Rental tax expansion gets mixed reviews

By Susan Vaughn - September 6, 2007

A state legislative proposal that would allow towns to extend the local 4-percent room occupancy excise tax to all private vacation rentals is getting mixed reactions from homeowners, rental agents, and town and state officials.

A 4-percent local excise tax on hotel, motel, and bed and breakfast inn rooms has been in place for some time as a local option in addition to the state 5.7-percent room tax. The proposed tax would apply to all rentals of private single-family homes, cottages, apartments, condominiums, and timeshares when they are rented for 90 days or less, according to House Bill 3155 sponsored by state Rep. Cleon Turner (D-Dennis).

Mr. Turner introduced the bill earlier this year as an amendment to the current room occupancy tax, which requires a city council vote, or in a town meeting form of government, a majority vote of a town meeting. Both taxes are optional for cities and towns, and the proposed new tax has gained some support in some Cape towns and Nantucket. The Nantucket selectmen voted in February to support it. Vineyard town officials and rental agents were mostly unaware of the bill.

The idea for the tax initially came from Brewster selectman Edward Lewis, who proposed it to other Cape towns as another local revenue source. Other co-sponsors of the bill are state Sen. Robert O'Leary (D-Barnstable), and state Reps. Matthew Patrick, (D-Falmouth), and Sarah K. Peake (D-Provincetown).

Mr. Turner testified on the bill at a June 5 hearing before the joint committee on revenue, saying that in addition to providing the town with more revenue, it was a matter of fairness to impose the tax across the board, Mr. Turner's aide Stephanie Cox said. Many groups have written letters and expressed an interest in the bill, including tourism and hospitality boards, and the Massachusetts Municipal Association, she said.

Much of the opposition at the hearing focused on reporting and collecting the tax, but Ms. Cox said the sponsoring legislators believed they addressed those issues, saying that the people who rent already have to report that income on their taxes.

The bill has not been reported out of committee, and would be taken up first in the House of Representatives since it is a tax bill. Other states such as Florida, Maine, and New Hampshire have such a law.

Sen. O'Leary said Wednesday that the proposed bill was introduced in conjunction with Gov. Deval Patrick's overall budgetary proposals to increase town revenues. The governor has proposed a 1-percent increase in the hotel and motel tax.

Mr. O'Leary said the prospects for passage of the private rental tax don't look good. "It's unlikely this would happen," he said. However, he said the feeling among the bill's proponents was that before the hotel tax is raised, a loophole exists in the whole class of people who are renting their properties essentially as motels, but not paying a tax.

The towns could extend the hotel tax to the private rentals, and it would generate a lot of revenue, Mr. O'Leary said. "They should be contributing."

On the question of enforcing the tax, Mr. O'Leary said towns could require the private rental agents to register their properties as a way of tracking their compliance. Mr. O'Leary said reaction from people who own summer homes has been, "They hate it.... It never occurred to them" that they could be taxed on their rentals.

The proposal also has generated opposition from the Massachusetts Board of Realtors, which spoke against it at the June hearing. Stephen Ryan, general counsel for the association, said Tuesday the new tax "would create an accounting nightmare for individual homeowners." The Department of Revenue, he said, might require a monthly report from the homeowners or other rental agents on the taxes collected, as it does now for hotels and bed and breakfast inns.

"We're not sure it's a step in the right direction for homeowners," Mr. Ryan added. Although the tax would generate new revenue for towns, he said it might deter people from renting their property, and in turn deprive communities of significant revenue from seasonal visitors.

Mr. Ryan also noted that homeowners could become anxious about reporting the information to the Department of Revenue, and perhaps discourage them from renting their homes. Failure to comply with the reporting requirements could force the taxing agency to impose penalties, he added.

The legislators will have to consider whether the benefits outweigh the other issues, Mr. Ryan said.

Vineyard rental agents and hotel owners were reluctant to comment on the proposal, and many didn't return phone calls, and those who were reached had not heard of it. One agent, who asked not to be named, said imposing the extra tax could be a difficult decision for a town, but she said it might be more appropriate for investment properties rather than private homeowners who rent their homes or rooms for extra income during the summer.

One West Tisbury homeowner, who has rented four housing units for many years, including her own home during the summer, was adamantly opposed to the tax.

"It's a terrible idea," Linda Benoit said. Noting that she and other private rental agents are already paying taxes on their income, she blamed the government for imposing more control. "The government's big on spending and looking for more ways to make more money.... It's just another layer. They don't call it Taxachusetts for nothing."

Ms. Benoit questioned how the government would regulate such a tax, and speculated that it would "force people to go underground."

She noted how difficult it is for a self-employed person who rents property to survive on the Island with the high cost of home repairs and other services. Her rentals have been down this year, Ms. Benoit said, especially during the shoulder seasons.

The current room occupancy excise tax on licensed hotels, motels, and bed and breakfast establishments brings in some substantial revenue to Vineyard towns, especially the three largest towns with the most rooms in that category. The tax money goes to the state first, but all of it is returned to the towns on a quarterly basis.

Edgartown collected $781,427 in fiscal year 2007, according to town accountant Kimberly Kane. The amount was down from the estimate of $796,000 based on previous years, she said.

Tisbury collected $152,643 in FY 2007 from the hotel room tax, Tisbury treasurer and tax collector Tim McLean said. Mr. McLean said he had "heard rumblings" about the tax when it was first proposed, but it has not come before the Tisbury selectmen.

Oak Bluffs collected $208,379 from the hotel and motel room tax in FY 2007, up from $187,684 in FY 2006, town treasurer Paul Manzi said. He also said the issue hasn't come to the attention of town officials.

None of the towns have a count on rental units that would be affected by such a tax since private homeowners who rent three rooms or less, do not have to be licensed. The Martha's Vineyard Commission's data from the 2000 census shows 2,200 lodging rooms in hotels, inns, and bed and breakfasts on the Vineyard, which has decreased since then, said Christine Flynn, economic development and affordable housing planner for MVC.

There were a total of 14,621 housing units in 2000, including 6,375 year-round and 8,246 seasonal homes. It is difficult to come up with a figure for how many of those homes are rented seasonally, Ms. Flynn said.

The Chamber of Commerce has an ongoing list of seasonal rentals, which totals about 100 private rentals during the height of summer, a chamber employee said. It is listed as housing for seasonal workers, but the rental costs range widely.

The latest list, dated Aug. 24, lists 22 houses, 20 apartments and 29 rooms, ranging in price from $150 a week for a room in a private home to $24,000 for a five-bedroom home from late May to late August.