Expansion Of Room Tax To Short-term Rentals Signed Into Law

By: Tim Wood

Summer rentals are likely to be subject to the state room tax beginning in 2019. TIM WOOD PHOTOS

Legislation extending the state room occupancy tax to include short-term rentals was signed into law by Gov. Charlie Baker Friday.

Along with applying the tax to summer home rentals and AirBnBs, the legislation adds an additional 2.75 percent to the tax to create a fund to clean up the Cape's coastal waterways.

The legislation was a compromise between a House and Senate conference committee agreement and amendments proposed by Gov. Charlie Baker last summer. The expanded rooms tax will automatically apply to all 175-plus cities and towns in the state that have already adopted the local option tax, including Chatham, Harwich and Orleans. It is expected to generate an additional $34.5 million in state revenue and $25.5 million in local revenue, according to a press release from Senator Julian Cyr and Rep. Sarah Peake.

The traditional hotel industry, which already pays the rooms tax, has long sought the change as way to level the playing field with private rentals. But rental agencies and others in the business community fear it will cause visitors to skip the Cape for other resort areas and force some second homeowners to sell their homes rather than pay the tax.

The legislation favors rentals through services like AirBnB and hurts small business owners on the Cape, Ryan Castle, chief executive officer of the Cape and Islands Association of Realtors, said in an email. With tight implementation deadlines, there is no consideration for small rental businesses that will have to update leases and prices to comply with the law, he said. The additional tax will apply to rentals after July 1.

Chatham, Harwich and Orleans all currently collect a 4 percent room tax on top of the state's 5.7 percent. In 2017, Chatham collected $1.4 million in room tax revenue, Harwich took in $678,000 and Orleans $234,000. How much revenue the expansion of the tax will generate is unclear; there is no existing list of short-term rentals, although an internet search reveals hundreds of vacation homes and rooms listed on AirBnB and through local rental agencies.

Under the legislation, the Cape Cod and Islands Water Protect Fund will be created. An additional 2.75 tax will be collected in Cape and Island communities to help pay for the estimated $4 billion in clean up costs for the region's waterways, mandated in a 2011 lawsuit filed by the Conservation Law Foundation.

“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 the excess nitrogen pollution in our bays and estuaries,” Cyr said in the press release. The financial burden for wastewater management plans, he added, “should not rest solely on the shoulders of Cape and Island property taxpayers, but that it should be shared by those who visit to our shores and contribute to the nitrogen problem.”

“The 2.75 percent wastewater surcharge provides the mechanism to have our thousands of visitors who come here to enjoy our beautiful beaches, harbors and ponds help pay for the clean up,” Peake said. “The local excise tax will now be accessed across all rental platforms substantially increasing the flow of revenue into every community's general fund. Without this, many would see their real estate taxes rise beyond what they could afford.”

A management board will be created to administer the fund consisting of one member from each town, appointed by boards of selectmen or town councils; members must be either a member of the appointing authority, a town manager, town administrator or other town employee. Also on the management board will be the director of the Cape Cod Commission. The executive director of the Martha's Vineyard Commission and the Nantucket town manager will be non-voting ex-officio members.

The legislation specifically allows the fund to provide subsidies and other assistance to communities that have already undertaken wastewater projects, including Chatham.

Andrew Gottlieb, executive director of the Association to Preserve Cape Cod, called the water protection fund “the most significant legislative achievement for Cape Cod in a generation.”

“Funding water quality protection and restoration is the greatest fiscal challenge facing Cape communities and we applaud the Cape and Islands legislative delegation...for pushing through a very real and important property tax relief bill for Cape taxpayers,” he said.

The revenue stream is “absolutely critical to support the collective efforts of all Cape and Islands towns to address the growing water quality threats to our priceless bays, estuaries and beaches,” said Richard Delaney, president of the Center for Coastal Studies and chair of the Cape Cod Chamber of Commerce's wastewater task force. The chamber has “long understood the nexus between a healthy environment and a healthy economy,” he added.

Under the legislation, must register with the state department of revenue and obtain insurance. Gov. Baker had sought to exempt rentals of less than two weeks; under the compromise bill, renters can make a declaration to rent no more than 14 calendar days in a year and be exempt from the tax unless they exceed the 14-day limit. If they exceed the 14-day limit, or fail to register, renters must pay the tax for all days that a unit is rented.

The legislation requires that the state have a registry of all rental properties that is accessible by the public. To balance transparency and privacy, however, only the street name and city or town of properties and not the street number will published.