February 12, 2019 The sudden passing of the new MA Lodging Tax for short-term rentals on the very eve of the busy booking season has caused significant disruption and confusion for homeowners and property managers on the Cape and Islands.
Although vacationers will technically be paying the tax, homeowners and property managers have been thrust overnight into new logistical and financial burdens such as registration of their homes, paying for permits, collecting and remitting the tax, and procuring additional liability insurance coverage.
MA Department of Revenue caught by surprise
Adding to the discomfort and confusion is the fact that the DOR, which is responsible for registering the rental homes and collecting the taxes, seems to have been caught unawares, too. To date, they still have not created the Registry, nor have they divulged how the taxes are to be remitted. Initially, town administrators, too, seemed ill-prepared to deal with the onslaught of questions from confused residents trying to determine whether the town already had a lodging tax in place and what the rate is.
Impact on rental homeowners
Many rental homeowners are reeling from the new tax law. They have to scramble to get $1 M in liability insurance while the Mass. Fair Plan (who insures the majority of Cape and Islands rental homes) will cover only a half million. Some of them are being forced to lower their rental rates (especially for their faithful repeat tenants) even as their expenses continue to soar. They have less income to put back into the maintenance and enhancement of their homes.
Overwhelmed by the new requirements, and the confusion with which the law has been rolled out, some homeowners are choosing to no longer rent out their homes and, in some cases, to put them up for sale. Managing a vacation rental has been a challenging and time-consuming task already, not for the weak and, in most cases, not for any profit. It's usually a necessary requirement in order to pay real estate taxes and other expenses to maintain their homes. Dealing with these sudden and onerous tax law requirements is more than they are willing or able to do.
But their biggest concern is: what will the impact of these substantial taxes (as much as 14.45% in some towns) have on their ability to fill their homes this season?
Has the tax impacted vacation rental bookings so far?
Inquiries and bookings on WeNeedaVacation.com were exceptionally strong during December and early January, but they have leveled off in the past few weeks. To date, summer bookings for the entire Cape and Islands are up 10.5% over the same period last year. The Cape alone is up 12.8% and Nantucket 13%, but bookings on Martha's Vineyard are actually off 4.1%.
It's likely that, in anticipation that this tax might go through, owners rushed to get leases signed by repeat guests, for example, prior to Jan. 1. Thus, it's possible that the recent slowdown we're seeing is a result of the tax in place now.
As the booking numbers indicate, Vineyard bookings are considerably lower than the Cape's. Perhaps the added expense of the tax, along with the ferry and other expenses unique to the Island, are forcing vacationers to choose to go to the Cape instead.
One of our Vineyard realtor clients, Skip Dostal of Martha’s Vineyard Real Estate, reports that their rental bookings are off as much as 15% so far for this season, with many vacationers choosing to delay while they evaluate other options. Another rental manager, Alyson Parker of Karen M. Overtoom RE, senses that rentals are slower than usual on the Island, and she was aware of at least one booking that fell through when the vacationer was apprised of the tax. She also reported that a number of homeowners had lowered their rates due to the tax.
How vacationers can mitigate the tax impact
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Be resourceful: join forces with friends or family, for example, to share the costs.
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Lower your rental price cap to leave money for the tax: consider a home that is not on or walking distance of a beach, one that is on a freshwater pond instead or that might not have AC or other expensive amenities.
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Take a less prime-time week than the last weeks of July and first weeks of August. Homeowners often discount their rates for less popular times such as the beginning of July or last week of August.
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Avoid the Big Box websites that require vacationers to pay booking fees of 5 – 20% in addition to the new tax.
Impact on the Cape and Islands Tourism Industry
Another concern is that the new Lodging Tax could significantly impact the lifeblood of the Cape and Islands: the tourism industry. Suddenly charging as much as nearly 15% on weekly vacation homes will undoubtedly cause vacationers to opt out of such indulgences as whale watching, dining out, shopping, boat and bike rentals, etc.
Our prediction for the 2019 rental season
The Cape and Islands vacation rental industry has survived other blows in our site's 21-year history, including the NASDAQ crash in '99-'00, 9/11 in 2001, and the Recession in 2008. In each case, homeowners tended to be conservative about raising their rates for the season, but in the end, virtually the same number of vacationers still crossed the bridges to the Cape and Islands.
Thus, we don't believe the overall number of vacationers will be significantly diminished, but there will continue to be a lot of upheaval for both vacationers and homeowners alike.
Courtney Blankenship, Rental Manager with William Raveis – The Rental Company, agrees, commenting "I do not believe that it will have a lasting negative impact on rentals on the Cape, even if there ends up being a dip this year. I believe the Cape is a unique vacation destination, and that will overcome any temporary setback for short term rentals that this may create."
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