Renting an Airbnb in Massachusetts? Here’s what you should know about the state’s new short-term rental law.
In the quiet week following this past Christmas, Gov. Charlie Baker signed a bill over which Airbnb and other so-called home-sharing companies had made a lot of noise.
The new law to tax short-term rentals aligns Massachusetts with most other states in the country. By expanding the Bay State’s hotel tax to Airbnbs and other similar rentals, Baker says the law levels the playing field for “short term rental operators who use their properties as de facto hotels.”
The legislation also creates a first-of-its-kind statewide registry for short-term rentals.
Airbnb says it’s “deeply disappointed in the flawed bill” and unsuccessfully tried to persuade Baker to veto it, arguing that the legislation raised “serious concerns” for the thousands of hosts using the platform in Massachusetts.
Still, the company says it remains “optimistic” about the future, even as hosts across the state reportedly scramble to comply with the law before it takes effect this summer.
What sort of rentals are impacted by the new tax?
The law defines short-term rentals as “occupied property” where at least one “room or unit is rented out by an operator through the use of advance reservations.” That includes apartments, houses, cottages, and condominiums.
The definition does not include hotels, motels, and other lodging establishments providing accommodations to guests, as well as time-shares and month-to-month leases.
“A short-term rental is a rental that is not for more than 31 consecutive calendar days,” says the Department of Revenue.
The law applies whether property owners rent out the property themselves or use an intermediary, like a broker or hosting platform (i.e. Airbnb, Homeaway, or any other online apps or websites).
However, the new tax does not apply to people who rent out their homes infrequently. After negotiations between the Baker administration and state legislators, a compromise bill was reached to exempt people who rent out their homes for 14 days or less in a calendar year.
The Republican governor said the exemption was necessary to “avoid placing undue burdens on occasional renters.”
The tax also does not apply to rentals that go for less than $15 a night, nor does it apply to military members who rent out their homes or rooms while they’re deployed on official orders.
How much is the tax?
The law applies a 5.7 percent state excise tax on short-term rentals — the same rate that Massachusetts taxes hotels and other lodging establishments.
The law also extends other hotel tax policies to short-term rentals. Cities and towns will be allowed to impose a tax of up to 6 percent, except for Boston, which will be allowed to tax short-term rentals at a 6.5 percent rate. They would also be subject, like hotel rooms, to a 2.75 percent convention center financing fee.
However, there are also taxes that would be unique to short-term rentals.
Towns and cities could impose a “community impact fee” of up to 3 percent — of which at least 35 percent must be dedicated to affordable housing or local infrastructure projects.
Short-term rentals on Cape Cod and its offshore islands, including Martha’s Vineyard and Nantucket, will also be subject to a newly established 2.75 percent tax for the Cape Cod and Islands Water Protection Fund. The fund was included in the bill by Cape lawmakers to support environmental conservation in the popular vacation destination.
Depending on the town or city, the total tax on short-term rentals could add up to 17.45 percent — or 17.95 percent in Boston — if officials decide to max out their local tax and community impact fee.
The tax will apply to the total rent paid by guests, which includes services, cleaning, and other fees.
When does it take effect?
The new tax applies on rentals beginning July 1 that were reserved on Jan. 1 or later.
So, if you booked an Airbnb rental this past December for a trip to Boston next August, the purchase would not be subject to the new tax. But if you made the same rental this week, the tax would apply.
Individual rentals that begin sometime this June (regardless of when they were reserved) and run into July are not subject to the tax.
What else does the bill do?
It’s hardly all taxes.
The new law also requires short-term rental owners and “intermediaries,” like Airbnb, to register with the Department of Revenue, making Massachusetts the first state in the nation to establish such a statewide registry. Even owners who rent their property for less than 14 days a year are required to register with the state.
Operators will also be required to carry liability insurance of at least $1 million to cover each rental, beginning July 1.
The law says the registry will be publicly accessible and directs the Executive Office of Housing and Economic Development to hold hearings and study existing practices in peer states as it develops regulations for the registry.
The Department of Revenue says it anticipates issuing more information and guidance on the law — including the registration and collection process — in the “near future.”
While Massachusetts would become the first state to do so, a number of cities worldwide and across the country — including San Francisco, Seattle, and New Orleans — have created short-term rental registries.
Boston began requiring short-term rental operators to register with the city on Jan. 1 as part of a strict, new law passed last year to rein in the industry and address the local housing crisis. However, the city agreed to delay its enforcement of the new rules in the wake of a lawsuit filed by Airbnb over the law.
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