As the vacation rental industry heats up, state governments are eyeing real estate as a source of tax revenue, potentially putting a crimp on property investment. Here are five states that are either actively considering or have recently enacted short-term rental or real estate transfer taxes.
Here are five states that are either actively considering or have recently enacted short-term rental or real estate transfer taxes:
New York State is considering Senate Bill 3060E, which would add a 20 percent transfer tax on properties in New York City sold within one year and a 15 percent tax on properties sold after one year but less than two years after purchase. The bill, whose companion is Assembly Bill A5375A, is “an effort deter property speculation and flipping in vulnerable neighborhoods,” according to the bill’s sponsors. Both bills are currently in committee.
“[The bills’ Brooklyn-based sponsors] are trying to address a very hot real estate market and concerns from some people in that community that some folks are being priced out of the real estate market. From our eyes, it’s a deterrent to buy and sell real estate, and it’s an inappropriate remedy for the legislative intent,” Mike Kelly, director of government affairs at the New York State Association of Realtors (NYSAR), told Inman.
“Its intention is to curb real estate investment and specifically real estate flipping, which at the end of the day they see as hurting individuals that have resided in that community for years. I don’t believe it’s going to address that concern,” he added.
If the intent is to help individuals that have resided in a community for a long time, New York City should build more affordable housing, according to Kelly.
He expects the transfer tax would act as a deterrent to property investors and potentially decrease residential real estate transactions in New York City — which would end up harming the city’s coffers.
“I think it’s simply going to hurt New York City’s tax revenues that are in large part due to real estate transactions,” Kelly said.
“Every time you add a tax or a fee to an investment property it makes somebody who’s looking to invest in your state look at the affordability of investing in your state,” New Jersey Realtors CEO Jarrod Grasso told Inman in a phone interview.
“When you keep adding fees it deters people from investing in your area.”
He didn’t want to speculate about the impact of the tax on New Jersey’s real estate market, but noted this would be the first summer the tax will be in place.
“I want to say that New Jersey has a lot to offer and we have some of the best beaches in the country. So do I think this would push people away from coming to our beaches? I would hope not,” Grasso said.
Property investors renting out homes are exempt from the tax if they use a licensed real estate broker to rent properties for them. Brokers typically charge a 10 percent fee for short-term rentals, which is less than the tax. Individual vacation homeowners want their exemption, but whether state legislators heed their calls by the end of the legislative session this month is uncertain, the North Jersey Record reported.
On Jan. 1, 2020, virtually all owners of short-term rentals will have to collect lodgers’ taxes in New Mexico, which vary by locality. The new law puts New Mexico in line with most other states in eliminating a previous exemption for rentals with fewer than three rooms, according to the Santa Fe New Mexican.
Vacation rental firm Vacasa manages 42 short-term rental homes in New Mexico, but is unconcerned about the tax law change, Vacasa spokeswoman Alex Plew told the New Mexico paper.
“In every market, Vacasa manages vacation properties, we operate legally and pay the required taxes,” Plew said. “It is very common to pay these taxes to state and local governments across the country.”
Legislators sent a bill to the governor’s office that would allow the state of Hawaii to begin collecting transient accommodations and general excise taxes from short-term rentals and to require hosting platforms, such as Airbnb, to collect those taxes.
Lawmakers anticipate the new taxes will generate $46 million per year in additional revenues, Honolulu Civil Beat reported.
Airbnb opposes the bill, mainly for data privacy issues. “[D]ue to the potential conflict with federal laws, the requirement to turn over personally identifiable information of our host community, a confusing registration process, and the potential for private tax information to be used against hosts by county enforcement purposes, we cannot support this bill as drafted,” the company testified on April 2.
“We remain willing to work with the state to develop a path to allow us to collect and remit taxes on behalf of our hosts.”
On May 10, Montana Governor Steve Bullock signed Senate Bill 338 into law, raising the state’s short-term lodging facility sales tax to 4 percent from 3 percent. Montana also has a lodging facility use tax of 4 percent, so the new law will bring the combined sales and use tax up to 8 percent.
The law will go into effect on January 1, 2020, and will apply to any lodging use on or after that date, even if the sale occurred before that date, according to the Montana Department of Revenue. The tax increase will fund the construction of the Montana Historical Society’s Heritage Center and a historic preservation grant program for museums around the state.
A September 2018 report from the National Conference of State Legislatures found that more states are taking action to regulate and tax short-term rentals.
“Action on short-term rentals is continually taking place across the states, and it does not appear it will subside any time soon,” the report said.
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