather than always finding new ways to tax.

fact checker mv

Who will enforce it? If a homeowner decides to rent for the summer by placing a classified ad on website or newspaper there is no way to enforce it, especially if that homeowner does not declare the income on their tax returns. Just like expecting all the people who work 'under the table' to voluntarily declare their income and pay taxes....it won't happen. I suspect those who rent using realtors will pay, while others will avoid/evade paying. So the MVC projections of a windfall will not happen.

Mark Edgartown

You won’t be laughing in the next recession when the island economy stumbles and people scoff at paying more for rentals due to the inclusion of this tax. First thing that goes are all the construction, landscaping and other service jobs that support a vacation economy. The island does not have a sustainable economy outside of tourism. As for supporting services, the increased revenue is a drop in the bucket versus initial estimates and by no means predictable. If towns budget this money into their planning and it does not come through, they will either raise taxes or cut other funding / services.

Dave Neufeld Mamaroneck

Having rented each summer for about 40 years as well as a few times in the winter, we have seen the rental prices increase significantly. A two week rental is now far more than a month in the past. But the problem is that owners will not be dissuaded from seeking higher rents on top of the tax, which will enhance the impact of the tax. Summer tourism will be impacted, as visitors will reconsider the length and/or frequency of their trips here. If that happens, as is likely, then the supporting businesses and services will feel the impact. Or maybe the Island will become even more exclusive...and homogeneous. Pity.

Submitted by Anonymous (not verified) on Fri, 10/18/2019 - 15:33

Permalink

mvreader West Tisbury

It’s very important to note that the tax didn’t go into effect until July 1 and, even then, only applied to short term rentals that had been booked after January 1. It’s safe to assume that many bookings would have been exempt from the tax because they a) were for dates prior to July 1 or b) were confirmed prior to January 1. This first year’s number is artificially low because of that, so let’s reserve judgement ‘til next year’s numbers are in.

Submitted by Anonymous (not verified) on Sat, 10/19/2019 - 11:55

Permalink

Ken Edg.

You have to wait until next year for results. Most of the rentals were booked before the tax.

Submitted by Anonymous (not verified) on Sat, 10/19/2019 - 14:14

Permalink

Bob Edgartown

Most people that rent their homes on their own are not going to pay the tax. They claim that they are renting to relatives or less than two weeks or.... And, since the the towns do not have a mechanism to enforce the tax it won’t be paid. What we need instead of repeal is audit each home and require registration as a rented property as well as a building code and Safety Audit. I don’t live in Mass. currently but I am astonished at the general refusal by residents to not comply with laws and the failure of officials to enforce the law. My favorite are the “No Jumping from Bridge” on State Beach and parking in Edgartown with only two wheels inside the white line.
The short term rent tax is a good idea to help towns deal with summer issues and treat hotels fairly from a tax perspective.

Mark Edgartown

At what administrative cost for this audit, would it cover the paltry revenue that’s been brought in this far? Friend, more government beuracracy is never the answer for a better economy.

Diane Edgartown

You are so right, it is amazing how our laws are not enforced and people look the other way. It will only get worse if our wonderful Elizabeth Warren or another Democrats gets elected and starts to give more of our hard earned money to social programs. Let’s start by not worrying about todays taxes but think of the taxes to come. Would also like to slow the growth of our beautiful island and think infrastructure, sewage, etc.etc......Just my humble opinion.

Submitted by Anonymous (not verified) on Sun, 10/20/2019 - 11:54

Permalink

Theodore Murphy

I would not jump to a lot of conclusions based on the first quarter of implementation. The tax levels the playing field between hotels and private short-term rentals but the selectman were right not to agree to spend projected money that may not materialize in the amounts projected. Wait till next year at this time before making decisions. Free cash sounds good to me and I am sure that there will be no shortage of good places to spend it.

Submitted by Anonymous (not verified) on Tue, 10/22/2019 - 17:02

Permalink

Kelce OB

Let's be honest -- this island is renowned for tax dodging and shirking civic responsibility.

Add new comment

Plain text

  • No HTML tags allowed.
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.