STEVE RYAN
‘Accounting nightmare’

An effort to extend the hotel occupancy tax to homes that are temporarily rented in Provincetown is drawing attention and opposition from Realtors.

The controversy emerged after a warrant article was passed at a special Town Meeting in April, and a home rule petition was subsequently filed to allow the town to apply the same type of tax that hotels, motels and inns are currently required to pay by state law to homeowners who rent their residences to vacationers.

Town officials in Provincetown argue that it’s only fair to expand the local occupancy room tax because licensed inns and guesthouses must pay a 9.7 percent tax – 5.7 percent of which goes directly to the state and the remaining 4 percent to the community – while competing with short-term rental properties that don’t.

If applied to short-term rentals, the tax would mean an influx of additional revenue for the community. Provincetown’s assessor estimates that the town would receive another $532,800 from the room tax, while the state would receive $759,000, according to Town Manager Keith A. Bergman.

But some Bay State Realtors argue that it is unfair to treat an individual homeowner, who might rent a home for one or two weeks during the summer, like a hotel or motel owner.

Steve Ryan, general counsel for the Massachusetts Association of Realtors, said if approved the measure “would create an accounting nightmare” for homeowners because they would be required to file monthly tax returns with the state Department of Revenue, regardless of how frequently they rent their properties.

Placing individual homeowners in the same taxing category as hotel and motel owners would have a “chilling effect” on people’s decision on whether to rent their homes, said Ryan.

Henry J. DiGiacomo, the chief executive officer of the Cape Cod & Islands Association of Realtors, said local real estate brokers and agents are concerned that the measure might put the town at a competitive disadvantage because prospective homebuyers and renters may choose another Cape community if a tax is implemented.

“Typically, any type of tax on real estate can have a dramatic detrimental effect on the market,” said DiGiacomo.

DiGiacomo, who discussed the issue in a meeting with Provincetown Realtors last Thursday, said most of them were opposed to the tax.

It’s unclear exactly how local real estate brokers and agents would be affected if the measure is approved. Agents who help homeowners rent their properties in the summer may have to disclose the tax obligation. Meanwhile, Realtors who help buyers purchase second homes that they want to rent also might have to relay the tax information to their clients.

Under Provincetown’s proposal, the local room occupancy excise tax would be applied to any “transient accommodation” including a single-family dwelling, a multiple-unit structure, a garage apartment, a mobile home and even a boat that has a permanent, fixed location at a dock.

‘Issue of Fairness’

The state’s Joint Committee on Taxation had a public hearing on Provincetown’s home rule petition on Sept. 21. Filed by Sen. Robert O’Leary, D-Barnstable, and co-sponsored by Rep Shirley Gomes, R-Harwich, the home rule petition is actually based on language contained in a bill that O’Leary filed last year. O’Leary’s bill would have enabled communities statewide to expand the occupancy tax to short-term rentals.

According to O’Leary’s office, the bill was amended so that the tax revenue that the town collected would be used for affordable housing. The bill made it into the Senate version of the state budget fill last year but did not survive.

The issue of applying the tax to short-term rentals has been a topic of conversation on the Cape for a while, according to Wendy Northcross, chief executive officer of the Cape Cod Chamber of Commerce. “It’s kind of a new phenomenon since municipalities are looking for every dime they can find,” she said.

But past efforts to extend the hotel tax have not gone anywhere, largely because the real estate community has been opposed, she said.

While the Cape’s Chamber of Commerce has not taken any formal position on the issue, Northcross said in an interview with Banker & Tradesman, “We think it’s worth looking at.”

She added that it could create equity between hotels and short-term rentals and put “everyone on the same playing field.”

Bergman, Provincetown’s town manager, said under the town’s special legislation 45 percent of all room tax revenues are deposited in a tourism fund to be used to market and enhance tourism in the town, and a little more than 19 percent is deposited in the community’s wastewater enterprise fund. The balance is placed in the general fund.

In a recent letter to the taxation committee, Bergman explained why the town believes it needs to expand the local room occupancy tax base.

“Because of the white-hot second-home real estate market in this seasonal tourist community, we have seen an absolute decrease in the number of year-round housing units. Between 1990 and 2000, Provincetown lost 324 year-round housing units – a 13.6 percent decrease – in large measure due to the number of year-round housing units becoming seasonally occupied,” he wrote. “Many of those units are rented out by the week during the summer months and those rentals pay no room tax.”

Bergman continued, “More recently, Provincetown has seen the phenomenon of conversion of some guest houses and inns to residential condominiums. And many of those units are also then rented out by the week during the summer months without paying the room tax – yet competing with guest houses and inns that do pay that tax. For Provincetown, this is an issue of fairness, as much as it is one of finance.”

While it’s late in the legislative session and it’s not clear whether the home rule petition will pass, the state’s Realtor association wants to make sure that agents and brokers are aware of the effort, according to Ryan.

Ryan said MAR hopes that legislators realize that Provincetown’s proposal is not a “step in the right direction” for tax policy or the tourist economy.

“There’s a reason it’s called a hotel/motel tax,” he said.