In the closing days of 2018, the State legislature signed a compromise Short Term Rental Tax (“AirBnB tax”) which Gov. Baker had previously vetoed due to his concern over privacy and onerousness on “casual renters.” The legislation requires property owners who rent their homes for 15 days or more per year to collect a pass-though tax – essentially a “hotel” tax – from their renters and pass it on to the State through their local municipalities, which also benefit from this tax.
This is not a tax on property owners. It is a tax on property renters. It does, however, impose “costs” on property owners in terms of time to register, report, collect and transmit both these taxes and in the local rental registry fees (if applicable) that may be in effect in each Town.
Highlights of key provisions as we understand them.
- Effective on rentals beginning on or after July 1, 2019 that have been contracted or booked after January 1, 2019.
- Requires short-term rentals to be registered with the State. The law protects personal information of rental property owners, per Baker’s concern over privacy. However, the State registry info MUST contain street name, but local municipalities MAY decide if it includes house number and have some discretion over what is published in local directories. It is unclear what Truro will do at this time.
- Requires $1 million in liability insurance for those who rent out all or part of their property for 15 days or more per year MUST obtain
- Exempts “casual renters” [those who rent out their units for 14 days or less in total per year] from being required to register with the state or obtain the $1 million in insurance.
- However, property owners who exceed the 14-day annual limit, must remit taxes for all days rented, not just day 15 and beyond and meet other requirements of the law.
- Requires renters to pay (and owners to collect) 5.7% State rooms tax , a local rooms tax [Truro at 4%], with an additional 2.75 percent fee levied on Cape Cod for a Waste Water Protection Trust Fund. In Truro, the total applicable percent will be 12.45% to be collected from short-term renters.
- Towns are able to require additional taxes on second-units operated by a single rental property owner, with a portion of the revenue generated to be earmarked for affordable housing in that municipality. It is not yet clear what Truro will do on this.
- For more information: WBUR issued a good laymen’s synopsis of the law while a more comprehensive summary of its provisions and details was prepared by the Cape Cod & Islands Association of Realtors (CCIAOR)
The law had wide support of many environmental and other non-profit (such as APCC) and business organizations, municipalities and the Cape Cod delegation but was vigorously opposed by AirBnB and many occasional and “casual” renters who rent their homes/rooms for limited amounts each season. The law was initially intended to create a level playing field between homeowners who frequently rent and actual commercial entities like hotels and motels. As the law was developed, provisions were added to make it more appealing and useful in a broader set of conditions.
The main benefits now include:
- The tax will generate significant revenues for local towns. Legislators had previously estimated that the bill would generate $25 million in State taxes and another $25 million in local taxes statewide. For example, Truro estimates receiving nearly a half-million dollars in revenues from this tax nitially. These taxes will relieve local budgetary pressures.
- It creates the Waste Water Protection Trust Fund which will save Cape property taxpayers at least $1 billion needed to build municipal waste water systems Cape-wide. This will advance workforce housing development, protect water quality, create tax parity among rental properties, and promote a “blue economy” in the region. However, since Truro has no plans for a municipal wastewater system, it is unclear how this Fund will specifically benefit Truro, notwithstanding that Truro’s most pressing water concern is waste water management on well-based systems.
- It might – just might – lead Truro and neighboring towns to re-consider and rescind the 5-C Residential Tax Exemption (adopted in 2017 in Truro), since this tax fulfills the underlying purpose of the RTE legislation: to shift taxes from local full time residents onto part-time resident taxpayers, including their visitors and renters. This massive infusion of cash revenues may be redundant for this purpose. Rescinding the 5C RTE will help to heal the Truro community, now divided over this punitive tax surcharge on part-timers.
The main headaches are:
- For individual property owners who would be renting under terms of this law, the process of tax collecting, filing and reporting are complicated and time-consuming, unless property owners rent through a platform (like VRBO) which does it automatically.
- Some towns require a “rental registration fee” which we expect will be dropped as a result of the massive infusion of funds this tax will generate.
- It may be difficult to obtain the $1MM coverage in liability insurance required by this law.
Watch this space for updates on local implementation decisions and processes on the Short Term Rental Tax in Truro.