Governor Charlie Baker on Friday signed first-of-its-kind legislation to tax and regulate the short-term housing rental market in Massachusetts, capping years of debate over how to navigate an industry that has exploded through companies like Airbnb.
The new rules will take effect July 1 and could transform a market that spans the state, from Cape Cod summer homes to Boston apartment buildings to Western Massachusetts vacation retreats.
The bill requires every rental host to register with the state, mandates they carry insurance, and opens the potential for local taxes on top of a new state levy. A chief negotiator for the House said the goal is to register every short-term rental in the state by September, and local officials, including in Boston, say the new law will help buttress their own efforts to regulate the booming market.
But before Baker’s ink could dry, the law drew a sharp rebuke from Airbnb, which called it “flawed” and unnecessarily complex. Advocates who have closely followed the process — including Airbnb’s decision to sue in federal court to overturn Boston’s municipal regulations — warn a lawsuit against the state could also follow.
“Our administration has long supported leveling the playing field for short-term rental operators who use their properties as de facto hotels,” Baker said in a statement Friday after signing the bill. “I appreciate the Legislature’s work to reach a compromise on this bill that adopts our proposal to avoid placing undue burdens on occasional renters.”
The law followed a twisting, yearslong path through Beacon Hill, where as recently as this month its prospects for passing appeared unclear.
Faced with a ticking clock — the new legislative session begins Jan. 2 — lawmakers emerged on Dec. 20 with a compromise plan, and pushed it to Baker’s desk through sparsely attended informal sessions.
Beyond requiring all hosts to register and carry insurance, it also subjects short-term rentals to the same 5.7 percent state levy now paid by hotels — but exempts people who rent their homes 14 or fewer nights a year. Officials have estimated that tax could raise at least $25 million annually.
It also would allow cities and towns to impose their own taxes of up to 6 percent, except in Boston, where it would be 6.5 percent, with occasional hosts also exempted.
Additional taxes would be levied on hosts who own multiple units. And an extra fee would also fall on units in Boston, Cambridge, and a handful of other cities that support the Massachusetts Convention Center Authority, but only after bonds are paid off on the Boston Convention & Exhibition Center in South Boston.
Some cities, including New York and San Francisco, have used short-term rental registries to rein in the industry, but this law makes Massachusetts the first state to require all hosts to register. That, more than the taxes, has been the focus of debate in recent months.
Hotel industry groups and housing advocates pushed for a comprehensive registry that would allow people to see whether their neighbors were renting a house or apartment short-term. Cambridge and Boston, meanwhile, have passed regulatory regimes of their own but say a statewide registry would aid enforcement, which in Cambridge has been hampered by hosts not signing up.
The new law will list the community and street name on the registry, but not specific addresses. Cities and towns, though, could choose to publish full addresses.
“This is a tremendous victory for municipal leaders,” said Paul Sacco, president and CEO of the Massachusetts Lodging Association. “By adopting a more level playing field between short-term rentals and traditional lodgers, lawmakers made great strides toward a more fair and sensible system.”
Airbnb, however, has pushed back on the measure, saying the registry could put hosts’ privacy at risk. Andrew Kalloch, the company’s head of public policy for Massachusetts, also criticized its tax structure as overly complicated and “layered,” and warned it could hinder the platform’s ability to accurately collect the levies.
“Massachusetts has chosen a pathway here that nobody else in the country has chosen,” Kalloch said Friday. “Sometimes first in the nation is bad because it means . . . what you have chosen to pass is a flawed measure.”
Kalloch said he couldn’t say whether the company would challenge the law in court, as it has done for Boston’s new rules, which are slated to go in effect Jan. 1. Airbnb is claiming that Boston’s regulations requiring online rental platforms to police their listings and share user information with the city violate state and federal laws.
But others say it’s possible, if not likely, that the new law draws litigation.
“I think it’s just a matter of time,” said Ford Cavallari, chairman of the Alliance of Downtown Civic Organizations, which supports the measure.
Requiring all hosts to register, Cavallari said, “is the light of transparency. I think Airbnb is going to have a better business because of it.”
Boston City Councilor Michelle Wu said the state’s decision to create a registry should bolster the city’s own plans to “ensure compliance.”