New Massachusetts tax law?

Regulations/Tax Issues
1

So… any pros here with advice on how to handle this? Looks like those of us on Cape Cod are looking at a ~12% tax…

Governor Baker Approves New Short Term Rental (Airbnb) Law and Taxes

by RICH VETSTEIN on JANUARY 1, 2019 · [0 COMMENTS]

At the very end of 2018 without much fanfare, Governor Baker signed into law a bill regulating and taxing short-term rentals. The new law provides for new taxes, a statewide registry, insurance requirements, and inspections varying by town/city. It becomes effective on July 1, 2019.

Overview of Requirements
The new law expands the state’s hotel and motel tax to include the short-term rental of homes (condominiums, single family, multifamily, etc.). This applies to Airbnb, VRBO, and all other short term rental platforms. The tax applies to all rentals for a period of 31 days or less, regardless of whether the rental is for recreational, vacation, personal, or business use. The burden is on the owner to collect and remit the taxes to their local town/city and the Mass. Dept. of Revenue, which is expected to issue guidance later in the year.

Tax Structure
The short-term rental rate varies by locality and is the total of the following rates:

  • State: 5.7%
  • Local: up to 6% (Boston 6.5%)
  • Cape Cod & Islands: includes additional 2.75% to fund Cape Cod and Islands Water Protection Fund
  • A community impact fee of up to 3% may be assessed locally on professionally managed properties (Owners of two or more units in one town).

The law requires regulations to minimize the administrative burden on tax filings for those who only rent their unit five (5) months or less each year.

Are there any exemptions in the law?
The tax imposed by the new law does not apply to properties rented for fewer than fourteen (14) days per calendar year. It is important to note that these properties are still subject to the other requirements of the law, such as insurance and registration.

When will this law take effect?
July 1, 2019

What about the 2019 rentals I already booked?
The law exempts from tax any 2019 rental that is booked on or before December 31, 2018. Rentals booked on or after January 1, 2019 for stays on or after July 1, 2019 will be subject to the tax. We anticipate that the Department of Revenue will issue guidance on how to handle the tax on bookings made on or after January 1, 2019.

Does this apply to the units I rent?
As stated above, the new law applies to all rentals for a period of 31 days or less. Ordinary rentals, such as an annual lease or a tenancy-at-will are not covered. The new law applies regardless of whether the owner rents the property themselves, hires a rental agent to rent the property, or uses an online platform to facilitate the rental.

Do I need to collect the tax?
Most likely, yes. The law requires intermediaries (which includes rental agents who post the property for rent online) who enter into a written agreement with the owner or operator to collect rent or facilitate the collection or payment of rent on behalf of the operator to collect and remit the tax. The Department of Revenue will issue regulations to clarify how often the tax should be remitted to the Department. This also means that an agent who does not collect or facilitate the collection of rent on behalf of the owner or operator does not need to collect and remit the tax.

Do I need to carry insurance for the listed properties?
Yes. Owners are required to maintain $1 million dollars in liability insurance to cover each short-term rental. The coverage is required to defend and indemnify the owner or operator and any tenants in the building for bodily injury and property damage. Realtors may elect to offer insurance coverage as part of their services but are not required to.

Before offering a property for short-term rentals, a hosting platform (including Realtors) must provide notice to the owner or operator that standard homeowners or renters insurance may not cover property damage or bodily injury to a third-party arising from the short-term rental.

Do the properties need to be registered with the state or city/town?
Each rental unit will need to be listed with the state short-term rental registry. Additionally, each city and town is permitted to create a registration requirement for short term rentals. Check with your municipal government office for details.

Are there any inspections required?
Cities and towns may implement a health and safety inspection requirement and set the frequency of inspections. Short-term rental operators are required to cover the cost of inspections and will likely face a fee to cover registration costs as well.

What are some best practices I can apply as the new law gets implemented?

  • Owners and rental agents should disclose to prospective renters that any booking made on or after January 1, 2019 may be subject to a tax and that the tax rate may change before the rental period.
  • Develop a policy to verify the number of units owned by each client in a municipality and that those units are properly insured.
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Contact a local tax preparer or tax lawyer. We’re an International Forum, not US specific.

