New Occupancy Tax, Statewide Registry, Insurance Requirements, and Inspections
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.
The Mass. Association of Realtors has provided the following documents to help manage short-term rentals: an updated Short-Term Rental Lease, a Community Impact Fee Form, a 14-day Exemption Form, and a required Insurance Disclosure Form. These documents can be found at marealtor.com/ShortTermRentals
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