New Short-Term Rental Laws in Massachusetts Q&A


Massachusetts adopted a new law taxing and regulating the short-term rental market. The following information should help Realtors® navigate the short-term rental market under these new laws and regulations. For additional information, see the Department of Revenue's FAQ page.

What does this new law require?
The new law expands the state's hotel and motel tax to include the short-term rental of homes (condominiums, single family, multifamily, etc.). Massachusetts is one of the last states to adopt this type of tax. The tax applies to all rentals for a period of 31 days or less, regardless of whether the rental is for recreational, personal, or business use. At the insistence of MAR, the new law only applies to short-term rentals, meaning ordinary tenancies, such as an annual lease or a tenancy-at-will, are not covered by this bill. 

Tax Structure
The short-term rental rate varies by locality and is the total of the following rates:
  • State: 5.7%
  • Local: up to 6% (Boston 6.5%)
  • Cape Cod & Islands: includes additional 2.75% to fund Cape Cod and Islands Water Protection Fund 
  • A community impact fee of up to 3% may be assessed locally on professionally managed properties (Owners of two or more units in one town).
The law requires regulations to minimize the administrative burden on tax filings for those who only rent their unit five (5) months or less each year. 

Are there any exemptions in the law?
The tax imposed by the new law does not apply to properties rented for fourteen (14) days or less per calendar year. It is important to note that these properties are still subject to the other requirements of the law, such as insurance and registration. 

When will this law take effect? 
Rental contracts that were signed on or after January 1, 2019 for stays on or after July 1, 2019 will be subject to the tax. We anticipate that the Department of Revenue will issue guidance on how to handle the tax on bookings made on or after January 1, 2019. The law exempts from tax any 2019 rental contract that was completed on or before December 31, 2018. 

Does this apply to the units I rent? 
As stated above, the new law applies to all rentals for a period of 31 days or less. Ordinary rentals, such as an annual lease or a tenancy-at-will are not covered. The new law applies regardless of whether the owner rents the property themselves, hires a Realtor® to rent the property, or uses an online platform to facilitate the rental. 

What is taxed?
The tax applies to the total consideration paid by an occupant, including any service, cleaning or other charge. According to the Department of Revenue FAQs, this includes all optional charges, including but not limited to the following: security deposits, insurance, linen fees, cleaning fees, and service charges. 

 Do I need to collect the tax? 
Most likely, yes. The law requires intermediaries (which includes Realtors® who post the property for rent online) who enter into a written agreement with the owner or operator to collect rent or facilitate the collection or payment of rent on behalf of the operator to collect and remit the tax. A Realtor® who does not collect or facilitate the collection of rent on behalf of the owner or operator does not need to collect and remit the tax.  The Department of Revenue's FAQ page states that intermediaries will need to register with MassTaxConnect once, but may need to provide DOR with information about each operator with whom they work. The tax must be paid on or before the 20th day of the month following the month in which it is due. DOR will issue regulations to clarify this process. 

Do I need to carry insurance for the listed properties? 
No. Although part of earlier versions of the legislation, the final law does not include a requirement that Realtors® provide any liability insurance for listed properties. This requirement was removed due to the advocacy of MAR. Owners, however, are required to maintain $1 million dollars in liability insurance to cover each short-term rental as of July 1, 2019. Realtors® should be sure to confirm that any property they list for rent is properly insured by the owner.  The coverage is required to defend and indemnify the operator and any tenants or owners in the building for bodily injury and property damage. Realtors® may elect to offer insurance coverage as part of their services but are not required to. 

Before offering a property for short-term rentals, a hosting platform (including Realtors®) must provide notice to the owner or operator that standard homeowners or renters insurance may not cover property damage or bodily injury to a third-party arising from the short-term rental. 

Do the properties need to be registered with the state or city/town? 
Each rental unit will need to be listed with the state short-term rental registry. Additionally, each city and town is permitted to create a registration requirement for short term rentals. Check with your municipal government office for details. 
 
Are there any inspections required? 
Cities and towns may implement a health and safety inspection requirement and set the frequency of inspections. Short-term rental operators are required to cover the cost of inspections and will likely face a fee to cover registration costs as well. 

What are some best practices I can apply as the new law gets implemented? 
  • Realtors® would be wise to disclose to prospective renters that any booking made on or after January 1, 2019 may be subject to a tax and that the tax rate may change before the rental period. Realtors® may want to postpone the collection of rent until the community tax rates are finalized. 
  • Develop a policy to verify the number of units owned by each client in a municipality and that those units are properly insured.