Should Second-homes be subjected to a Lodging Tax?

On February 15th I commented on a proposed Lodging Tax that would affect second-home rentals on Martha's Vineyard and Cape Cod. People who depend upon the rental income of their second homes to partially offset their carrying costs, would have to pass along the tax to their tenants in order to make their numbers work. The rental rates on Martha's Vineyard are already high. We have to ask ourselves, at what point will vacationers start to look elsewhere for better values? For people dreaming of owning a home on Martha's Vineyard and relying upon rental income as part of the purchase equation this tax would deliver a real blow to the process. Here is an update on the debate taken from an editorial at CapeBusiness.net:

"Should second-home rentals be taxed? Some things to consider as the debate intensifies over whether to tax summer rentals:

"Yes, it would level the playing field. Latest numbers show a waning occupancy rate for hotels and motels in the summer, surely a result of competition from summer home rentals.

"But what happens if second-home owners dependent on that income find themselves faced with as much as a 9 percent tax increase? For them, it is seeing their property tax almost double. This on top of rising energy costs, insurance coverage increases and a harder time renting their homes due to an oversupply of rentals. At what point will second-home owners decide to put their home on the market because the economics don’t work – especially since they no longer can expect double-digit price appreciation?

"And if those houses go on the market, what impact will that have on all house prices, including those owned by primary-home owners?

"Will municipalities worried about waning occupancy taxes find that scenario better?

"Now add the fact that second-home owners spend more on average than full-time residents – according to some studies, 1.6 times more. If they bail out in the face of rising overhead costs, what other businesses on the Cape – from furniture stores to restaurants – will suffer?

"The reality is that the tax issue transcends tourism and municipal budgets. It is very much a complex macroeconomic issue with many moving parts. Look at it one-dimensionally and we are sure to suffer unintended consequences."

Lodging Tax will effect Martha’s Vineyard Vacation Rental Homes

I’m an exclusive buyer broker on Martha’s Vineyard, so I don’t list property for sale. I also don’t handle any rental properties. Recently I received emails from several of my clients and Island neighbors expressing their amazement and supreme displeasure with a proposed bill that would levy a 5% hotel/motel room tax on all private rentals and timeshares.

This seems to me like an outrageous idea, especially because Martha’s Vineyard has always been a vacation destination and not everyone can afford to own a home here. Most Island lovers that find a way to own their dream home on Martha’s Vineyard do so by offsetting their expenses by renting a portion of the year. Only a very small percentage uses their properties like “temporary hotels”. According to a recent article in the Cape Cod Times, “homes, apartments, condominiums and timeshares that are rented for 90 consecutive days or less” would be subject to the proposed tax. According to this legislative mindset, “private homeowners will simply pass the tax on to the visitors. And if the tax is applied equally across the state, visitors will not head to the Berkshires instead of the Cape.” That may all sound well and good, but when you take into consideration the average vacation stay is two weeks with weekly rates starting at about $2,500 with many rentals close to beaches and towns priced well over $4,500 a week, and even into the tens of thousands, this is going to be a very hefty tax. Rental agencies charge between 10% and 20% for their services and most of them really earn it. So, you have to add that into the mix.

The article puts forth the claim that “what’s particularly unfair is that the people who rent these private homes still demand all the services that residents deserve, such as beach and road maintenance and police and rescue, but are paying no taxes to support the local services”. But they don’t take into consideration that these people pay their taxes just like year round residences; however, they don’t occupy their homes for as long as six months out of the year.

Here’s the Cape Cod Times article being referenced along with Chapter 64G under Title IX. Taxation. The proposed amendment to this law reads as follows:

“SECTION 1: Chapter 64G shall be amended by adding the following section:

“Section 13. Any city or town which accepts or has accepted the provisions of section 3A of this chapter may, by a separate vote, accept the provisions of this section and expand the imposition of said room occupancy excise tax to include other transient accommodations. Other transient accommodations is defined as any vacation or leisure accommodation, including but not limited to apartment, single or multiple family housing, cottage, condominium and timeshare unit, which is rented to occupants for a period of ninety consecutive days or less regardless of whether such use and possession is as a lessee, tenant, guest or licensee.

“For the purposes of this section, any definition in section 1 of this chapter, where the terms “room or rooms in a bed and breakfast establishment, hotel, lodging house or motel” are used shall be deemed to include the term, “other transient accommodations”

“In the case of transient accommodations, the owner of the apartment, single or multiple family housing, cottage, condominium or timeshare unit, shall be responsible for assessing, collecting, reporting, and paying over the tax and reporting as described for operators in sections 3, 4, 5, 6, and 7A, and shall be liable in the same manner as operators in section 7B.”

Morgan Woods affordable housing project on Martha's Vineyard nears completion

It’s been about nine years since the Pennywise Path affordable housing project was conceived and set into motion. As the construction progressed and is now nearing completion, the decision has been made to name the project Morgan Woods, appropriately after the former Edgartown affordable housing committee chairman, Fred B. “Ted” Morgan, who lead the project from the very beginning,. This community experiment has been and will be closely watched by all Island towns to gauge its long term success, because there has never been a rental community on the Island of this scale.

I found the following articles informative and thought I would bring them to your attention.

Morgan Woods, a whole new village of attractive homes

The Vineyard's first significant, municipally developed affordable rental housing for low and moderate income residents