Airbnbs and other short term rental properties in Massachusetts are no longer shielded from state and local room occupancy excise taxes. At the end of 2018, Massachusetts enacted legislation that taxes short term rentals of property within the Commonwealth effective for stays commencing on July 1, 2019.
The new law requires the owner/operator of the short term rental property to register with the MA Department of Revenue (“MDOR”), carry insurance on the property, and collect and remit the same 5.7% state excise tax that already applies to hotels and motels. In addition, towns and cities can also impose local tax on these short term rentals in its jurisdiction.
The excise tax applies to a short term rental property that is not a hotel, motel, lodging house or bed and breakfast, where at least one room or unit is rented out through the use of advance reservations. A short term rental includes an apartment, house, cottage, and condominium. However, it does not include property that is rented out through tenancies at will or month-to-month leases. It also does not include time-share properties. The new law applies regardless of whether the owner rents the property themselves, hires a rental agent, or uses an online platform to facilitate the rental.
In addition, short term rental owners are required to maintain liability insurance of at least $1 million to cover each short term rental unless the rental is offered through a hosting platform that maintains equal or greater coverage. The insurance policy must provide for defense and indemnification of the owner or operator and any tenants in the building for bodily injury and property damage.
All single occupancy rentals for a period of thirty-one days or less are subject to the tax but the tax does not apply to properties that are rented for fewer than fourteen days per calendar year. However, even if the owner plans to rent the property for just one day and therefore, would not be subject to collecting and remitting the excise tax, the owner must still register with the MDOR as a short term rental owner via MassTaxConnect. The owner will notify the MDOR at the time of registration that the intended rental is for less than fourteen days. If the owner rents the property for fifteen days or more in the same calendar year, or fails to register, then the owner is liable for the excise taxes.
The excise taxes must be remitted on a monthly basis along with the required reports. Room occupancy returns are due on or before the 20th day of the month reporting tax collected for the previous month. State and local excise taxes are to be paid with the return. This means that the first return and tax payment is due on August 20, 2019. Generally, an owner of a short term rental will be required to file a return for a given month only when there are rentals to report for that month.
The MDOR plans to issue regulations providing further guidance and we will continue to monitor developments in this area.
