Proposed short-term tax is close

New tax would create water protection fund for Cape and Islands, but governor may seek amendments.

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A view like this from a private rental in Oak Bluffs could soon cost a little more. The state is close to approving a short-term rental tax that will help pay for water quality.

Updated August 1.

The Massachusetts legislature approved a bill Monday that would tax short-term rentals and, in the process, would create a fund aimed at protecting water off the Cape and Islands.

The bill, House 4841, An Act Regulating and Insuring Short-Term Rentals, expands the state’s room occupancy excise tax and local-option excise tax to include short-term accommodations, according to a press release from Sen. Julian Cyr’s office. The bill is focused on taxing short-term rentals such as those on Airbnb, VRBO, and other online rental platforms. The new tax base will immediately apply to all cities and towns that have already adopted the local room occupancy excise, which includes all Island towns except West Tisbury.

Several Island hotel and inn owners voiced their support of the bill. Lark Hotels founder and CEO Rob Blood, who operates four hotels on the Island, told The Times he is not nervous about Airbnb rentals from a competition standpoint. “I’m generally in favor of Airbnb being treated the same way hotels are. They provide a great service, but to create a level playing ground is great.”

Greenwood House Inn owner Larry Gomez also told The Times the tax was a good idea because it would “level the playing field.”

“At the Mansion House we’re happy to see that the state is working on something where state and town can make an additional revenue,” said Josh Goldstein, one of the Mansion House owners. “We’re turning it into a revenue source for the town, and everyone’s going to be safe.”

An earlier version of the bill received mixed responses from Island public officials.

In Massachusetts, customers are charged a 5.7 percent excise tax if they stay at a bed and breakfast, a hotel, a lodging house, or a motel. Now it will be charged at popular online rentals as well. “This legislation addresses the popular online vacation rental market on Cape Cod, Martha’s Vineyard, and Nantucket by making sure that it is held to the same standards as the traditional lodging industry, and will also generate much-needed local revenue for all the towns across our region,” Cyr said.

Included in the bill for short-term rentals is an amendment to establish the Cape Cod and Islands Water Protection Fund (CIWPF). The CIWPF was spearheaded by Cyr and state Rep. Sarah Peake, D-Provincetown.

Cape Cod towns are legally required to create wastewater management systems to clean up nitrogen pollution, due to a 2011 lawsuit filed by the Conservation Law Foundation. The total estimated cost to maintain good water quality on Cape Cod is in the ballpark of $4 billion. The CIWPF will be funded by an additional 2.75 percent occupancy excise tax, applied equally to short-term rentals and traditional lodging in Barnstable, Dukes, and Nantucket counties.

The bill works on two levels. It will put short-term rentals on a more even playing field with traditional rentals for every homeowner on the Cape and Islands, while the 2.75 percent occupancy tax will have the Cape and Islands visitors who enjoy the beaches, harbors, and ponds help pay for the water cleanup.

Shelley Christiansen is a landlord on-Island, and does all her rentals through real estate agencies. She isn’t too concerned with the tax: “It’s the kind of thing that doesn’t panic me in any way. I set my rates to allow for the cost of utilities and cleaning. This is just one more cost to add,” she told the Times, “I don’t think anyone’s going to be panicked about it, on the landlord side or the tenant side.”

Laurel Schneider is another short-term renter, who uses VRBO and word of mouth instead of a real estate agency. Schneider said she would have to wait and see if the tax negatively affected her. “I think it would only be a problem for us if it drove potential renters away,” Schneider said. She added that she is not opposed to taxation, but would prefer to see it come back to the Island.

“The creation of the Cape and Islands Water Protection Fund within this legislation is an essential step to fund the commonwealth’s $1 billion commitment to help clean up the excess nitrogen pollution in our bays and estuaries. I want to thank the entire Cape and Islands delegation who strongly believed, as I do, that the financial burden for wastewater management plans should not rest solely on the shoulders of Cape and Island property taxpayers, but that it should be shared by those who visit our shores and contribute to the nitrogen problem,” Cyr said in the release.

Oak Bluffs selectmen chair and wastewater commissioner Gail Barmakian, who had concerns with a previous form of the bill, applauded Cyr and said she was “comfortable” with it now. “This includes an opt-in provision whereby each town can choose whether they want to add the additional tax, and the funds will be administered by the Department of Environmental Protection. The original version made inclusion automatic. We wanted to ensure the Island towns had a choice, and that the tax dollars would support not just wastewater infrastructure, but more environmentally [friendly] systems and alternative systems, as well as ongoing testing. We also requested that a ‘208 Plan’ was not exclusively used as a qualifier to get funding from the fund. The bill recognizes this, and includes other watershed planning efforts as long as they are approved by the DEP,” Barmakian said in an email to The Times. “The Island community has made a lot of inroads when it comes to the health of our ponds, and we need to commend ourselves. But we still have a ways to go.”

Passed by the House and Senate, the bill now heads to Gov. Charlie Baker for his signature.

Gov. Baker, however, may return the bill with an amendment, according to the State House News Service.

Only hours after the bill was approved by both the House and Senate, Gov. Baker and his team raised concerns about it. Baker is considering an amendment that would exempt from new taxes units rented for less than 14 days per year, the news service reported. The governor also had an issue with the legal definition of “occupancy” which dictates when the tax is applied, according to the report.

The rental laws currently in place define occupancy for hotels and motel rentals that are rented up to 90 days. If a guest stays in a unit longer than 90 days, they no longer have to pay the tax, and are then subject to landlord-tenant laws. The new bill would reduce occupancy to 31 days, reducing tax revenue coming to the state.

The bill is “very much alive” senior advisor to Cyr Leslie Sandberg said. Gov. Baker has 10 days from July 30 to sign the bill.

The Legislature now has to wait for the Governor to either sign the bill or request any amendments. “It’s fair to say right now it depends on what he’s asking,” Sandberg said, “we are optimistic it will be signed.”

Updated to add comments from Leslie Sandburg. — Ed.

3 COMMENTS

  1. Short term rentals have been a fact of life on the Vineyard and part of the life blood of the seasonal economy for a long time. The only change that VRBO et al bring is the efficiency of a computer so if we support this increase in the cost of renting, it should have happened a long time ago. This is in contrast to a year round destination community like Boston where the digital platforms have radically disintermediated the housing market and hotel market causing a shortage of rental units and creating a new unfair competition to hotels. I generally don’t like new taxes but if our environment benefits and it levels the competitive landscape then it seems like a good thing.

  2. quite a misleading headline– yes, somewhere in tis bill is something about funding “clean water” — but it’s about implementing a tax . And how exactly does taxing air b&b keep everyone safe ?

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