The Massachusetts Association of Realtors is an advocacy organization that represents the rights of homeowners, so we understand the ups and downs of the legislative process. As the 2017-18 legislative cycle wrapped up its informal session, we experienced a down. With the stroke of the governor’s pen, Massachusetts became one of the last states to tax and regulate the short-term rental market.
Interest in short-term rentals has increased over the past several years with the growth of home share platforms such as Airbnb and HomeAway. As a result, state legislatures across the country have seen this as an opportunity to increase revenue by taxing these services. Surprisingly to many, some of the biggest proponents of this type of legislation are actually the home-sharing platforms themselves. In addition to publicly advocating for them, they’ve also put their lobbying might behind these proposals. The home-sharing platform providers see an opportunity to access another revenue stream because they can offer tax collection and remittance as an additional service and charge for it. There are a lot of interests involved.
In Massachusetts, this new law expands the state’s hotel and motel tax to include the short-term rental of all kinds of homes, including condominiums, single-family and multifamily dwellings. The tax applies to all rentals for a period of 31 days or less, regardless of whether the rental is for recreational, personal or business use. The Massachusetts Association of Realtors was able to work with the legislature to ensure the new law applies only to short-term rentals, and not to ordinary tenancies such as an annual lease or a tenancy-at-will.
It’s too early to tell precisely the extent of the impact the new regulations will have on homeowners and real estate professionals. Our work as an association isn’t done. This law is not necessarily in its final form. We work with regulators to help fine-tune passed laws by sharing with legislators the lessons learned from the real-life experiences of our members and their clients.
What Does the Law Require?
The short-term rental rate varies by locality, making the current law difficult to navigate. The tax rate for the state is 5.7 percent, but local communities can add up to an additional 6 percent, and in Boston up to 6.5 percent. For homes on Cape Cod and the Islands, there’s an additional 2.75 percent to fund the Cape Cod and Island Water Protection Fund. On top of all this, a community impact fee of up to 3 percent may be assessed locally on professionally managed properties, which are those whose owners have two or more units in one town.
Beyond the tax, each rental unit will need to be listed with the state short-term rental registry. Each city and town is permitted to create a registration requirement for short-term rentals. Cities and towns also may implement a health and safety inspection requirement and set the frequency of inspections. Short-term rental operators are required to cover the cost of inspections and will likely face a fee to cover registration costs. Naturally, cities and towns find these fees to be fiscally appealing, while homeowners have to bear the added expenses.
Any rental contracts that were signed on or after Jan. 1, 2019, for stays on or after July 1, 2019, will be subject to the tax. We anticipate that the Department of Revenue will issue guidance on how to handle the tax on bookings made on or after Jan. 1, 2019. The law exempts from tax any 2019 rental contract that was completed on or before Dec. 31, 2018.
We have some big concerns with this new law. We will continue to educate our lawmakers as to how it affects their constituents. With 24,000 pairs of boots on the ground, we are in exactly the right position to witness the impact and to report back. We also must educate our members who then will guide consumers. We want to make sure the law is as straightforward as possible for Massachusetts homeowners.
Anne Meczywor is the 2019 president of the Massachusetts Association of Realtors and a broker/associate with Roberts & Associates Realty Inc. in Lenox.