Airbnb and Taxes: What Other States are Doing and How Much Revenue Might Be Raised in Massachusetts

Source: Phineas Baxandall, Massachusetts Budget and Policy Center, July 22, 2016

In the last three years, in the face of very rapid growth of Airbnb andsimilar companies, several state and local governments have changed the tax rules for short-term accommodations. In doing so, they have cited a need to create clarity for a rapidly changing industry, to level the playing field between new and more traditional accommodations, and to recapture lost public revenue.1 Others have opposed these measures as extensions of the scope of taxation, or because they seek more comprehensive health, safety, and zoning regulations applied to these rentals along with taxation.

Taxes on hotel stays were created long before the Internet or Airbnb, and it has taken states time to catch up to the rapid change in this industry. In the past, people might rent a room to someone they knew, or allow people to rent by the month or at will; and state and local governments did not attempt to apply room occupancy taxes to these arrangements. Large-scale renting of short-term residential accommodations wasn’t practical before the advent of integrated online booking, reputation, and payment systems.

This month the Massachusetts Senate approved economic development legislation that would revise the state’s Room Occupancy Tax to end the current exemption for an owner-occupied “bed and breakfast home” that rents out three or fewer rooms. The new legislation would eliminate this category. It instead creates a new legal category of taxable “transient accommodations,” which includes any vacation, leisure, or short-term accommodation offered in exchange for rent that wouldn’t qualify as a hotel, motel, lodging house, or bed and breakfast establishment (categories that are already taxed under the law). If enacted, Massachusetts would join 20 other states where statewide or local rules have extended short-term rental taxes to booking arrangements like Airbnb.2