With an end-of-the-year stroke of the pen, Gov. Charlie Baker signed legislation last Friday extending state and local occupancy taxes now paid by hotels to short-term rentals such as those offered through Airbnb.

The widely debated bill has been making its way through the legislature since early last year, and came about partly out of concern about the effects of Airbnb and other online rental platforms on the hotel industry in Boston. But the bill could have far-reaching implications for the Vineyard, where the lucrative summer rental market has grown into a big business that has been largely unregulated and little studied.

The new law goes into effect July 1 and will tack a 5.7 per cent hotel/room tax onto most short-term rentals. There is an exemption for people who rent their properties for 14 days or less per year. All others, including homeowners who rent their homes through summer rental agencies or websites such as Weneedavaction.com, Vacation Rental by Owner (VRBO), and Airbnb, will pay the tax, plus more in towns that adopt local option taxes.

The 5.7 per cent tax goes to the state and is expected to generate millions; local option taxes are returned to the towns.

A specific provision in the bill for the Cape and Islands creates a 2.75 per cent add-on tax, with proceeds going to a Cape Cod and Islands Water Protection Fund. The tax will be automatically applied in Barnstable county but is optional for towns on the Vineyard, according to information provided by the Cape and Islands state Sen. Julian Cyr.

In addition, towns can levy an additional local occupancy tax of up to 6 per cent on all short-term rentals and an optional community impact fee of up to 3 per cent more on people who rent two or more professionally managed short-term rentals in the same town. Rental properties, regardless of whether they are rented for 14 days or fewer, also will be required to register with the state by September and carry $1 million in liability insurance.

Properties that are rented for more than 31 consecutive days to the same renter and month-to-month leases are not subject to the law. People who run owner-occupied bed and breakfasts with fewer than four rented rooms are also not affected

The new law has already caused reverberations on the Island, with rental agencies reporting a flood of calls from concerned homeowners.

“There are still so many unknowns,” said Anne Mayhew, owner of Sandpiper Rentals based in Edgartown. “We can’t give them a clear picture yet of what that tax number is going to be.”

The new law applies to any short-term rental agreement signed after Jan. 1 for rentals beginning July 1; leases signed last year for the coming summer are exempt.

Rental agents said the absence of a grace period between the signing of the bill and the signing of new leases in the first few weeks of January, typically the busiest time of the year for summer rentals, came as an added blow.

“For the governor to sign it four days before it went into effect . . . it left us with no time to deal with it,” said Joan Talmadge, co-owner of weneedavacation.com, an online rental site that hosts about 4,000 properties for the Cape Cod region, including about 450 on the Vineyard. “We were hoping that maybe they would phase it in. To go from zero to possibly 15 per cent is a drastic leap,” she said.

Mrs. Talmadge said she has heard from residents who are now considering selling their homes because they may no longer be able to break even on their property.

“I think there’s going to be disruption,” she said, speaking about the summer rental market.

Mrs. Mayhew, whose company handles roughly 700 rental homes, had another view.

“I think anyone who comes to the Vineyard plans on continuing to come to the Vineyard,” she said.

Elected officials are also wrestling with the implications of the new law, including the various local option taxes and enforcement of the new rules. Edgartown town administrator James Hagerty said town leaders are planning to meet with the Martha’s Vineyard Commission in the coming weeks to discuss the next steps.

“We don’t know how much revenue we could get from it,” Mr. Hagerty said. “Since it was so recently passed . . . we need to figure out the various interpretations and what we need to do.”

Chilmark sent out an email Monday advising that the law “will pose significant challenges for owners conducting short-term rentals in 2019.”

Town administrator Timothy Carroll said selectmen plan to discuss the new law at their next meeting. Various town boards are busy counting up how many rentals fall under the law’s definition of short term, he also said.

“The number of homes that are rented is one thing, the number that is rented out between 14 and 31 days is another,” Mr. Carroll said.

Martha’s Vineyard Commission executive director Adam Turner, who closely followed the new law as it made its way through the state legislature, said it could be an economic boost for the Island, but more analysis is needed. 

“It’s a complex bill,” Mr. Turner said. “What the commission is going to do is analyze this more closely for the towns and develop information on what the impact is going to be.”

He said Island towns that are part of the water protection fund could become eligible to receive funding to improve wastewater treatment and protect saltwater estuaries, provided they develop wastewater management plans that are approved by the Massachusetts Department of Environmental Protection (DEP).

“It gives us the ability to get projects done here,” Mr. Turner said of the water protection fund. 

Barring legal challenges, the new rules will be in place by this summer. Meanwhile, towns and rental agents are scrambling to sort out the details and evaluate the impacts.

“There’s really mass confusion and we’re doing our best to find the answers,” said Mrs. Talmadge.

Key Features of the New Rental Law

• Takes effect July 1, 2019 on units leased after Jan. 1, 2019.

• Extends the state room occupancy tax of 5.7 per cent to short-term rentals; allows towns to levy a local tax of up to 6 per cent more.

• Requires property owners to carry liability insurance of at least $1 million for each short-term rental.

• Exempts properties rented for less than 14 days per year from taxation, but they still must still be registered and insured.

• Creates a Cape Cod & Islands Water Protection Fund with an optional additional 2.75 per cent excise tax on short-term rentals.

• Lets towns decide whether to impose additional taxes, require inspections and impose other regulations and means of enforcement.

Corrected from an earlier version which reported that the 2.75 per cent add-on tax for a water protection fund would be automatically applied in some Vineyard towns. The tax will be optional on the Vineyard but will be automatically applied on the Cape.