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.
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