HENRY DiGIACOMO
‘Worst possible tax’
By Aglaia Pikounis
A campaign to expand the hotel occupancy tax to homes that are temporarily rented on Cape Cod and elsewhere in the state has Realtors gearing up to fight any legislative effort.
The push to allow cities and towns to apply the same type of tax that hotels, motels and inns are currently required to pay by state law to properties that are rented on a short-term basis is being led by Brewster Selectman Ed Lewis.
Lewis, who has appeared before several boards of selectmen on the Cape in recent months to draw support for his idea, says that extending the tax would provide a new revenue stream for cash-strapped communities, and he argues that it’s only fair to extend the occupancy tax because licensed inns and hotels and motels must pay it while competing with short-term rental properties that don’t.
Already, five towns, including Falmouth and Dennis, have joined in the effort to lobby state lawmakers to extend the tax.
But Realtors on Cape Cod fear that such a tax expansion would be a harsh blow to the local real estate industry, which relies heavily on buyers purchasing second homes and vacationers who rent properties during the peak summer season. They worry that the tax would deter tourists from renting property and buyers from purchasing vacation homes on the Cape.
The effort comes at a time when property owners and real estate agents have been struggling to keep vacation properties rented and vacancy rates low. Some have projected a 25 percent to 35 percent vacancy rate.
“With vacancy rates as high as they are Â… this is the worst possible tax at the worst possible time,” said Henry J. DiGiacomo, chief executive officer of the Cape Cod & Islands Association of Realtors.
Currently, hotels, inns and motels must pay a 5.7 percent room occupancy tax to the state, and cities and towns have the option of collecting an additional 4 percent tax at the local level. More than 167 communities in Massachusetts collect a local room occupancy tax in addition to the state tax.
Last year, the town of Provincetown filed a home rule petition to apply the room occupancy tax to temporary rentals in that community, and Sen. Robert A. O’Leary, D-Barnstable, filed a bill that would have automatically extended the room occupancy tax to short-term rentals. Both measures were unsuccessful.
Lewis has met with O’Leary and Rep. Cleon H. Turner, D-Dennis, about filing a new bill that would give cities and towns in Massachusetts the option of extending the tax by local vote. O’Leary’s office said the senator has received letters of support for such a bill from Harwich, Brewster, Provincetown, Falmouth, Dennis and Chatham. The senator is working with Turner to draft and file a bill, according to O’Leary’s office.
‘Erosion of Rights’
Kevin Murphy, chairman of the Falmouth Board of Selectman, said towns have been losing tax revenue because many local hotels and motels have been converted into timeshare condos, which are exempt from the room occupancy tax.
In the last decade, Falmouth has lost anywhere from $300,000 to $400,000 a year, he said.
“We need to enhance our revenue base,” Murphy said.
Opponents argue that extending the tax could hurt the Cape’s economy, especially if tourists, deterred by the tax, choose to vacation elsewhere and take their spending money with them. Critics of the proposal are also concerned that seasonal workers, who come to the Cape to work at restaurants and shops and rent homes, also would suffer from the tax that property owners most likely would pass on to them.
“We think it’s a step in the wrong direction for property owners, for Realtors and potentially for the economy on the Cape,” said Stephen Ryan, general counsel for the Massachusetts Association of Realtors.
“I’m not sure the economic implications of it are fully understood by everyone who’s supporting it,” Ryan said.
Realtors contend that it’s unfair to treat a homeowner who rents a cottage for a few weeks during the summer months like a hotel or motel owner. Property owners could be forced to collect taxes and file monthly or quarterly reports with the state Department of Revenue, according to Ryan.
“The idea that homeowners are now going to be in the same bookkeeping and accounting role as hotel owners and bed and breakfast owners really doesn’t make any sense,” Ryan said.
Peter McDowell, broker-owner of Peter McDowell Assoc. in Dennis, said expanding the tax would put a burden on property owners. “This is a mom-and-pop [type of operation] that’s going to have to figure out another tax return,” he said.
McDowell, whose firm handles vacation rentals, said towns that are interested in generating more revenue have other options, including requiring owners who rent their homes to pay annual permit fees. The town of Dennis, for example, charges a $35 annual rental inspection permit fee that has generated $100,000 to $200,000 a year, according to McDowell.
Bob Churchill, a buyer’s agent in Yarmouthport, said a large percentage of home sales on the Cape are to baby boomers who are planning to retire there, but in the interim are renting properties.
“This group will be somewhat compromised by this [proposal] and it may influence their decision to buy here,” said Churchill, president-elect of the Cape Cod & Islands Association of Realtors.
Churchill said he worries that local officials are being shortsighted about what is driving the Cape’s economy. “The future economy here is to some degree based on the people who retire here and the service industries that are supported by their dollars,” he said.
For DiGiacomo, the Cape Realtors’ association executive, the idea of forcing another tax on property owners who are already paying real estate taxes is unreasonable.
“It’s a clear erosion of private property rights,” he said.
The message the real estate industry is sending to proponents is apparent: “We are prepared to fight this 100 percent,” DiGiacomo said.
