Short-Term Residential Rentals Regulation: What’s Next?

In this year’s annual publication, Issue Papers: 2017 Legislative Session, the Department of Legislative Services (DLS) details the emergence of short-term residential rentals and how tax requirements are regulated in Maryland – calling attention to the fact that counties and municipalities throughout the state are considering how to regulate this relatively new phenomenon.

The term “short-term residential rentals” or “STRRs” refers to the recent trend of homeowners renting their property for short periods of time via an online platform/marketplace, which charges guests a fee per rental. Popular such online platforms include Airbnb, Flipkey, Homeway, and VRBO.

Last session, the Senate Budget & Tax and House Ways & Means committees considered  SB 776 / HB 1361, Hotel Rental Tax and Sales and Use Tax – Limited Residential Lodging, a complicated bill seeking to tax online hosting platforms – with the online company “Airbnb” taking center stage in the policy debate. MACo supported the bill with amendments to correctly identify commercial transactions and the appropriate components of the taxable base, to limit the administrative costs of state regulation to those direct and reasonable costs attributed to its collection, preserve local action already in place and not override or pre-empt this action, and explicitly rule out any inadvertent preemption of local zoning, safety ordinances, code requirements, or other matters traditionally and properly the province of local governments. After the hearings, no further action was taken by either committee. It is anticipated that legislation on this issue will re-emerge this session.

From the report:

Various large and small cities throughout the country regulate STRRs. According to the Short Term Rental Advocacy Center in terms of statewide laws, Florida enacted a measure in 2011 that prohibits a local government from passing any new law that bans STRRs. This law was amended in 2014 to allow some limited regulation by cities. Arizona enacted a similar statewide ban earlier this year, and while the New York legislature also passed a similar statewide ban, the measure has not yet been signed into law.

The rental of a house or a room in a hotel, motel, bed and breakfast, or house is generally subject to the State sales and use tax and a county hotel rental tax. A limited number of municipalities also impose a hotel rental tax. A municipal hotel rental tax applies in a similar manner to the county hotel rental tax for the county in which the municipality is located. A house or room rented in a house through an online marketplace is generally subject to the State sales and use tax. Under a county hotel rental tax, the particular definition of hotel and the language applying the tax will impact the taxability of a transaction completed through an online marketplace.

The 6% State sales and use tax is imposed on an accommodation, defined as a right to occupy a room or lodging as a transient guest. A room in a hotel, motel, B&B, or house offered for rent satisfies this definition for State sales and use tax purposes. Airbnb is a STRR that allows people to list and find houses or rooms for rent. It is likely that the Comptroller will consider an online marketplace such as Airbnb that facilitates the sale or use of a house or room to be an intermediary. As an accommodations intermediary, Airbnb is required to collect and remit the State sales and use tax on the full amount of the consideration paid by a buyer for the sale or use of an accommodation. The Comptroller’s Office requires an entity or individual that rents a home or part of a home as a transient accommodation to remit the State sales and use tax. The Comptroller’s Office advises that entities that advertise or otherwise make known to the public that transient accommodations are available to rent, are more easily identifiable then individual homeowners providing such accommodations.

Each county has the authority to impose a hotel rental tax with rates ranging from 3.0% to 9.5%. The authority to impose the hotel rental tax varies depending on how the authority is granted. There are two variations in county hotel rental tax laws that may impact the application of the tax to a transaction made through an online marketplace like Airbnb. A transaction through Airbnb may be excluded either because the facility does not meet the definition of hotel or the hotel rental tax provisions exclude the type of transaction.

The individual or entity required to collect the hotel rental tax and the charge on which the tax is paid vary by county. In the majority of the counties, Airbnb does not meet the statutory definition of a hotel and is, therefore, not required to collect the tax. If an online marketplace is not required to collect the hotel rental tax, the establishment offering the rental may still be required to collect and remit the hotel rental tax. Five counties and Baltimore City have adopted provisions addressing the issue of intermediary sales through online marketplaces (Anne Arundel, Baltimore, Harford, Howard, and Montgomery).