Plans to tax, regulate short-term rentals face opposition

July 03--BOSTON -- Beacon Hill wants to tax and regulate short-term rental units to fill gaps in the state budget and help hotels that are losing business to enterprising property owners, but the real estate industry is resisting the plans.

Lawmakers are weighing proposals requiring short-term rentals to be regulated like hotels and subject to taxes, inspections, insurance requirements and registration.

A House plan, filed by North End Democrat Rep. Aaron Michlewitz, would require people renting out rooms in their primary home to pay a 4 percent state tax, with cities and towns able to levy additional taxes up to 5 percent.

People who rent multiple units would pay an 8 percent state tax and municipal taxes up to 10 percent. Corporations and other businesses that rent units for five nights or more would face a 5.7 percent state tax and local taxes up to 6 percent.

The new taxes would generate an estimated $50 million a year for the state from rentals through online guest sites such as AirBnB and HomeAway, which help property owners advertise rooms, apartments and houses for rent.

Proponents and opponents

The hotel and hospitality industry supports the changes. Paul Sacco, president and CEO of the Massachusetts Lodging Association, said it will "level the playing field" for hotels and bed and breakfast inns that are subject to taxes and regulations.

Online guest sites have "exploded" in popularity, he said, but have been allowed to exist in a "wild west" not subject to taxes or rules.

"We don't oppose the use of short-term rentals, but they should have to play by the same rules as the lodging industry," Sacco told a legislative panel this week.

"Until they are registered and regulated, these services cannot be guaranteed to meet the state's consumer protection laws for their guests," he added.

The plan is opposed by the Massachusetts Realtors Association, which argues that homeowners looking to make a few bucks shouldn't be saddled with regulations and taxes, in addition to property and income taxes.

"A home is not a hotel, and a homeowner who leases their cottage for even a day should not be required to abide by overly burdensome tax collection or regulations," Stephen Medeiros, a lobbyist for the Realtors association, told lawmakers.

To be sure, Airbnb supports being taxed and regulated, which legitimizes their industry. But representatives of the site have said they want to ensure new rules aren't cumbersome or costly to their clientele.

"We believe regulations should be relatively simple and easy for people to comply with," Airbnb policy director Will Burns told the panel. "The vast majority of our hosts are renting out their primary residence fewer than 365 days a year, and they're not professionals."

Airbnb OK with taxes

The company, which lists an about 10,700 rental properties in Massachusetts, took out advertisements around the state last year saying it supports taxation and regulation.

Gov. Charlie Baker supports taxing short-term rentals and tucked a similar plan into his budget for fiscal 2018, a final version of which is being hashed out by legislative leaders.

His plan, which includes fewer regulations than the House or Senate proposals, would require businesses or individuals who provide 150 or more days of short-term rental accommodations to pay the state's 5.7 percent hotel room occupancy tax.

Baker administration officials estimate that would raise more than $12 million for the state.

The Senate last year included a short-term rental tax in its economic development bill to help offset a boost in the earned-income tax credit, but the House didn't approve it.

The state's hotel occupancy tax is 5.7 percent on units rented for more than $15 a night. Cities and towns are allowed to charge additional taxes up to 6 percent.

In the budget year that ended June 30, 2016, the state roped in more than $230 million in room occupancy taxes, while local governments collected another $185.3 million, according to state data.

The Department of Revenue estimates that taxing short-term rentals would generate another $13.4 million to $20.1 million for the state and $13.5 million and $20.3 million for local governments.

Communities making rules

Meanwhile, some communities north of Boston have passed local rules requiring short-term rentals to be licensed and pay registration fees.

In Manchester, property owners renting out rooms for fewer than six consecutive nights must apply for a license and pay a $100 annual fee.

Property owners must also comply with health and fire codes, which include having fire and smoke alarms and carbon monoxide monitors.

Geoff Beckwith, executive director of the Massachusetts Municipal Association, said "loopholes" in state law that allow short-term rentals to avoid taxes and regulations are hurting local businesses and depriving cities and towns of needed revenue.

"These private rental arrangements are rapidly increasing in number and are creating stiff competition for local tax-paying businesses," he said. "It's a matter of fairness."

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group's newspapers and websites. Email him at [email protected]

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