This article is part of MACo’s Policy Deep Dive series, in which expert policy analysts explore and explain the top county policy issues of the day. A new article is published each week — read all of MACo’s Policy Deep Dives.

From pools and sports courts to large backyards, home gyms, pickleball courts, rooftop decks, and music studios, home amenity rentals represent a growing industry closely resembling traditional hospitality industry transactions – much more so than serving as platforms where residents may rent out a room in their home for a few days a year.

Here, Conduit Street will explain State and local taxes on home amenity rentals, explore their impact on local communities, and discuss the potential regulatory measures to address these challenges.

As previously reported on Conduit Street, legislation passed in the 2023 session altered the definition of “tangible personal property” to include a “home amenity rental.” The bill imposes a 6 percent state sales and use tax on home amenity rentals and authorizes local governments to tax these transactions.

This week, the Comptroller of Maryland issued a Technical Bulletin guiding the applicability of the State sales and use tax on home amenity rentals.

What Constitutes a Home Amenity Rental?

The new law defines a home amenity rental as the temporary use of non-sleeping areas within residential properties for up to 15 hours. Examples of home amenity rentals include:

• Backyard swimming pools
• Private sports courts like pickleball courts
• Rooftop event spaces in apartment buildings

Notably, the law excludes bedrooms and other sleeping areas from this definition.

Compliance Requirements for Providers and Platforms

Home Amenity Rental Providers are individuals or entities that own, operate, or manage a home amenity. They must collect and remit the 6 percent sales and use tax. Similarly, Home Amenity Rental Intermediaries, who facilitate the rental transactions, and Home Amenity Rental Platforms, typically online services that advertise and manage bookings, are also responsible for tax collection and remittance.

All parties involved must obtain a sales and use tax license and maintain detailed records of all transactions for at least four years. Tax returns need to be filed either monthly or quarterly, depending on the volume of sales, as assigned by the Comptroller.

Examples of Tax Application

To illustrate, consider the following scenarios:

• Direct Rental by Provider: If a homeowner rents their backyard pool for three hours at $100 per hour, they must collect $18 in sales tax (6 percent of $300) from the renter and remit it to the Comptroller.
• Rental Through a Platform: An apartment building owner lists their rooftop deck online for $125 per hour plus a $75 cleaning fee. The platform collects $742 from the renter ($700 taxable price + $42 sales tax), retains a commission, and remits the sales tax to the Comptroller.

County Home Amenity Rental Tax

The legislation authorizes counties to impose local taxes on home amenity rentals. Here’s how it works:

Authorization and Public Hearing:

• Counties can impose a home amenity rental tax by passing a resolution.
• In Calvert, Charles, and St. Mary’s counties, a public hearing must take place before imposing the tax. This hearing must be advertised twice in a local newspaper at least ten days before it occurs and cannot be part of the annual budget hearing.

Tax Rates:

• The county home amenity rental tax rates are determined by existing local taxation frameworks and the need to create a consistent and manageable tax environment across different jurisdictions.
• The tax rates vary by county. Some counties set their rates through resolution, while others have specified caps (e.g., up to four percent in Allegany County).
• Municipalities can also impose a tax, provided the county has already done so. Municipal tax rates cannot exceed one percent.

Issues with Home Amenity Rentals in Neighborhoods

While home amenity rentals have become increasingly popular, this trend has brought several issues for residential neighborhoods:

• Noise and Disturbance: Wild parties and large gatherings often associated with home amenity rentals can cause significant noise, disrupting the peace of residential areas. Neighbors frequently complain about loud music, shouting, and increased foot traffic.
• Safety Concerns: Large numbers of people, many of whom may be strangers to the area, raise safety concerns. There is an increased risk of accidents, including drownings or injuries at pool parties, which can lead to costly lawsuits and heightened anxiety among residents.
• Property Damage: Home amenity rentals often suffer from wear and tear or intentional damage, which affects the immediate neighbors and can lead to decreased property values in the area. Additionally, the influx of visitors can lead to littering and other environmental degradation.
• Insurance and Liability Issues: Homeowners renting out their amenities face significant liability risks. Many standard insurance policies do not cover commercial activities, and homeowners might need additional coverage, which can be costly. Without proper insurance, homeowners risk significant financial loss if an accident occurs.

Potential Policy Actions

Stricter Regulations: The State should authorize local governments to implement more stringent regulations to control home amenity rentals. These should include platform accountability, requiring permits, regular inspections, and adherence to safety standards.

Platform Accountability: Platforms facilitating these rentals should be held accountable. They should be required to report detailed information about rentals to local authorities and ensure compliance with local laws.

Community Engagement: Local governments should engage with residents to address their concerns and involve them in policy discussions regarding the regulation of home amenity rentals.

Insurance Requirements: Homeowners must have adequate insurance coverage for renting out amenities, protecting them and their neighbors from potential financial losses due to accidents or damages.

Education and Awareness: Raising homeowners’ awareness of the risks and responsibilities associated with renting out home amenities can help mitigate issues.

Closing

Home amenity rentals present unique opportunities and challenges for homeowners, local governments, and communities. While they offer a lucrative way for property owners to capitalize on their amenities, they also bring significant risks and disruptions to neighborhoods. Effective regulation, responsible platform practices, and proactive community engagement are essential to balance the benefits and mitigate the downsides.

By understanding the complexities and implementing thoughtful measures, counties can ensure that home amenity rentals contribute positively to the local economy without compromising residents’ quality of life.