Cape Cod Lodging Tax Information
Thanks for coming. So here’s the deal with the proposed Mass short-term (vacation rental) lodging tax:
Sept 2019 Update:
The bill is currently in limbo with Governor Baker sending it back to the MA legislature with some amendments and the legislature not back in formal session to after elections etc. in January 2019. Its a great time to reach out to legislators as many are up for re-election and they likely won't be voting on this till new session (with newly elected officials in January 2019).
Its possible that something special will happen earlier but the current thinking by many parties is that nothing will happen till after jan 1, 2019 (Then it could be rushed through in Jan but there is no way to know at this time). If that this the case the law will likely give owners/managers a few months to implement the new taxes to guests. For example, they could say as of March 15th any new lease needs to include the tax. There is little to no chance it will be retroactive. Therefore its a great reason for owners and guests to book now for the 2019 season!
Here's some great articles/information from some of our friends in the industry:
VRM Intel on Mass Tax
Weneedavacation.com on Mass Tax
Cape and Islands Association of Realtors on Mass Tax
While we wish it wasn't coming - we are one of the last states without one and we at Nauset Rental anticipate being able to overcome the effects for our owners since our average net increase to owners over market significantly exceeds the maximum amount of the tax. Most likely the tax will come in more in the approx 10-12% range for most local property owners (specific rates will depend on the town and number of properties owned). While the guest technically pays the tax we expect the impact will probably be more split through a 5-6% compression in rates overall in the market. This will not be "the end of the world" and we usually more than offset impact of 5-6% on our program. That said, its one of a significant number of recent headwinds hitting the Cape rental market and will likely most impact local businesses and their workers that rely on tourists.
Late on July 29th 2018 the Mass house and senate agreed on a combined bill that will now be sent to the Governor for his signature or feedback.
There is a 5% state tax, up to 6% local tax, and 2.75% wastewater tax, or potentially a tax of 13.75% AND there is a potential 3% additional community impact fee. Also, the bill includes statewide registration of your rental property and inspections conducted by the towns with costs paid by property owners.
It is unlikely Governor Baker will reject the bill outright. Therefore, we urge you to reach out to the governor's office today (the Governor may move on this in hours not days, its very easy to call his office) and provide suggested edits (some below for you to consider).
Call Governor Baker's office at 617-725-4005 (yes, someone does pick up and they do record feedback :)
OR Email the governors office.
Here are some suggestions for mitigation:
Exempt homeowners who rent for fewer than 90 days of the year.
Reduce the amount of the tax for single home rental owners..
Phase in the tax. A sudden approx 15%+ increase is dramatic and will impact demand harming the Cape economy which relies on tourists. Rental owners will inevitably feel an impact through lower bookings, need to reduce rates, etc. Recommend phase in of any taxes over 5 years to limit shock to the tourism dependent economies and local workers and assess impact.
Eliminate the property inspection requirements which add little value in mature vacation rental markets and put significant burdens on towns that are not equipped to perform inspections efficiently and to enforce regulations fairly, uniformly etc.
Delay the bill until proper Economic studies can be completed (no studies have been done by independents (legislators have relied on studies funded by the competing hotel industry etc.) to assess the impact on mature vacation rental markets like Cape Cod that have long relied on tourists to support the Economy)
The bill in its current form will in my opinion have a significant impact on Cape rentals (reducing demand and prices, right when we face other challenges). Additionally, regulations proposed will be a mess for towns to implement and increase hassles of renting and costs. Perhaps most importantly - politicians aren't informed by economic studies and have no sense of how this might effect locals who are trying to make ends meet in vacation destinations hardest. The waitresses, bartenders, landscapers, restauranteurs, retail owners etc. all are primarily supported by tourists and even a 3-5% drop in business could be very difficult for them to absorb.
BACKGROUND (Ie: how we got here).
- While a short term rental lodging tax (on vacation rentals) has been considered for many years, all key stakeholders (including those who oppose the tax) now believe something will be passed in 2017/2018. In fact, legislators will begin final deliberations in September and October 2017
- Tax ranges from approx. 10 to 18%+ and includes new regulations such as home inspections administered by towns who may lack resources to do so efficiently
- There have been no legitimate economic studies of the impact of this tax on our beloved Cape community.
- The good news is we do have a chance to influence what the final bill with modifications such as a slow down of the process to perform adequate studies, phase in of tax, exemptions for properties renting under a certain number of days or for residents, allocation of tax revenue, and reduction in new regulatory requirements such as inspections.
