Given rising rents in many urban areas, many have pointed out that short-term rentals remove units from the long-term rental market, resulting in less housing and higher rents.
This article was originally published on The Patriot Ledger website and can be viewed by clicking here.
The “Sharing Economy” impacts all of us in different ways. Airbnb and other platforms offering rooms in homes, or whole apartments, provide travelers an alternative to traditional hotels. Changes in the taxation of short-term rentals have long been sought by the traditional hotel industry – which pays the tax – as a way to level the playing field with private rentals. Given rising rents in many urban areas, many have pointed out that short-term rentals remove units from the long-term rental market, resulting in less housing and higher rents.
Massachusetts attempted to level the playing field between online platforms and traditional hotels and address the impact of short-term rentals on available housing stock by enacting what some have called one of the country’s toughest laws governing short-term rents. The expanded Short-Term Rental Tax Room Occupancy Excise Tax has been effective since July 1, but operators of short-term rentals are still grappling with the new obligations. This article addresses the state law, but it should be noted that local cities and towns have also enacted legislation.
In brief, the new law requires tax on all short-term rentals of more than 14 days in a calendar year for rental contracts entered into on or after January 1, 2019. The state tax is 5.7 percent. Cities and towns can add an additional tax of up to 6.5 percent. Other local taxes, such as convention center surcharges, may apply.
Adherence to the state room occupancy tax is mandatory for operators/intermediaries who rent a room in their Massachusetts property on a short-term basis; rent property they own in Massachusetts on a short-term basis; and/or arrange short-term rentals in Massachusetts for others. In other words, think summer (or winter) home rentals or Airbnbs. An operator does not have to be a Massachusetts resident or a Massachusetts-based business for this tax to apply.
“Short-term” had been considered to be no more than 31 consecutive calendar days, but it’s worth repeating – as a result of the new law, if a property is rented for more than 14 days in a calendar year, whether consecutive or not, it is now subject to this tax.
It’s also worth noting that the rent subject to the tax includes “all optional charges, including but not limited to insurance, linen fees, cleaning fees, and booking fees.”
Operators/intermediaries meeting the aforementioned requirements for the state short-term rental tax must register through MassTaxConnect, the Department of Revenue’s online portal, regardless of how many days their property is rented or the monetary amount collected in rent. Room occupancy returns must be filed monthly, on or before the 20th day of the month reporting the tax due on occupancies of the previous month.
There are exceptions to this tax, some of the more common being:
Operators/intermediaries subject to the tax are mandated to carry $1 million in liability insurance to cover the rental property. The actual amount of tax that is required to be collected is dependent on where the short-term rental is located.
The law is broad in terms of registration requirements. Many people are required to register, even if they are not subject to the tax. There are also requirements to file an annual declaration for those who intend to claim an exemption.
For those managing large real estate portfolios to those renting a spare room, consulting with your tax advisor should help you determine your obligations and assist in navigating the registration and filing requirements of the expanded Massachusetts Short-Term Rental Tax Room Occupancy Excise Tax.