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Archived Edition:
Friday, February 20, 2009

Critics Assail Bill to Impose Rental Tax

By JIM HICKEY

A new bill authored by Cape Cod lawmakers that would extend a 9.75 per cent lodging tax currently in place for hotels to weekly rentals has already stoked opposition both here and across the state, primarily among real estate brokers and people who rent their homes during the summer months for extra income.

But the bill, sponsored by Reps. Cleon H. Turner of Dennis and Sarah K. Peake of Barnstable, also has found supporters, due largely to its potential to generate income for cities and towns across the state. The bill would expand the current tax on transient properties like hotels, motels and bed and breakfasts, to include short-term home and condominium rentals less than 90 days.

The tax would be a local option requiring town meeting vote for approval.

Under the proposal, 5.7 per cent of the revenue collected would go to the state and the remaining 4 per cent would go the town where the rental is located. Some towns on Cape Cod, including Provincetown and Brewster, have already begun home rule petitions to enlist the permission of the legislature to enact the tax.

Eastham, Chatham, Yarmouth and Harwich are expected to at least discuss the tax at their annual spring town meetings.

As of this week, none of the six Island towns have discussed the lodging tax or were planning to discuss it at their annual town meetings. However, many real estate brokers have been following the bill since it was filed last month, and have already formed a united front of opposition.

“This is rushed and not well thought out,” said Anne Mayhew, rental manager for Sandpiper Realty in Edgartown. “In this economy, many rental properties still aren’t fully booked for the summer, and there are a lot of people out there thinking long and hard about their expenses . . . a 10 per cent increase in what they pay [for weekly rentals] is by no means a small amount,” she said, adding:

“People may simply go somewhere else. Or if they do come here, they may spend less in the stores and restaurants.”

Joan Talmadge, co-owner of the Web site WeNeedaVacation.com, that matches vacationers with rental properties, said the legislation could have an unintended impact on the long-term economy of towns. Because the tax would be a local option, some towns could adopt it while other choose not to.

And towns that choose not to adopt it would have a marked disadvantage over those who did, she said.

Mrs. Talmadge said some homeowners may choose not to impose the tax, and instead hide the fact they are renting their homes. This too could create tension between those who report the income and those who do not, she said. “It could foster negativity and perhaps conflict among neighbors. If one person is doing the right thing and their neighbor isn’t do the right thing, it could quickly become a problem,” she said.

Mrs. Talmadge also suggested the legislation could hurt tourism and real estate sales. She said recent demand for housing on the Cape and Islands is spurred by second homeowners, who often choose to retire here. But the investments are often based on finances, and an additional cost might alter those investment decisions. She estimated that a rental increase of 9.75 per cent to cover the lodgin g tax would cost vacationers an additional $250 to $500 a week, based on a rental fee of $2,500 to $5,000 a week.

Glenn Ritt, editor and co-publisher of Cape Business magazine, said imposing room taxes on those who rent their homes in the summer could actually lead to lower home prices and less property tax revenues for towns. “That’s because many second-home owners already are strapped to keep their residences here — and a room tax could be the proverbial last straw,” he said.

But Donald Muckerheide, a Vineyard resident and longtime proponent of more stringent regulations for weekly rentals, strongly disagreed.

Although he was not ready to take a position on the proposed legislation, Mr. Muckerheide said he supports some type of tax for weekly rentals. He said the high cost of housing on the Vineyard is largely driven by people who rent their homes on a weekly basis, which he equated to illegal, uncontrolled and untaxed commercial use of residential properties.

“Homes on the Vineyard are valued not only on their worth as residential units, but for their potential as weekly rentals. It drives up the cost of the entire housing market, and makes it impossible for working class people to afford a home on the Vineyard,” he said.

Mr. Muckerheide said weekly rentals in residentially zoned neighborhood are unregulated, while a resident in the same zone who wants to have a small home business must meet additional regulations, pay higher taxes and go through a permitting process. He said imposing some type of tax on weekly rentals would level the playing field for hotels, home businesses and weekly rentals — while also generating needed income for cash-strapped towns.

“This is something that should have been seriously looked at years ago. But the powers that be have ignored it,” he said.

Representative Turner, who sponsored a similar piece of legislation in 2007 that went to committee but never saw a vote on the House floor, said this week he is optimistic.

“At the very least I think it will be discussed more this time around . . . the state needs money and the towns need money,” he said.

He noted that other states, including Florida and Maine, already have a weekly rental tax, which has not hurt tourism or the economy. He said the tax would be a viable source of income at a time when most towns are struggling financially. “It is not intended to hurt anyone [who is renting their home], it is to help towns struggling to keep employees and pay their bills,” he said.

Cape and Islands Rep. Tim Madden said he liked some of the ideas in the legislation, but said he would have to study the plan and talk with more people before he fully supports it. He said he would like to see a provision that would allow towns to opt out of the tax.

“If towns like the idea, they can vote to impose the tax. If they don’t think it’s working, they should be able to get out of it,” Mr. Madden said.

Island elected officials contacted this week appeared tentative about supporting the legislation.

Tisbury selectman Tristan Israel said he knew little about the bill, but said on first blush the 9.75 per cent tax seemed high.

“It might be worth talking about. But on the other hand a [9.75 per cent] increase in rentals is a lot of money. We don’t want to scare people off,” Mr. Israel said.

Ron DiOrio, chairman of the Oak Bluffs selectmen, took a similar view.

“The way things are going right now, we should consider anything that will put money in the town coffers,” he said.

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