As short-term rental platforms like AirBnb, HomeAway, and VRBO have grown in popularity, neighborhoods and cities have borne the impacts of increased tourism. Problems include more traffic, noise, and disruptive behavior; loss of affordable housing units, as landlords develop properties for lucrative short-term rentals; and loss of business for the hotel industry. In response, some state and municipal governments have passed legislation to tax and regulate the phenomenon.
In December 2018, Massachusetts passed its own version of such legislation: An Act Regulating and Insuring Short-Term Rentals, which not only regulates, but also taxes short-term rentals, The new law takes effect on Monday, July 1, 2019.
If you currently are renting your property on a short-term basis, or if you wish to do so in the future, here’s what you need to know:
- The Act will impose a state tax AND a local tax on income from short-term rentals of property if the number of rental days exceeds 14 in a calendar year.
- The operator of the short-term rental property will be responsible for collecting and remitting the tax to the Commonwealth.
- Rental agreements made after January 1, 2019, that begin occupancy on or after July 1, 2019, are considered taxable under the Act.
- Rentals that begin before July 1, 2019, are NOT subject to the tax.
The Act also imposes certain non-tax requirements. First, every homeowner who rents out his or her property must carry liability insurance of not less than $1 million, unless the hosting platform maintains equal or greater coverage. Check with your hosting platform to see if you need to take out an additional insurance policy. Also, the Act allows for cities and towns to conduct health and safety inspections of the short-term rental property.
What are short-term rentals?
Short-term rentals are rental units, rooms, or entire properties being rented for a period of not more than 31 consecutive days. A month-to-month tenancy or a tenancy-at-will is NOT considered a short-term rental.
Who is affected by the Act?
An “operator” under the Act is anyone operating a short-term rental. If you are an owner of a property, a lessee, or a holder of a mortgage, and you rent your property out for rental terms that are not more than 31 days, then you are considered an operator under the law. “Intermediaries” are also affected and are considered to be any person or entity that assists in facilitating the rental, such as property management companies, brokers, hosting platforms, or any other operator agent.
How much is the tax?
The answer to this question depends on where the rental property is located. Here are the basics:
- All short-term rentals are subject to the state excise of 5.7 percent.
- Under the Act, cities and towns have the option to impose a local excise tax. This can range from 0-6.5 percent, so make sure to check with your municipality.
- If the rental is in Boston, Worcester, Cambridge, Springfield, West Springfield, or Chicopee, a Convention Center Finance fee of 2.75 percent is added.
- For rentals in municipalities that are part of the Cape Cod and Islands Water Protection Fund, an excise of 2.7 percent is added.
- Finally, a city or town can vote to adopt a Community Impact fee ranging from 0-3 percent.
What must operators do now?
As of July 1, all operators must register with the Commonwealth through MassTaxConnect. Intermediaries also must register by July 1, following the same process. Once registered and renting properties, the operator will then be responsible for collecting and remitting the tax to the Commonwealth. Tax is due monthly on the 20th, for the previous month’s rentals.
Some hosting platforms have established methods to collect and remit the taxes on your behalf, so check to see who will be responsible for this collection; keep in mind, however, that you will be responsible if the hosting platform does not provide such a service.
The Act provides an exemption if an operator plans on offering a short-term rental for less than 14 days in the calendar year. If this is the case, the operator must file a notice with the Commonwealth that they intend to rent their property for less than 14 days. But they still must register using the MassTaxConnect and comply with all other aspects of the law.
So if your property fits these criteria, be sure to register on July 1 and begin to collect this tax from your occupants. And don’t forget to check with your city or town to learn whether any additional taxes have been imposed and whether any other local regulations have been adopted.