Realtors irate over tax plan

Gov. Lincoln D. Chafee's budget proposal would add rentals to hotel tax.  / PBN FILE PHOTO/FRANK MULLIN
Gov. Lincoln D. Chafee's budget proposal would add rentals to hotel tax. / PBN FILE PHOTO/FRANK MULLIN

Does renting a house for a few weeks make it a hotel?
Ocean State Realtors don’t think so and are blasting Gov. Lincoln D. Chafee’s budget plan to tax vacation rentals and bed-and-breakfasts as such.
“The last thing we need to be seeing is more taxes – we need to be encouraging more buyers,” said Cecile Cohen, manager at Randall, Realtors’ Charlestown office. “One of the reasons people buy here is they want to rent [the property] to defray the cost of ownership. Some people will be sorely hurt if this goes into effect. In some cases, it could force more foreclosures.”
One of a series of ideas to balance the fiscal 2013 budget by broadening the tax base, Chafee’s plan to charge the 13 percent hotel tax to vacation homes and B&B room rentals is being fought aggressively by the Rhode Island Association of Realtors, which has labeled it a “new burden on homeowners.”
Initially estimated to raise $1.9 million, updated projections released recently by the state Office of Revenue Analysis now peg the proceeds from the expanded hotel tax at $5.6 million. Of that, $972,000 would be passed through to host communities and $1.2 million distributed to tourism-promotion groups.
Many vacation-home rentals in the state are brokered by Realtors, who argue that the hotel tax will chill tourist traffic and slow the vacation rental market at a time when property owners are searching for any positives from the housing market.
They also point out that rental income of all types – vacation or permanent – already are subject to federal taxes.
Then there is the confusion about whether the new tax, intended to raise revenue from tourists, will actually hit permanent-apartment rentals where landlords sign tenants month-to-month to avoid the commitment of a yearlong lease.
“We do a lot of investment rentals that are month-to-month, and there seems to be a lot of gray area about whether this applies to any rental of more than 15 days without a lease,” said Bruce Lane, an agent with Williams & Stewart Real Estate in Cranston. “I think if that was the case, any landlord near the border would have to eat that expense, because any tenant would just go over to Massachusetts.” According to Paul Dion, chief of the R.I. Office of Revenue Analysis, the hotel-tax expansion was neither intended, nor would it apply to any rentals of a month or more, whether the tenant had a lease or not.
Dion said he realized that the bill expanding the hotel tax, as written, left some room for interpretation, but that the governor is open to amending the language to prevent any chance of confusion.
“There have been discussions about tweaking the language with month-to-month rentals, with the proviso that it must be rented by the same person on consecutive nights,” Dion said. “We would certainly like to clarify the language.”
On how the revenue estimates grew between March and the release of the budget in January, Dion said new and more accurate sources of rental data for Block Island and Narragansett had been found to supplement the online listings used to form the initial estimates.
New Shoreham collects a 1 percent tax on seasonal rentals and records from those collections indicate the vacation rental market on Block Island, first thought to be about $1 million, is actually about $10 million, Dion said.
Narragansett requires short-term rentals to be registered, for a $100 fee, and based on an analysis of those records, Dion estimated the rental market there was $18.2 million instead of $7.9 million.
Even with those revisions incorporated into the state projections, Dion said there is a good chance the estimates are still low, because detailed data was not available for the Newport market to determine if it has been similarly under-counted.
Aside from raising state revenue, the expanded hotel tax is described by the Chafee administration as an attempt to level the playing field so that all vacation lodgings, be they in large hotels or small B&Bs, are taxed the same. “The governor believes that it’s an issue of fairness and that it is better that all room rentals be treated equally,” said Chafee spokeswoman Christine Hunsinger. “And that you have to keep in mind the corresponding cuts that were not made to the budget because of it.”
The Rhode Island Hospitality Association did not immediately respond to multiple requests for its position on the tax.
One of the main arguments against expanding the hotel tax is that Rhode Island’s neighbors don’t charge B&Bs or home rentals and the extra cost will hurt the competitiveness of the Ocean State tourism industry.
In Massachusetts, the hotel tax ranges from 9.7 percent to 11.7 percent depending on local charges. Massachusetts specifically exempts “bed-and-breakfast” rooms from the tax and defines them as having three rooms or less.
For vacation-home rentals, Massachusetts subjects rented venues to the lodging tax if they are occupied by four or more people unrelated to the owner, although it is unclear how that is enforced.
In Connecticut, the hotel tax is 15 percent, highest in New England, but is not charged to individual home rentals or B&Bs.
If passed by the legislature, the expanded hotel tax would take effect July 1, leading to a concern similar to what was voiced over the state’s guided-tour tax, that homes will already be booked at a certain rent when the tax starts, causing a difficult decision for landlords.
“It is going to upset a lot of people on both sides of the equation,” said Cohen at Randall, Realtors. “I think it is going to impact the guests and the summer renters, because I think the landlords are going to pass the expense along.”
“We need the tourists and need their dollars,” Cohen said. “A second homeowner feeds a trickle-down effect. They buy things and they are paying property taxes, and they are not getting a lot of community services.” •

No posts to display