For years local officials have been discussing imposing a tax on short-term rentals as a way to even the playing field between the summer rental of private homes and hotels and motels, which now must pay a state-imposed room tax. The rooms tax is currently 5.7 percent, and local towns can add up to 6 percent, though few charge up the limit. Chatham, for instance, currently applies a 4 percent tax to hotel and motel rooms, which last year raised $1.4 million.
Last week the Massachusetts House of Representatives passed legislation that would allow local communities to tax private rentals of less than 28 days. This would apply to single-family homes as well as Air BNB-type rentals. It's the sort of local option – town meeting would have to vote to adopt the tax – that has local officials salivating over the possibility of additional revenue flowing into town coffers.
But the bill, which has yet to go before the Senate, has a number of caveats and limitations. It sets three separate categories for short-term rentals: “residential hosts,” those who rent two or fewer units; “investor hosts,” which rent three to five units; and “professionally managed hosts,” which rent six or more units. Each would be taxed by the state at a different rate: 4 percent for residential hosts, 5.7 percent for investor hosts, and 8 percent for professionally managed hosts. If local towns opt in, they could tax up to 5 percent for residential hosts, 6 percent for investor hosts, and 10 percent for professionally managed hosts. Additionally, 50 percent of receipts from professionally managed host properties must go toward local infrastructure costs or low or moderate income housing.
Representative Sarah Peake, D-Provincetown, successfully added an amendment to the legislation that would assess an additional 2.75 percent fee on short-term rentals on Cape Cod and the Islands, with the revenue going into a Cape Cod and Islands Water Protect Fund to help local towns pay for wastewater management projects. This additional tax, she said in a press release, asks visitors help pay for wastewater costs, and lifts some of the burden on the local property owners who would otherwise foot the bill. Both constituencies, after all, contribute to the problem and benefit from clean waters.
There's no way of knowing how much this fund would raise; the number of short-term rentals in each of those categories is an unknown quantity at this time. The region is facing an estimated $4 billion in costs to address wastewater issues, most definitely a high priority. Peake's amendment allows towns to opt out of the water protection fund, and also allows towns like Chatham, Harwich and Orleans, which have already expended money on wastewater infrastructure, to tap into the fund to help cover future costs or debt.
Like other short-term rental bills before it, this latest legislation faces an uphill battle, and will no doubt be opposed by the real estate and rental industries. It makes sense, however, that short-term rentals pay the same tax as do commercial accommodations; it's the status quo in many other locations both here and abroad. Peake's plan to help fund wastewater infrastructure through the mechanism is a good one, and could also be extended to include the already established rooms tax, since keeping the Cape's environmental healthy and attractive to visitors benefits both private homeowners and commercial business owners.