Bill to Tax Vacation Home Rentals Is Alive but Not Quite Kicking

Monday, April 4, 2016

Attention, Massachusetts vacation home owners who earn money renting your properties!  An Act Providing for Local Aid Enhancement is showing signs of kinetic energy.

On March 17, the legislature’s Joint Committee on Revenue gave a favorable report to a newly redrafted version of the bill, which would establish a new category of residence for taxation purposes known as a “transient accommodation.” It would also empower the Commonwealth to collect a 5% tax on the rental fees of properties so defined, and give cities and towns the option of levying an additional 6% tax on the rentals.
An Act Providing Local Aid Enhancement, numbered House Bill 2645, defines a transient accommodation as “any vacation, leisure or short-term rental accommodation offering occupancy in exchange for rent, including but not limited to an apartment, single or multiple family housing, cottage, condominium, time-share unit or any furnished residential accommodation within any area zoned for residential or commercial use that is not a hotel, motel, lodging house, or bed and breakfast establishment.”  The definition excludes hotels, motels, lodging houses and bed and breakfasts because the bill otherwise provides for the continuation of existing state and local-option taxes on these properties.

A single favorable committee report does not a new law make. It is merely Step 2 of a long lawmaking process.   Step 3, the referral of the bill to another committee, has not happened, even though it’s a relatively simple move.  Many other bills reported out favorably on or about March 17 have already been sent to new committees.
Because this is a year when legislative elections will be held in the fall, the legislature is required by its own rules to end formal sessions for the year on the last day of July.  After that, the legislature will meet infrequently, and only in informal sessions.

So HB 2645 has four months to get through the legislature.  Odds are it will not make it to the finish line.
Sponsored by Rep. Sarah Peake of Provincetown, the bill has only four co-sponsors: Rep. Peter Kocot of Florence, a village of Northampton, in the Pioneer Valley; and Senators Dan Wolf of Harwich, on Cape Cod, Jamie Eldridge of Acton (Middlesex County) and Michael Moore of Millbury (Worcester County).  The number of bill sponsors is not a foolproof indicator of its chances of becoming law, but generally a bill fares better the more sponsors it has.    

HB 2645 imposes a new tax and could quickly become controversial in ways its proponents would not enjoy.  In recent years at least, tax bills have encountered formidable resistance on Beacon Hill. Skeptic No. 1 has been Bob DeLeo, Speaker of the House.
In the next four months, many other, more pressing matters will demand the attention of the House and Senate.  The state budget for Fiscal Year 2017 has to go through the sausage factory, for example, and a bill on funding new charter schools is already boiling on Beacon Hill’s front burner.  Every day that goes by, the window for action on HB 2645 -- and on hundreds of other viable and semi-viable bills – will shrink.

And even if the bill were to make it through both branches, it’s hard to see Gov. Charlie Baker, a Republican, signing it into law.  Baker’s first instinct is to strive for better use of available public dollars rather than taking more dollars from the public.   
There are some  reasons not to bet just yet on the demise of HB 2645:

Sarah Peake is a serious, dedicated lawmaker, and a well-respected member of the House.  The same goes for Dan Wolf in the Senate.
Wolf, the visionary founder of Cape Air, a regional airline, is leaving the Senate when his term expires after the first if the year.  My guess is he’d love to get HB 2645 on the books as he goes out the door because it’s the kind of thing that municipal officials on the Cape are eager to benefit from. The bill would put a lot of new money into town coffers -- and keep delivering the green till kingdom come. 

The enactment of HB 2645 would be an historic accomplishment for Wolf, and for Peake, too, of course.  The chance to make history is a powerful motivator.  
Also consider:

Peter Kocot is the House chair of the Joint Committee on State Administration and Regulatory Oversight.  As a committee chair, he’s considered a member of House leadership, meaning he has influence well beyond that of the rank and file legislator.
Senate bill co-sponsors Eldridge and Moore give the bill potentially wider appeal and credibility because they represent districts far from the vacation hot spots of Cape Cod, Cape Ann and the Berkshires, where “transient accommodation” rentals contribute substantially to the local economies.

Given the large number of towns that could reap windfalls from HB 2645, there’s a large cohort of elected and appointed officials, as well as numerous civic leaders and municipal employee union members, who could be mobilized quickly to lobby for it.  Legislators have to pay attention when folks from home come calling at the State House.
How I feel about HB 2645 varies.  One day, I sympathize with the municipalities and their endless money woes.  Talk to any mayor or town manager and, after a few minutes, they’ll almost always tell you the same thing: there’s never enough money to address all of the needs in their community. 

The next day, I find myself sympathizing with the owners of those vacation homes who’ll have to do the drudge work of obeying the new law: the collecting of the taxes from renters, the paying of the taxes to the town, the record-keeping, the costly consultations with accountants and lawyers, etc.  HB 2645 will make the lives of those who own vacation homes more complicated if they want to keep renting them.
I sympathize, too, with the renters, to whom the landlords will pass the tax. It’s kind of a selfish concern: my wife and I have been renters on Cape Cod off and on through the years.  We don’t like paying taxes any more than the next couple.  However, I must admit: a rental tax probably would not keep us from renting again on the Cape. 

If you’re coming up with $2,300 a week for a four-bedroom house so that all your kids and grandkids can go on vacation with you, you can probably find an additional $253 to cover the rental tax ($115 state tax plus $138 local option tax).  It works out to roughly $36 extra per day for one of the best experiences life has to offer.
Last August, after returning from a two-week stay in Harwich, and perhaps in the grip of an early form of Feeling the Bern, I wrote a post on the vacation home rental tax.  If the legislature was going to implement such a tax, I suggested the law have a proviso requiring a portion of the proceeds to be used for the benefit of low-income Massachusetts families.  My idea was to subsidize seaside vacations for families that otherwise would never be able to enjoy those soul-nourishing days of breathing salt air and swimming in warm salt water.  Should you wish to read that post, please go to:

UPDATE:  After receiving a favorable report from the Joint Committee on Revenue in March, HB 2645 was referred to the House Committee on Ways & Means.  The legislature adjourned for the year on July 31 without acting on it, whereupon the bill died.





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