The governor signed legislation to regulate and tax the state’s growing market of short-term rentals at the end of December.
With only days to spare in the calendar year, Governor Charles D. Baker Jr.’s approval settles months of uncertainty over a bill that has been stalled since July.
In an attempt to level the playing field between hotels and rentals like those found on Airbnb, the law imposes a 5.7 percent hotel tax on short-term rentals, requires hosts to carry liability insurance and creates a statewide registry of rental properties to better track the flourishing market.
Municipalities can levy additional taxes. On Cape Cod, this includes a 2.75-percent surcharge that will flow into a new fund called the “Cape and Islands Water Protection Fund.” The fund will aid towns with their ongoing wastewater cleanup efforts. A big-ticket item for the entire region, local leaders are exploring numerous options to fund these projects. According to lawmakers, one goal of the fund is to ensure that vacationers share in the financial burden of preserving the Cape’s environment.
Water-quality programs pose the “greatest fiscal challenge” to Cape communities, said Andrew R. Gottlieb, executive director of the Association to Preserve Cape Cod.
Mr. Gottlieb, who helped draft language outlining the fund, said its creation was the “most significant legislative achievement for Cape Cod in a generation,” and will benefit numerous towns, including Mashpee, where he sits on the board of selectmen.
“Christmas came early for Cape Cod, Martha’s Vineyard and Nantucket,” State Sen. Julian A. Cyr (D-Truro) said in a release after the legislature passed a new compromise version of the bill on December 20.
“It’s been a long road to pass short-term rental legislation and I want to commend Rep. [Sarah] Peake for her dogged determination to finally realize this critical priority.”
Rep. Peake and Sen. Cyr introduced the fund as an amendment to the bill in the House and Senate, but while it earned unanimous support of the Cape & Islands delegation, companies that deal with short-term rentals are nervous about what the law means for their customers.
“We’re fully aware of the towns’ need for additional revenue,” said Joan Talmadge, co-owner of the site WeNeedAVacation.com. “The clean water is really the mainstay of the Cape and Islands.”
However, she is worried how the jump in taxes will impact clients who rent out homes on her site, particularly those who depend on additional income from a short-term rental. She says property owners generally raise their prices at a rate of two percent per year, and rather than increase them by as much as 15 percent all at once, she expects some will absorb those costs themselves.
“It’s [two percent] what they feel the market can bear, so suddenly to go to increase by nearly 15 percent is an enormous jump, and we feel that especially the people who are return visitors to the same homes year after year, some of them are going to balk,” and perhaps rent another property, Ms. Talmadge said.
Her organization had urged Gov. Baker to propose changes like as exempting property owners who leave their primary residence to rent it out for a few weeks or phasing in the taxes over a period of years.
The quick turnaround is another point of concern for Ms. Talmadge. Regulations will take effect for rentals that start after July 1 and are booked after January 1.
Had the bill not passed in 2018—and for months it seemed as if it wouldn’t—lawmakers said they would have reintroduced the measure in the new year, which could have delayed its impact until 2020.
Airbnb representatives had encouraged the governor to veto the updated measure and allow for more discussion in the new legislative session, which began this week. In a statement released after Gov. Baker signed the bill, an Airbnb spokesman said the company was disappointed by the “flawed bill that emerged from Beacon Hill during the lame-duck session.”
Lawmakers sent an updated version of the Airbnb bill to the governor’s desk with 11 days remaining in the year. Back in July, the House and Senate passed a compromise version of the bill. Rather than sign or veto, Gov. Baker proposed several changes and sent it back, but because he acted after the formal legislative session concluded, it required unanimous consent of the legislature to approve a new version during the “informal session” which lasted through December.
In the deal struck late last month, legislators incorporated several of the governor’s requests. For example, anyone who rents a space for fewer than 14 days a year will be exempt from the regulations and, in an effort to protect personal privacy, the statewide registry will publish only street names and cities, as opposed to the full street address.
On the Upper Cape, towns are in the midst devising their plan to improve water quality, as mandated by a 2011 lawsuit filed by the Conservation Law Foundation. Officials are encouraged by the prospect of new funding.
At November Town Meeting in Sandwich, voters supported a two-percent property surcharge to clean up polluted waters and improve stormwater drainage, though the proposal still needs approval at the polls in May. Town Manager George H. (Bud) Dunham said the town had been keeping the Airbnb legislation in mind because even with the surcharge, it will take a lot more to cover the costs. He hoped the Cape & Islands fund would make up part of the gap.
Eric T. Turkington, chairman of the Falmouth Water Quality Management Committee, agreed the funds could go a long way to offset the cost of efforts. It is not yet clear how much money the tax will produce, but it will be significant, he said.
“It’s huge for this town or for any town that’s facing big, expensive nitrogen-remediation projects,” he said. “I’ve got to give a lot of credit to our legislators for pulling it off. It’s hard to go up to Boston and say we want to create a special fund for the Cape and Islands.”
New rental taxes will apply automatically to the more than 175 cities and towns that have approved the local room occupancy excise. Overall, the new taxes stand to raise approximately $34.5 million in state revenue and $25.5 million in local revenue.