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.”