The Martha’s Vineyard economy is built in part on a seasonal influx of short- and long-term visitors. While many choose to stay in one of the Island’s inns or hotels, a significant portion of those visitors will rent a private house.
It is estimated that somewhere between 20 and 25 percent of houses on the Vineyard are rented at some point in the year, generating considerable income for the property owner, who, unlike the owner of an inn or hotel, will pay no tax. But that could change.
Town tariffs on home rentals is a topic that has simmered on the Cape and Islands for decades. Currently, state law allows towns to tax hotels, motels, and B & Bs up to 6 percent, but does not allow them to tax vacation rental properties such as private homes, condos, and cottages.
Historically, legislation enabling towns to tax home rentals has been initiated by representatives from tourism-dependent regions from both edges of the state, and it’s been consistently waylaid by lack of lawmaker support and a strong real estate lobby.
However, the tide appears to be changing.
Earlier this year, Dan Wolf, state senator for the Cape and Islands, and Sarah Peake, state representative for Provincetown, introduced two identically worded bills, H 2465 and S 1614, that greatly expand the meaning of “motel,” and give towns the choice of regulating and taxing “transient accommodations,” and “vacation or leisure accommodation.”
Also in the past year, the explosive growth of home-rental websites, in particular Airbnb, has made legislators from urban areas take notice. On May 12, Rep. Aaron Michlewitz, Democrat from Boston’s North End and chairman of the Financial Services Committee, introduced a bill, H 2618, that requires homeowners to register their properties, establishes health and safety standards, and puts additional revenue into state and local coffers. Mr. Michlewitz said the bill is also an attempt to slow the evaporation of affordable rentals in Boston.
“I’m glad AirBnB has brought this to the forefront,” Dennis town planner Dan Fortier told The Times. “In the past it really was a Cape Cod and Berkshire County issue, and the legislative delegation for the Cape and Islands is relatively weak because of how few [voters] we have. Now it’s more of an issue in Somerville and Boston, and I think we’re going to get more support.”
Freedom of choice
In a conversation with The Times on Tuesday, Senator Wolf said the proposed legislation does not require towns to impose levies on home rentals.
“Mine and Sarah’s legislation would simply allow towns to charge the same occupancy tax that is currently being charged at hotels, motels, and bed and breakfasts,” he said. “It’s not to usurp any local authority; in fact, it’s to enhance local authority. It allows towns to vote for or against it at town meeting. This could level the playing field with the hotels, and at the same time, generate much-needed revenue to support the infrastructure needed to accommodate these people. I’ve certainly heard from people on the Vineyard that they’re indeed looking at it.”
John Tiernan, owner of the Dockside Inn in Oak Bluffs, is an outspoken proponent of taxing seasonal rentals. “This is far too big of a resource for a town like Oak Bluffs to ignore,” he told The Times.
Mr. Tiernan said his advocacy is not based on sour grapes — his hotel is doing robust business. “I’m happy where my occupancy is,” he said. “But I’d be happier as a town resident if we would just collect taxes on all the businesses that are operating in town. We don’t have the amount of money to make our town look the way it should. My rant is because I want my town coffers full.”
Mr. Tiernan said homeowners often object to the local tax because they already pay tax on their rental income. “Income tax has nothing to do with it,” he said. “I pay income tax on the money I make from the hotel, as well as collect the 11.7 percent tax.” Mr. Tiernan believes a town tariff would have little or no impact on the rental market. “I don’t think someone renting a place for $5,000 a week is going to balk at $250,” he said.
Oak Bluffs town administrator Robert Whritenour told The Times he is very familiar with the thorny topic from his tenure in Mashpee and Falmouth. “The forces that shape the context of this issue are much stronger here on the Island,” he said. “It could be extremely meaningful for Oak Bluffs, where the deck is really stacked against us because the formula for state aid is based on property values, not income. It’s a very inequitable formula. The town has to look to sources other than the property tax. Communities of our size generally get about 40 percent of their income from state funding. We get zero funding.”
Mr. Whritenour said a program that recognizes the huge economic benefit that people receive from house and apartment rentals would provide the town with “a fighting chance” to compensate for face the lack of state aid.
