Baker’s budget will tax short-term online rentals like hotel rooms

[Video: Antonio Caban/SHNS]

BOSTON (STATE HOUSE) – Gov. Charlie Baker intends to include in his budget due later this month a proposal that would tax short-term rentals offered through online portals like Airbnb and VRBO at the same rate as rooms rented by traditional hotels and motels, the News Service has learned.

The proposal, which will be offered as an outside section in the governor’s fiscal 2018 budget bill, would require proprietors of apartments or homes that rent their units with the frequency of a “de facto business” to collect and remit to the state the 5.7 percent room occupancy tax applied to hotels.

The new tax would apply to any individual or business that provides 150 days or more of short-term rental accommodations in the previous calendar year, and would generate an estimated $12 million in revenue in fiscal 2018, according to an administration official familiar with the plan.

“This would apply to people who are basically running a hotel,” the official said.

Baker plans to file his budget proposal for fiscal 2018 by the Jan. 25 deadline. The short-term rental bill would not apply to bed-and-breakfasts with fewer than four rooms, the official said.

Though the Republican governor has been steadfast in his opposition to raising broad-based taxes, he has expressed a willingness to consider taxes on new industries such as recreational marijuana or as a way to create a level-playing field between new services made possible through technology – such as the online, short-term rental market – and more traditional businesses.

Last year, a proposal to tax short-term rentals like those offered through Airbnb cleared the Senate, but was ultimately stripped from larger economic development package after Baker said he would not support the tax measure because he feared it would extend to rooms at currently-exempt bed and breakfasts and summer vacation rentals in places like Cape Cod.

“I’m not interested in raising taxes. I am interested in level playing fields. At this point in time on this particular issue, those two things seem to be in conflict,” Baker said.

The new proposal from the administration attempts to address that issue by setting the threshold at 150 days of short term rental occupancy per year.

While the proposed tax changes would not start generating revenue from many properties until January 2018, mid-way through the next fiscal year, the bill the governor intends to file would also authorize the Department of Revenue to enter into voluntary agreements with companies like Airbnb that act as an intermediary between consumers and property owners to begin collecting taxes as soon as July 1.

Airbnb has actually advocated for taxation as way of integrating itself and being recognized as a legitimate member of the Massachusetts business community.

In ads that began airing in the Boston media market in November, a narrator said, “”We’re working with policymakers to ensure our community can pay their fair share of taxes and we support rules that protect affordable housing and maintain our neighborhoods.”

Concern over short-term rentals has been particularly acute in urban areas like Boston where lawmakers and housing officials worry that property owners are turning residential units into for-profit businesses by renting them full-time and depleting an already crunched housing stock.

There are 10,700 hosts renting, on average, 38 nights per year in Massachusetts, according to Airbnb data gathered this summer. Just over 2,000 of those hosts are in Boston, with a rental average of 46 nights per year in the city.

Airbnb said Boston could have collected $3 million in hotel, tourist and occupancy taxes from Airbnb rentals in 2015.

Last fall, House Speaker Robert DeLeo asked North End Democrat Rep. Aaron Michlewitz to draft a summary of the “major issues” associated with the short-term rental industry with an eye toward reconsidering action this session.

Michlewitz last session sponsored legislation that would have gone beyond just taxation, and required owners to register units that would be rented with the municipality and comply with certain safety standards.

Senate President Stanley Rosenberg also mentioned the issue in a speech to members this month as a way to generate new tax revenue, and has urged quick action to help pay for the restoration of spending cut from the current state budget by Baker.

Under Baker’s plan, the new short-term rental tax would not be a money maker for the state until fiscal 2018.

Companies like Airbnb that reach an agreement with the state to collect room taxes from their customers could begin paying as soon as July 1, but other property owners would be allowed to wait until Jan. 1, 2018 so that it can be determined whether they met the 150-day threshold over the course of 2017.

Private owner-occupied houses would count as one unit for the purpose of applying rental days toward the threshold, while each room rented out as a single unit in other properties would be counted toward the total, as would all properties under common ownership.

Copyright 2016 State House News Service