Massachusetts House OKs First-of-Kind Short-Term Rental Tax Bill

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Aaron Nicodemus Boston Staff Correspondent Ryan C. Tuck Washington Deputy News Director

By Aaron Nicodemus

The Massachusetts House passed an extensive tax and regulation bill on short-term rentals that proponents said would be the first such plan in the U.S.

The bill, H. 4314, proposes to tax hosts of such rentals for the first time. It would set three different excise tax rates on hosts based on the number of units they rent. It would also allow all cities and towns in the state to levy local excise taxes on short-term rentals. Hosts would be required to place their units on a state short-term rental registry and allow their units to be inspected by local authorities.

“The short-term rental market has exploded in recent years. At the moment, it is completely unregulated,” said Rep. Aaron Michlewitz (D), who sponsored the bill. “This bill will create a ‘first-in-the-nation’ revenue structure, where the more units a host has on the market, the higher the excise tax.”

Michlewitz also said local officials will be able to monitor short-term rental units available in their communities and inspect them for compliance with health, safety, zoning, and other local ordinances.

Different Tax Rates

The bill passed by a 118-30 tally in the House March 22 and now heads to the Senate. Gov. Charlie Baker (R) has encouraged legislators to pass a bill regulating short-term rentals in this legislative session.

The bill levies an excise tax of 4 percent for “residential” hosts, who rent two or fewer short-term rental units; 5.7 percent for “investor” hosts, who rent between three and five; and 8 percent for “professionally managed” hosts with six or more.

The bill allows municipalities to impose a local excise tax of 5 percent on a unit rented by a residential host, 6 percent by an investor host, and 10 percent on a professionally managed host. No excise tax shall be imposed if the total amount of rent is less than $25 per day.

The legislation requires that hosts collect excise tax from their guests and remit it quarterly. Hosting platforms like Airbnb “that execute the financial transaction between hosts and occupants shall collect and remit any taxes required by this chapter,” according to the bill.

Airbnb Inc. has reached tax collection agreements with 41 states and the District of Columbia. Massachusetts is among the few states without such an agreement, however.

The state’s room occupancy excise tax for hotels, motels, rooming houses, and bed and breakfast establishments is 5.7 percent. The state, however, collects no tax on short-term rentals. In 2016, the Department of Revenue estimated that short-term rentals generated $294 million in Massachusetts

Boston Expresses Concern

The legislation seeks to address concerns by some cities, led by Boston, that the short-term rental market is causing a shortage of low- and moderate-income apartments.

In January, Boston Mayor Marty Walsh proposed a city ordinance requiring owners of short-term rental units to register with the city. On March 21, he formally withdrew the ordinance, saying it required further study.

“During a robust process, including a public hearing and two working sessions, important and complex questions were raised,” Walsh said. “Members of the City Council and I agree that more time is necessary to ensure that we enact the best and most effective policy and regulation regarding short-term rentals in Boston.”

Airbnb: Bill ‘Onerous’

Crystal Davis, press secretary for Airbnb, said the company has long wanted to collect the state’s hotel excise tax on behalf of its short-term rental hosts in Massachusetts. But Davis said the company has concerns with other aspects of the bill.

“This proposal is onerous and overly burdensome for our host community, and the kind of legislation the hotel industry has promoted across the country to prevent middle class families from earning additional income,” she told Bloomberg Tax in an emailed statement. “Massachusetts is the only New England state to pass on the millions in tax revenue home sharing creates each year. The Commonwealth and its residents can only truly benefit from fair and reasonable short term rental rules.”

Massachusetts Lodging Association President and CEO Paul Sacco accused Airbnb of siding with big business over small hosts.

“By opposing this common sense legislation, it is abundantly clear that Airbnb’s goal has nothing to do with protecting middle class home sharing and everything to do with protecting the wealthy investor class hosts who have made it a big business to buy up scarce housing and convert it to illegal, unregulated and untaxed hotels at the expense of local residents and neighbors,” he told Bloomberg Tax in an emailed statement.

To contact the reporter on this story: Aaron Nicodemus in Boston at anicodemus@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

For More Information

Text of H. 4314 is at http://src.bna.com/xdN.

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