Massachusetts vacation rental tax guide
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NOTE: The outbreak of COVID-19 (caused by the coronavirus) may have impacted vacation rental tax filing due dates in Massachusetts. Please consult your local tax authority for specific details. For more information, visit our ongoing coverage of the virus and its impact on sales tax compliance.
Short term rentals are changing the travel landscape. Airbnb, HomeAway, and VRBO have created a entire new category for lodging. More and more guests are choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Boston, Cambridge, and Cape Cod, the Bay State offers potential short-term rental hosts the opportunity to bring in extra income and meet new people.
New income opportunities bring new tax implications. Hotel and similar accommodations have long paid room taxes, whereas in the past short term rentals were excluded from those requirements. Effective July 1, 2019, a new law goes into effect that will subject many more short-term rentals to lodging tax.
The Massachusetts Department of Revenue will now expect short-term rental hosts to collect and remit applicable lodging taxes from their guests. Failure to comply with tax laws can result in fines, interest and penalties.
Avalara MyLodgeTax has compiled this guide to help you comply with Massachusetts accommodations tax laws. For more information on the tax rates and jurisdictions that apply to your rentals specific location, use our lodging tax lookup tool.
Disclaimer: No short-term rental tax guide is a substitute for professional tax advice. Consider it a resource to help you understand and prioritize your short-term rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Massachusetts tax laws.
Short-term Rental Tax Basics
When you start operating a short-term rental, you may not have experience with lodging taxes, but you are probably familiar with income tax. It’s important to understand the difference between the two.
Income taxes are reported and paid annually to the federal and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.
In contrast, a lodging tax on a short-term rental is a percentage of the total rent of your guest’s stay, and that additional percentage is added to the guests bill. The guest pays the tax, but you are responsible for collecting the tax and paying it to the proper tax authority.
Taxes on short-term rentals can be known as excise tax, occupancy tax, lodging tax, and more, in Massachusetts they are usually refer to as Room Taxes. The total tax rate you charge your guest is made up of many different taxes levied by the state and local entities such as counties, cities, and towns.
What is the definition of “short-term rental” in Massachusetts?
A new state law that goes into effect on July 1, 2019, defines short-term rentals as lasting 31 consecutive calendar days or fewer. A short-term rental is an occupied property that is not a hotel, motel, lodging house, or bed and breakfast, where at least one room or unit is rented out by an operator through the use of advance reservations. This does not include time-share property or property that is rented out through tenancies at will or month-to-month leases.
Who is required to collect and file taxes on short-term rentals in Massachusetts?
Currently, hotels, motels, lodging houses, and bed and breakfasts that rent four or more rooms are required to charge guests a tax on rentals of 90 days or fewer.
Beginning July 1, 2019, those requirements are expanded to short term rentals. If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling for more than 14 days a year, you’re responsible for collecting, filing, and remitting short-term rental taxes to Massachusetts authorities. You may be the property owner, a renter subletting a room, a third-party property management firm, or other party.
Starting July 1, 2019, short-term rental operators may choose to allow an intermediary or other agent to handle the rental of their property as well as register with tax authorities, collect lodging tax, and and file returns on their behalf.
Location is key to compliance
The location of your rental is a crucial piece of information for short-term rental tax compliance. Your address will determine which taxes you need to collect and your tax rates. Tax rates are usually a combination of city, county and state taxes.
You can use our lodging tax lookup tool to get a rate specific to your Massachusetts address.
It should be noted that tax rates and the rules governing rates may change frequently. Please consider your free tax rate from MyLodgeTax to be informative rather than authoritative.
Registering with State Authorities
Before you can begin collecting taxes on your short-term rental in Massachusetts, you are legally required to register with the Massachusetts Department of Revenue. You can register online. When you register, you will receive instructions on filing your lodging taxes.
Do I need to form an LLC?
In Massachusetts, you do not need to form an LLC in order to register with tax authorities.
Local short-term rental regulations
Short-term rental operators in Massachusetts should be aware of local regulations that apply to them, including rules covering:
- Permits, licenses, and registration
- Neighborhood notification
- Building and housing standards
Homeowner Associations (HOA) located in Massachusetts may also have specific rules regarding vacation rentals. As a member, it’s your responsibility to be aware of the association’s policy. It’s important to review this information to understand any restrictions or limitations on short-term vacation rentals.
