New Beach House Taxes Criticized
Nine months after the Rhode Island Department of Revenue began collecting the state’s seven percent sales tax and one percent local hotel taxes on short-term vacation rental properties, there remains a sense of unease about the law’s reach for new revenue in this manner.
“We feel that it is a back-door way for the state to collect property taxes,” said Mike Stenhouse, CEO of the Rhode Island Center for Freedom and Prosperity, a Rhode Island think tank that advocates for free enterprise solutions to public policy issues.
“There are an awful lot of shortterm rentals going on here in Newport,” said Mayor Jeanne-Marie Napolitano. She said there has always been an “over the back fence” informality to summer beach house rentals.
“This has been going on for so long in the city of Newport because it’s a tourist community. We couldn’t keep up with it, so I don’t know how the state is going to do it,” the mayor said. “I’ve often said that the biggest market in Rhode Island is the black market.”
Kara Churas, a rental agent with the Lila Delman agency, said 2016 summer bookings are off from last year and that the new taxes are “absolutely” part of the reason.
“We are not thrilled about it,” Churas said. “But once the state sees the money coming in from those taxes, they won’t want to see it stop.” She also expressed concern that the situation could hurt business later this year in seaside restaurants and shops.
Stenhouse maintained that these tax increases were “hostile to wealthy people and to businesses.” And, he added, “This cannot be enforced. And if it can’t be enforced, how are you going to collect it?”
Hoping to provide answers, the Rhode Island Division of Taxation plans to hold the sixth in a series of public seminars on this tax issue on Friday, April 1, from 10 a.m. to noon at the Newport County campus of the Community College of Rhode Island.
The bill putting the new taxes into motion was enacted late last June by the General Assembly on behalf of Gov. Gina M. Raimondo. It extended sales and hotel taxes to short-term rentals of residential property, including rentals of vacation homes and beach cottages.
Another Raimondo tax initiative, a property tax on luxury second homes, languished in the Assembly last year. The latter tax proposal was dubbed the “Taylor Swift” tax after the popular singer-songwriter’s high-end vacation home on the ocean in the Watch Hill section of Westerly.
Because many short-term summer rental contracts had been executed earlier in 2015, the state decided to exempt from the new tax any taxpayers whose rental deals were signed prior to June 30, 2015. That was a one-time-only exemption, however.
“We knew that not everybody would start paying the tax from the get-go,” said Paul. E. Grimaldi, public information officer for the state Department of Revenue. “So the first season was like a soft opening. We expect revenue projections for the next fiscal year will be higher and firmer.”
According to the Division of Taxation, the new law applies to “living quarters, sleeping or housekeeping accommodations provided to transient guests in exchange for payment.” They may include an apartment, a beach house or cottage, a condominium, or a mobile home. These provisions apply regardless of whether the owner resides in Rhode Island or elsewhere.
A “short-term” rental means 30 days or less. Any rental for more than 30 consecutive days, or for one calendar month, is excluded from the law’s requirement to register with the Division of Taxation and collect taxes.
For those whose situation requires collecting taxes under the law, they must:
. Register with the Rhode Island Division of Taxation
. Pay the annual sales tax permit fee
. Collect and remit the sales tax and hotel tax
According to the press release announcing the Newport seminar, the session will “review the taxes and how they apply – not only for those who were subject to the tax in 2015, but also for those who will be subject to the tax for the first time in 2016.”
A recent program on the topic on Feb. 26 in Narragansett drew more than 100 property owners, real estate agents, and others. That meeting was hosted by both the Tax Division and the Rhode Island Association of Realtors.