Short-term Rental Tax Bill Gets Mixed Reviews; For Now, Legislation Is In Limbo

By: Alan Pollock

Topics: Groundwater protection , Municipal Finance

Most rental agents oppose new fees for their clients, but say the complicated requirements of the bill could create new opportunities for them. ALAN POLLOCK PHOTO

Culminating years of work, lawmakers last week passed legislation that would extend the hotel-motel tax to short-term rental properties, boosting town coffers and raising funds for expensive wastewater treatment projects. But one day after the legislative session ended, Gov. Charlie Baker sent the bill back to committee for more work.

Despite the current uncertainty about the bill’s future, most agree that the legislation – or a version similar to the one currently proposed – will be signed into law before long. The version approved by the Massachusetts House and Senate last week extends the longstanding 5.7 percent surtax on hotel and motel room occupancy to short-term rentals like bed and breakfast establishments and private summer house and room rentals. It particularly aims to capture revenue from rooms rented through online services like Airbnb.

The bill includes an additional 2.75 percent surtax on units rented in Barnstable, Dukes and Nantucket counties to fund a new Cape and Islands Water Protection Fund. The revenue generated in each town will offset the cost of sewer system expansions and other costly wastewater management efforts.

“The short-term rental legislation levels the rental market playing field, provides consumer protection and public safety measures, and most importantly for every homeowner on the Cape and Islands, it’s a local aid bill that will provide real property tax relief,” State Rep. Sarah Peake said. The Provincetown Democrat said the 2.75 percent wastewater surcharge will shift some of the burden of wastewater cleanup on the “thousands of visitors who come here to enjoy our beautiful beaches, harbors and ponds.”

On the Senate side, the bill was championed by State Senator Julian Cyr, D–Truro.

“The creation of the Cape and Islands Water Protection Fund within this legislation is an essential step to fund the Commonwealth’s $1 billion commitment to help clean up excess nitrogen pollution in our bays and estuaries,” Cyr said. Cape Cod towns are expected to expend around $4 billion to meet state water quality standards.

The legislation also offers towns the opportunity to adopt an additional local surtax of up to 6 percent to support town budgets, though special legislation already enables Chatham, Harwich and Orleans to impose a 4 percent local option tax. Under the new bill, communities can further opt in to an additional “community impact fee” of up to 3 percent on lodging and short-term rental transactions; at last 35 percent of those revenues must be reserved for “affordable housing or local infrastructure projects.”

The legislation defines a short-term rental as one lasting 31 days or less. In his letter to lawmakers, Gov. Baker sought to have the number raised to 90 days. Baker is also seeking an exemption for property owners who rent their homes or rooms for 14 days or less each year.

Under the bill, rental properties would need to meet health and life safety standards, and owners would be required to carry $1 million in liability insurance. A key part of the legislation is the creation of a statewide public database of rental properties. But citing privacy concerns, Baker asked lawmakers to amend the bill to omit “personally identifiable information” from the database.

The bill is complex, and any final version to emerge from committee may contain additional changes. If acted upon during the legislature’s informal sessions, any individual lawmaker can block the bill.

But owners Sonnie Hall and Joanne Logie of New England Vacation Rentals say they’re ready for the legislation.

“It’s going to happen,” Logie said. The idea of taxing properties rented through Airbnb and similar websites originated in Boston, where expensive homes in residential neighborhoods are rented out regularly, vexing neighbors and condominium associations. “At first, Boston turned a blind eye to it,” she said. Eventually, support grew for a legislative solution, and the opportunity to raise revenue for municipalities was a strong incentive.

“It is going to be kind of an accounting nightmare for individual homeowners,” Logie said. The confusion about the legislation and the reporting requirements will likely push some property owners to use brokers to rent their properties. Others may opt to stop renting and simply put their properties up for sale, she added. But for those looking to vacation on Cape Cod, the surtax won’t be a deal-breaker, Hall said.

“Our guests are still going to come,” she said. They’ll pay the additional fees, since “even if they go to a hotel, they’re going to pay the same tax.”

John Hallgren, whose Pleasant Forest Shores cottage colony has been in the family for years, said he’s not sure how the legislation will affect him. Because his prices are very low compared to hotels and inns, even a small increase in fees is likely to force some customers away.

“I lost one customer because I went up by $20,” Hallgren said. A guest who pays $4,000 for lodging for a Chatham vacation might not balk at a fee increase, but one who pays $400 will likely feel the pinch. And that extra fee “means that they don’t have that money to spend in the local economy, the restaurants, the stores and so forth,” he said. Hallgren said he has around a half-dozen bookings each year through Airbnb.

Dan Berlinghoff, co-owner of A Summer Place vacations, a division of Wilkinson and Associates Real Estate, said he and partner Julia MacLeod Ruffino are expecting to pick up some business from property owners who don’t want to bear the burden of collecting all the new surtaxes and understanding the new requirements.

“We’re not in favor of anything that’s going to cost the tenant more,” Berlinghoff said. But the bill will likely make it more difficult for property owners seeking to “fly under the radar.” With the need to advertise their properties, “I don’t think that being underground is going to be very easy anymore,” he said. If landlords advertise their properties, that information will be visible to town officials as well as potential guests, Berlinghoff said. The town of Eastham already has a town-wide registry of rentals and an inspector charged with making sure each unit meets town standards, he said, and other towns will likely follow suit if the legislation passes.

Cape Cod Chamber of Commerce Executive Director Wendy Northcross said she supports the legislation as a means of leveling the playing field in the lodging industry. But she also supports the 2.75 percent water protection surtax.

“Cape Cod’s water is at the foundation of its economic prosperity,” she said.