A Massachusetts room tax will now apply to short-term rentals

Expansion of room tax to include short-term rentals in Masachusetts signed into law

US: Legislation extending the state room occupancy tax to include short-term rentals in Cape Cod in Massachusetts has been signed into law by governor Charlie Baker.

The legislation applies a 2.75 per cent to the tax to create a fund to clean up the Cape’s coastal waterways, in addition to the taxes already in place on vacation rentals and Airbnbs.

The expanded room tax will automatically apply to each city and town in the state which has already adopted the local option tax, including Chatham, Harwich and Orleans. It is said to potentially generate an additional $34.5 million in state revenue and $25.5 million in local revenue, according to a press release from senator Julian Cyr and republican Sarah Peake.

The traditional hotel industry, which already pays the rooms tax, has long fought for the change to level the playing field with private rentals. However, rental agencies and others in the business community fear it will cause visitors to choose other resort areas over the Cape and force some second homeowners to sell their homes rather than pay the tax.

The additional tax will apply to rentals after 1 July.

Chatham, Harwich and Orleans currently collect a 4 per cent room tax on top of the state’s 5.7 per cent. How much revenue the expansion of the tax will generate is unclear; there is no existing list of short-term rentals, although hundreds of vacation homes and rooms are listed there on Airbnb and through local rental agencies.

Under the legislation, the Cape Cod and Islands Water Protect Fund will be created with an additional 2.75 per cent tax being collected in Cape and Island communities to help pay for an estimated $4 billion in clean-up costs for the region’s waterways.

Peake said: “The 2.75 per cent wastewater surcharge provides the mechanism to have our thousands of visitors who come here to enjoy our beautiful beaches, harbours and ponds help pay for the clean-up.

“The local excise tax will now be accessed across all rental platforms substantially increasing the flow of revenue into every community’s general fund. Without this, many would see their real estate taxes rise beyond what they could afford,” she added.

A management board will be created to administer the fund consisting of one member from each town, appointed by boards of selectmen or town councils. Members will have to be either a member of the appointing authority, a town manager, town administrator or other town employee.

Under the legislation, renters must register with the state department of revenue and obtain insurance.

Under the compromise bill, renters can make a declaration to rent no more than 14 calendar days in a year and be exempt from the tax unless they exceed the 14-day limit. If they exceed the 14-day limit, or fail to register, renters must pay the tax for all days that a unit is rented.

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