Robust revenue estimates
Last year, Philippe Jordi, executive director of the Island Housing Trust (IHT) retained LDS Consulting Group ”to provide credible data to explore the idea of a local seasonal-rental housing tax,” with an eye to creating revenue for affordable housing on the Island. The 12-page report concluded that somewhere between 20 and 25 percent of homes on the Vineyard are rented at some point in the year. Using a 5 percent tax rate, the report estimated a potential revenue stream of $3.4 million for summer rentals, and nearly double, $6.3 million, when including offseason rentals.
“We really had no idea of the magnitude of the revenues that were coming from second homes,” Mr. Jordi said. “And that was a conservative estimate.” Mr. Jordi said he’s meeting with Rep. Tim Madden next week to express support for the legislation, and he will be making an appeal to Island business owners to get on board, since the funds could help create badly needed workforce housing.
The LDS report, written before the Airbnb explosion, concluded that political change at the state level would require “a seasoned lobbying team both on and off Island. This seasonal tax will most likely be controversial.…”
“No communities on Martha’s Vineyard have a system to track rental units,” the LDS report states. Consultants recommended that while the long legislative slog takes place on Beacon Hill, Island towns begin a tracking system by requiring homeowners to register their rental properties. Fifteen Cape towns required home-rental registration in 2014, including Dennis, Provincetown, Yarmouth, Barnstable, and Falmouth.
“Registration addresses two issues; one is revenue and the other is health and safety,” Mr. Jordi said. The LDS report recommended a $150 registration fee, $50 of which could be earmarked for affordable housing. It estimates the fee could generate roughly $340,000 for the Island.
“Registration revenues aren’t big money makers, but they can help cover the costs of enforcing health and safety regulations. There are a lot of stories about substandard conditions here.”
Mr. Jordi said a fire at an overcrowded rental home in Edgartown several years ago accelerated the conversation about registration of rental properties. “[Edgartown health agent] Matt Poole made a big push for licensing, and it passed at town meeting, but lost in the election by a handful of votes,” he said.
“To an extent it was catalyzed by the fire,” Mr. Poole told The Times. “It was more about safe housing than about revenue. We proposed housing-code enforcement and a full-time, fully benefited new hire to help enforce regulations like smoke detectors, guard rails, occupancy floor area ratio, maximum number of occupants,” he said. “We came up 14 votes short. We were real close.”
Mr. Poole believes creation of a registration is worth revisiting. “It requires landlords to keep a certain standard, and it would give us a foot in the door to respond to complaints,” he said.
Mr. Poole said that every summer he can count on at least one parent coming to him, aghast at his or her child’s living situation. “It always happens around July 1,” he said. “I can pretty much set my calendar by it.”
Mr. Whritenour also believes there is a substantial benefit to be had with a registration program, provided that the fees cover the cost. “I think registration could improve the Island’s reputation for all income levels,” he said. “There’s a significant number of high-end rentals here, but there’s also a good number of substandard housing rentals.”
Senator Wolfe said that he received an earful from real estate and building professionals about his proposed legislation at a recent gathering on the Cape.
“There was a lot of resistance, but that was not unexpected,” he said. “I think sometimes people forget we’re not mandating a tax, we’re enabling towns to act in their own best interest. It’s a great topic to be debating in each town.”
Islander Judy Federowicz, owner of Coldwell Banker Landmarks Real Estate for the past 29 years, thinks the proposed changes are misguided.
“Very often buyers of second homes rent them to help with the carrying costs. Most individuals are not out there to make money,” she said. “We’ve just come through such a rough time with the recession, to add another tax now, and put it on the backs of homeowners, I think is a mistake. We finally have our day in the sun, and now people want to put taxes on it.”
Ms. Federowicz also opposed the idea of home-rental registration, saying there’s already oversight in Tisbury, where, for example, a septic system inspection is required every seven years.
Ms. Federowicz does not agree that a local tariff would level the playing field with hotel owners. “They have a different clientele,” she said. “People rent houses to bring their families and their pets. They’re not comparable markets.”
Ryan Castle, CEO of the Cape and Islands Association of Realtors, also found the rationale behind the proposed legislation specious.
“It’s not a good idea to turn homeowners into tax collectors,” he said. “It puts the burden on the homeowner, and it’s not practical. If anything, it will drive vacation rentals further underground.”
Mr. Castle also pointed out that seasonal homeowners do not tax town infrastructure for most of the year.
Mr. Castle also questioned the registration requirement. “The vast majority of people are already doing it right; that’s how they make their profit,” he said. “The ones that do it wrong probably won’t register. You end up penalizing the good apples and not the bad apples.”