In December 2018, the Massachusetts legislature passed and Governor Charlie Baker signed a bill to regulate and tax short-term rentals in Massachusetts. This law extends the room occupancy tax that was levied on hotel stays to short-term rentals, creates regulations regarding short-term rentals, and explicitly grants powers to local city and town governments regarding short-term rentals throughout Massachusetts.
The new law expands the state's hotel and motel tax to include the short-term rental of homes (condominiums, single family, multifamily, etc.). Massachusetts is one of the last states to adopt this type of tax. The tax applies to all rentals for a period of 31 days or less, regardless of whether the rental is for recreational, personal, or business use. The new law only applies to short-term rentals, meaning ordinary tenancies, such as an annual lease or a tenancy-at-will, are not covered by this bill.
The law has been ever-evolving since being passed as answers to questions, processes and procedures, and implementation issues are still being worked out. The law was subsequently updated in March 2018 by the legislature to create more clarification.
Definition of a Short-Term Rental
A 'Short-Term Rental' is defined as a stay that is 31 days or less. Stays longer than 31 days are not taxed or regulated under this law. Please remember, stays longer than 31 days are subject to the Lead Paint Law, and stays longer than 90 days are subject to security deposit rules. Tenancies at will are exempt under the law.
Room Occupancy Tax
Room Occupancy Tax will apply to all stays that start July 1, 2019 if a lease is entered into after January 1, 2019. Effective after these dates, it applies to all stays moving forward. A stay that starts in June 2019 is not taxed.
The law requires whoever collects rent to enter into a written agreement to collect rent and to collect and remit taxes on behalf of the operator.
What is Taxable
The tax applies to the total consideration paid by an occupant, including any service, cleaning or other charge. According to the Department of Revenue FAQs, this includes all optional charges, including but not limited to the following: linen fees, cleaning fees, and service charges.
The March 2019 updates to the law, includes exempting the following from being taxed:
- Tax is not to owed on bonafide security deposits;
- Amounts paid by an occupant that were previously subject to sales or use tax by the operator;
- Amounts paid by an occupant for services offered by the operator on similar terms to non-occupants in the regular course of the operator’s business.
- State Tax: 5.7%
- Local Tax: up to 6% (Current Local Room Occupancy Tax in each town)
- Cape Cod & Islands Water Protection Fund: 2.75%
*Every town in Barnstable County are automatically opted in; their legislative body can opt out with a 2/3rds vote. Towns in both Dukes and Nantucket counties are NOT automatically opted in to this fee.*
- OPTIONAL TAX PER TOWN Community Impact Fee: up to 3% This is an optional tax a town can add via their legislative body for those who own multiple properties; to date, no town has adopted this tax in Barnstable, Dukes, and Nantucket counties. The Massachusetts Association of REALTORS has produced a Short Term Rental Community Impact Form for the homeowner to sign that certifies that they only one unit for rent in a given town. *TO DATE, NO TOWN HAS ADOPTED THIS TAX*
The tax imposed by the new law does not apply to properties rented for ourteen (14) days or less 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 and these properties must file a notice with the Department of Regulation saying they will only rent 14 days or less and will be responsible for paying the taxes themselves if rented for more than 14 days and did not collect it for the first 14 days.
All operators must register with the State of Massachusetts and obtain a certificate number. This certificate number will be needed by the intermediary to remit the taxes on behalf of the operator. Registration will open July 1, and operators are being given until November 1 to register. After November 1, the certificate number will be needed to remit taxes.
Cities and Towns
A city or town does not have to do anything for short-term rental taxes to be effective in their municipality if they had an existing room occupancy tax. The law allows cities and towns to create their own short-term rental registries and inspections if the municipality desires and can impose fees to cover those costs.
Every operator that rents out their property, must carry not less than $1 million of liability coverage for each stay unless the hosting platform provides equal or greater coverage. Coverage shall defend and indemnify the operator and any tenants or owners in the building for bodily injury and property damage arising from the short-term rental. Before offering a property for short-term rentals, a hosting platform (which may be a real estate broker) must provide notice to the owner of the requirement. Most insurance companies are advising clients to use an umbrella policy. Umbrella policies are all different and a homeowner should check with their insurance company as to whether their umbrella policy (if they have one) covers the homeowner for short-term rentals.
Room occupancy taxes will be submitted through the Massachusetts Department of Revenue’s Mass Tax Connect. Returns are due monthly, on or before the 20th day of the month reporting tax collected for the previous month. The state excise and any local option excise, including the new Cape Cod and Islands Water Protection Fund excise are to be paid with the return. First payment is not due until August 20th, 2019. You can choose to manually enter information for properties or you can upload multiple properties using a template.