If you own short-term rental property, Governor Baker’s new tax legislation will impact you. A new tax is being levied on any bookings made for stays of less than one month, starting January 1, 2019. Many homeowners on the Cape fall into this category of property owner, and short-term rentals are a vital part of the Cape tourist economy. Make sure you understand the new law and how it affects you. Read on for highlights of the law and some useful resources for short-term rental landlords.
What is The New Short-Term Rental Law?
In response to the housing problems associated with the “sharing economy” created by services like Airbnb, Governor Baker has levied a tax on any short-term rental shorter than 31 days. The idea is to discourage the use of personal property as a hotel. In essence, the law that governs the tax rates for hotels and motels has been expanded to include short-term leases.
There are three components to the new tax, with a potential fourth. The new tax includes a Cape and Islands Water Tax of 2.5%, a state tax of 5.7% and a local tax that varies from 4-6%. Owner-operators will need to check with their local town hall or with a Realtor familiar with the area about specific taxes. Towns can opt out of the Water tax, with a ⅔ vote in their legislative body. Additionally, towns can opt into a 3% Community Impact Fee, however, none of the towns in Barnstable, Dukes, or Nantucket counties have done so thus far. We will be keeping an eye out for any changes in the optional Water Tax and Community Impact Fee opt-ins.
For homeowners who rent their properties on a short-term basis, like many who rent homes by the week on Cape Cod, this means that there are a couple of differences.
- Landlords will now be using a different standard lease form
- Landords will be required to hold a 1 million dollar insurance policy
- Landlords will have to charge this new tax on any services proffered during the lease term and pay it through MassTaxConnect
- Landlords will have to register their property as a short-term rental property with the Department of Revenue.
The Lease Form
Whether you have worked to rent your property through a Realtor or on your own in the past, you are likely familiar with the standard Cape Cod and Islands Association of Realtors Standard short-term Lease form. That form is being replaced with the Massachusetts Association of Realtors short-term Lease form. The terms are similar, but it will be important for you to familiarize yourself with this contract. Speak to your Realtor about getting your hands on one.
The Insurance Policy
Homeowners who plan to lease their property for stays of shorter than 31 days will need to carry an insurance policy of at least $1 million in liability coverage for each stay. This coverage will protect the owner-operator and any other tenants in the property from lawsuits related to bodily injury and property damage due to a short-term rental. If a homeowner is working with a third party platform to rent their property, that party may elect to provide that coverage. This includes Airbnb, HomeAway, and Realtors, among others. If you are hosting short-term renters, and you work with a third party to make bookings and leases, check with them to see if they are able to provide you with coverage.
Realtors are not required to carry this insurance, though some will. If you have a private policy and you work with a Realtor, you will be asked to provide an Insurance Disclosure. This form enables your agent to furnish insurance information to renters.
14 Day Rental Exemption
Some rental operators will be exempt from this tax. If a property will not be rented for more than 14 days in a given year, that property does not fall under this new regulation. There is a form used for certifying that a property is not going to be rented in this manner, and any homeowner looking to rent their home for less than 14 days per year will be able to declare with this form.
In the end, the short story is that short-term rental units are now subject to a higher tax rate, up to 14.45% in some towns. Owner-operators will need to register any short-term rental property with the state and will be required to remit these taxes per stay. Owner-operators also have to ensure that their property is properly insured. For more information on the tax, how to remit taxes, and what services are included in the tax, please visit the Department of Revenue’s FAQ page on the subject.
At Coastal Point Properties, our agents will be taking new training in order to fully understand this tax law. We will be able to assist landlords in understanding their new tax obligations.