Short-Term Rental Bill Enacted, With Local Option to Dedicate Revenue for Affordable Housing

On December 28, Governor Baker signed a bill taxing and regulating short-term rentals through websites like Airbnb in Massachusetts. The bill originally passed the State Legislature in July but was sent back by the Governor with concerns over exempting certain owners who rent their homes only a few days per year. The signed bill retained the local option for municipalities to place an additional fee on short-term rentals that will be dedicated partly to affordable housing and infrastructure, as contained in the bill passed by the Legislature.

The enacted bill applies the 5.7 percent hotel and motel room tax on short-term rentals. To address the Governor's concerns, the new bill exempts homeowners who rent their units for 14 or fewer days per year from collecting the tax.

Taxes will take effect on all units rented on or after July 1, 2019. Cities and towns would also have the authority to level additional local taxes. Legislators estimate that the tax will generate $25 million in state revenue and another $25 million in local taxes.

The bill authorizes municipalities to adopt a “community impact fee” of up to 3% on “professionally managed” units. These units are defined as accommodations where an operator runs more than one short-term rental in the same municipality with at least one of those units not located in a single-, two-, or three-family dwelling that includes the operator’s primary residence. If a municipality adopts a community impact fee, at least 35% of revenue must be allocated to affordable housing or local infrastructure projects.

Municipalities are also authorized, by a separate vote, to apply the “community impact fee” to include owner-occupied short-term rental accommodations located within a two-family or three-family dwelling.

The bill also creates a public registry of all short-term rentals. Cities and towns will be allowed to place their own restrictions on short-term rentals, capping the total number of rentals, restricting the location of rentals or limiting for how many days rooms can be rented. Rentals will have to comply with local health and safety codes. Rental unit operators will also have to maintain $1 million in liability insurance coverage.