Other rules and regulations associated with leases/subletting or condo/co-op rules may apply to your situation. A good place to start is by reviewing your signed lease and speaking with your landlord or property manager.
Collecting Short-term Rental Tax
Once you’re registered with tax authorities, you are ready to start collecting rental tax, which you’ll add to your guest’s bill when they pay for their stay.
Which taxes apply to Massachusetts short-term rentals?
In Massachusetts, a number of different lodging taxes may apply to your rental, depending on your location. These can include:
|Tax Name||Filed and Remitted To|
|State room occupancy excise tax||Massachusetts Department of Revenue|
|Local room occupancy excise tax||Massachusetts Department of Revenue|
|Convention center financing fee||Massachusetts Department of Revenue|
|Cape Cod and islands water protection fund tax (starting July 1, 2019)||Massachusetts Department of Revenue|
|Community impact fee (starting July 1, 2019)||Local tax authority|
Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s important to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. Tax authorities often have the latest rates posted. You can also use our lodging tax lookup tool to find the right rates.
What charges are taxable?
In Massachusetts, all amounts charged by an operator, intermediary, or operator’s agent that are required for occupancy are taxable. This includes items such as service charges, cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Fees that are refundable, such as damage deposits, are generally not subject to lodging taxes unless you keep the deposit. Tax is not required to be collected if the total amount of rent is less than $15 per day.
What happens when my short-term rental platform (such as Airbnb, HomeAway, or VRBO) collects taxes for me?
Before collecting any short-term rental tax from your guests, you need to be aware of whether any taxes have already been collected for you. Some vacation rental platforms, including Airbnb, HomeAway, and VRBO, collect short-term rental taxes for hosts when the listing is booked.
If you rent your home through an online platform, be sure to identify which taxes (state, local, or both) are being collected and remitted on your behalf to avoid mistakenly collecting tax twice or failing to collect at all.
At the time of this guide’s publication, Airbnb and HomeAway/VRBO do not collect lodging taxes on behalf of their hosts in Massachusetts.
Are guests ever exempt from taxes?
There are situations in which you aren’t required to collect lodging taxes in Massachusetts. For example, a guest who rents for a long term (90 days or longer) rather than a short term (less than 90 days) will be exempt from short-term lodging taxes. In Massachusetts, accommodations that are purchased by federal employees on official business and U.S. military employees on official military orders may be exempt from lodging taxes. Make sure a group claiming to be tax exempt provides a valid exemption certificate.
Filing Short-term Rental Tax Returns
After you’ve collected taxes from your guests, it’s time to file your tax returns with the Massachusetts Department of Revenue. In Massachusetts, you can file short-term rental tax returns online. In order to file, you will need to enter information on how much you charged for your rentals. You’ll also need to pay the tax amount due, usually via check or electronic transfer. The Massachusetts Department of Revenue allows credit card payments, but you may be charged convenience fees for this type of payment.
Take the time to double check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.
When do I need to file my returns?
Room Taxes in Massachusetts are usually filed and remitted each month. You will be assigned a filing frequency and due dates when you register with the tax authority. At the state level, monthly due dates are as follows:
|Filing Frequency||Due Date|
|Monthly||Due the 20th of the month following the close of the filing period.
I didn’t rent my property during this filing period. Am I still required to file a tax return for my short-term rental with the Massachusetts Department of Revenue?
Yes. Short-term rental operators registered with the Massachusetts Department of Revenue are required to file returns each assigned filing period, regardless of whether you had any short-term rental income or any short-term rental taxes were collected. Such returns are commonly known as “zero dollar returns.”
Are there penalties for filing taxes late?
Whether you choose to rent through a marketplace like Airbnb or directly to the consumer, you open the door to tax liability. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and short term rental operators not in compliance with local tax laws. Failure to register with tax authorities and file tax returns in Massachusetts on time may result in late fees, penalties, interest payments, and in extreme cases, legal action.
I have been offering short-term rentals without collecting lodging tax. What options do I have?
If you’re already operating a short-term rental but are not collecting short-term rental taxes, you may be in violation of Massachusetts tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.
Short-term rental hosts in Massachusetts may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Massachusetts Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.
Are there options for outsourcing transient occupancy tax filing?
Yes. Many short-term rental hosts in Massachusetts and across the country file several state and local lodging tax returns each month or quarter. Filing solutions such as MyLodgeTax manage this burden for owners and hosts.