- Legislators have told us that we do have an ability to influence 3 key areas in particular: phase in of tax, regulatory requirements like inspections and potential residency exeptions etc. We also believe we can do more with your help.
- There are currently 4 separate but related bills (more info below under “Current Bills” that will be combined and agreed as they go through the legislative process. While they differ in their exact details common elements of bills include:
- A state level tax of anywhere from 4-8%
- A local component of anywhere from 4-10% max with discretion on exact amount at local level
- New regulatory requirements such as inspections of your home before you can take further rentals.
- We can provide full bill texts and send you updates as things progress by simply entering your email below:
Potential Impacts of the Tax:
*Reduced demand of approximately 10% if tax is fully implemented from vacationers for renting on cape cod creating unrented weeks and reduced rates/revenue for you. Many are already choosing to go elsewhere or trim their travel budgets due to a variety of factors this year.
*Significantly damage the heart of Cape Cod’s economy – tourists who stay in vacation rentals such as yours spend money at restaurants, beaches, whale watches etc. There have been no economic studies of the impact of this tax on our beloved community. By our estimates, over 75% of the tourists visiting Cape Cod stay in vacation rentals. These tourists support all our local business (directly and indirectly). In particular restaurants, beach parking lots, tour operators, retail shops, museums etc. Tourism is the heart of the Cape’s economy and the #1 place tourists stay is in vacation rentals. Hard working locals count on summer tourists to make their living afford to stay on Cape Cod. A reduction in waiter/waitress jobs, town parks/beach jobs, retail jobs, etc. would be devastating to our already struggling younger, working generation.
*Demand this year has already been reduced due to a slowdown in International travelers, new listing site fees and communication restrictions, etc. The hard truth is many homeowners are battling a “perfect storm” right now due to other headwinds. 2017 has already been a “down” or tough year for vacation rentals for many on Cape Cod – even in the peak month of July. We have found there are several potential causes, which are not yet well understood such as:
- Large listing sites are making it more difficult for travelers to connect with individual home owners to book and imposing their own fees (mandatory for the first time in 2017) on travelers and individual owners that range from 8-15%
- International travel is down this year, likely due to changes at the Federal level, increased customs/border control wait times, etc.
- Concerns with Sharks in the news and allowing their children to swim in the ocean. The Jersey shore is fully back online after Hurricane Sandy.
- Northeastern travelers are cutting back, which some believe is due to political uncertainty of some in major source states of Mass, CT, NY.
- Guests have been extremely price sensitive this year. Many rate cuts had to be made to entice travelers to book. It is simply not true that an added tax will not cause a corresponding reduction in demand. As the Massachusetts association of Realtors has said, if owners and managers could charge more for rentals and get guests to pay it – they would. In economic terms this is called “elasticity of demand” and there is simply no evidence supporting some claims that prices are completely “elastic” and that a 12%+ increase will result in absolutely no reduction in vacation rental demand.
*Many second homeowners may decide its not worth the hassle and expense of renting. Already renting is not easy – these added regulations and taxes will be the “straw that broke the camels back” for many homeowners who simply do not need to rent but do so to get some income to maintain their properties (using local companies and workers to do the work) and because they don’t like the idea of their houses just sitting empty most of the year. Getting people in these homes helps the entire cape economy. The number of workers directly supporting just the vacation rental homes themselves is large. Cleaners, vacation rental manager staff, trash/recycling providers, etc. all count on this industry to provide jobs in our community and if owners don’t rent some of these jobs will be lost.
Consider this potential headline in 2018: Cape Cod economy drops by over 8% this summer leading to restaurant, store closings and increased difficulty for working locals to make ends meet. Lets help our legislators avoid a blunder and protect our economic vitality.
We have indications from legislators that hearing from all of us does help and there can be significant modifications before this is finalized.
What You Can Do:
- Send a quick email to your elected state representatives. Just enter your email below and we will send you a great draft email that you can either simply forward or edit as you see fit and send
- Call your elected state representative’s office. Typically one of their staff will answer and your call makes a big difference.
- Write a letter to the editor of the Cape Cod Times or Cape Codder.
- Join the cause! We are building an economic model that can be refined over time to better understand the economic impacts of the tax on the cape economy. Your discussions with guests and data such as your rates achieved etc. could greatly help this model so let us know if you want to contribute which could be as simple as answering a few questions. You can email us at [email protected].