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Massachusetts Tax on Short-term Rental Housing

The popularity of short-term vacation rentals has increased dramatically over the years. Offering the convenience of home and lower pricing than hotels, short-term rental websites such as AirBnb are now the go-to for many travelers (particularly families and larger travel groups). Given that these are private rentals, they have evaded taxation thus far. This is about to change with the passing of a new tax bill that specifically targets short-term rentals. Here’s what the Massachusetts tax on short term rental housing entails.

Details on Massachusetts Tax on Short-term Rental Housing

The second, and most important, component of the new bill involves a Massachusetts tax on short-term rental housing. It’s important to note that this includes private rentals through sites like AirBnb, bed and breakfast business, and the like.

There are several different taxes that may apply to a unit, depending on where it is located. Across the entire state, short-term rentals will be subject to a 5.7% hotel tax. Additionally, cities and towns can add their own tax (up to 6.5% for Boston and up to 6% for other communities in the state). Other surcharges are allowed, as well, to raise money for local services such as the MA convention center or wastewater treatment.

For example, short-term units in Boston will be taxed as follows:

5.7% Hotel tax
6.5% City tax
2.75% Surcharge tax for the MA Convention Center Authority (applies to Boston, Cambridge, Chicopee, Springfield, West Springfield, and Worcester.
14.95% total tax

Short-term units on the Cape and Islands would be subject to the following tax:

5.7% Hotel tax
6.% City tax
2.75% Surcharge tax a wastewater treatment fund
14.45% total tax

Actual amounts will vary across the state given the leeway granted to cities and towns for their municipality tax and other surcharges.

Other Provisions of the Bill

This tax bill includes two other important provisions. The first is the creation of a public rental database. Property owners who offer short-term rentals will be required to submit their information to this database. Addresses will be listed on a website that is publicly visible and searchable. Although owners’ names will not be displayed, there is still concern over privacy and safety.

The second important change is a requirement for additional insurance on rental units. Homeowners insurance policies vary in the coverage provided to renters when it comes to personal injury and other potential claims. Many owners may not realize that their policies lack such important coverage. The new insurance requirements aim to cover that discrepancy.

Impact of a the New Tax

If approved, this new law will take effect on January 1, 2019. It is likely that the actual cost will be passed on to renters rather than absorbed by property owners, much like other industry taxes. It will be interesting to see how this will impact demand for short-term rentals across the state.

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