3

Hi Adam:

I too am concerned about the impending tax situation, and how little information I’ve seen about this. I’m in Cambridge, and am not sure how this is going to get rolled out. Is Airbnb going to collect this and then get the fees to the various agencies (state, city etc), or is that going to be the responsibility of the host? As a slight aside, I just booked an Airbnb in Philadelphia, and it looks like all these fees are included as part of the booking process, so assume that this is going to get incorporated, but find it strange that there is no information on how to handle this at this point.

I have started letting potential (post 7/1/19) guests that there may be a fee added, but not sure exactly how it will be handled.

Any additional info on the topic is welcome.

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@AkimL
What type of listing do you have? Because i THOUGHT I knew a lot about this law but recently discovered that “B&B homes” are apparently still exempt from it.

But ABB is (from everything I’ve read) required to collect the tax and remit it but they may not be ready software wise until July 1! Not sure how they will handle existing “paid for” bookings.

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My airbnb is a 1br that is on the first floor of my 2-family home, though I am not sure why that would be excepted from the law which indicates that all Short Term Rentals are subject. I contacted Airbnb and they were fairly clear that we hosts are responsible for tax collection until Airbnb takes over that function.

Pasted below in italics is their response to my inquiry:

This is Jameela with Airbnb, thank you for reaching out regarding your local taxes.

If you need to add taxes to your rates, please clearly explain the tax in your listing’s House Rules, so that potential guests are aware of it and can budget accordingly.

While we recommend that hosts use the Special Offer tool to collect the tax, they can also choose to collect it in person upon arrival. There is no separate field for this for your listing in Massachusetts at this time.

Airbnb’s ability to facilitate tax collection involves a number of factors, including discussions with tax authorities for the area—which could be at the city, county, state, or other jurisdictional level. We’ll let you know if an occupancy tax related feature becomes available for your listing.

If you’d like to learn more, the local tax section of our Help Center has additional information:

www.airbnb.com/support/topic/264

Kind regards,

Jameela

I am not sure what e

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@AkimL
Jennifer Desimone (the contact person at MA DOR for this STR tax) confirmed to me in email on Friday that “Bed and breakfast home”’, a private owner-occupied house where not more than 3 rooms are let, a breakfast is included in the rent and all accommodations are reserved in advance." (Definition from Chapter 337) are excluded from tax so IF you meet that criteria (and there’s NO definition AFAIK of ‘breakfast’), you’re good.
The other reason why Airbnb is required to collect the tax is because it applies to the BOOKING fee that guest paid to ABB also, and normally that amt is not available to host.

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@AkimL I have 2 Cambridge listings, one is an in-law apartment on our first floor and one is a guest room in our home. They are both treated as owner-occupied STRs by Cambridge because the in-law apartment is not treated as a separate unit. At any rate, when I drilled down on “Local Laws,” I read this: "Your listing is in Massachusetts State where Airbnb collects and remits occupancy taxes on your behalf.”

So we no longer need to worry about collecting or remitting taxes for our Airbnb listings.

This law is continuing to be tweaked since it passage in December and I don’t think it has settled yet. At one point, it clearly said that the agent collecting rent would be responsible for registering on DOR but it now looks like that has been changed. Now I think it looks like the hosts will each be responsible for registering on DOR.

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Well I’ll be darned- there it is. I guess Airbnb thought it would be a good idea to wait until all the various agencies approved the levies.

I think it is still up to hosts to collect taxes for those listings that are already booked starting July 1st, BUT not for those where the reservations were generated prior to January 1st

Thanks for the heads-up- makes me feel better that the playing field has been leveled again.

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Just noticed today that Airbnb added the MA tax to bookings after July 1st.

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@tobycalvin
I just looked at one of my listings via private window as if I were a guest and see the tax…sort of!
BUT - it’s not being calculated on the service fee which is required by law!!! It’s only on the rent and cleaning fee. So in my test case, it’s short by $11 for a one week booking.

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@pleasantforestshores Weird! Last week when I checked, they were including their service fee in the base but they aren’t now!