State Rep. Sarah Peake and other Cape legislators believe they’ve found a way to pump as much as $1 billion into the peninsula's wastewater projects in the coming years.
And, taking a page from Donald Trump’s original playbook for his border wall, somebody else will pay for it.
In this case it isn’t Mexico, but for the most part folks who don’t live here would pony up by way of a rental excise tax that would be deposited into a Cape Cod Water Infrastructure Trust Fund.
Under Peake’s proposed legislation, tourists and others who book so-called transient accommodations, would pay a 2.75 percent excise tax on room rentals in hotels, motels, bed and breakfasts, and lodging houses as well as on short-term rentals of private homes, cottages, condos and rooms (think Airbnb) that compete with commercial accommodations.
House Bill 2642, which was originally filed last year but has been revised, is an outgrowth of some Cape officials’ and the Cape Cod Chamber of Commerce’s long effort to expand the hotel and motel occupancy tax to the growing number of private home and room rentals.
They’ve argued that a lot of potential revenue is lost and it creates an unfair playing field weighted against commercial hotels and motels that must collect state and local option taxes. The chamber says that taxing private rentals Cape-wide would raise tens of millions each year.
“This is an effort the whole (Cape) delegation has been working on, all eight of us. It’s bipartisan,” state Sen. Julian Cyr (D-Cape and Islands) said at the Orleans selectmen’s meeting last week, which he attended with Peake, who represents the 4th Barnstable District.
Massachusetts imposes a 5.7 percent state tax on hotel/motel rooms, bed and breakfast establishments and lodging houses, and towns can add a local option tax of up to 6 percent.
Brewster, Barnstable, Provincetown and Yarmouth already are taxing commercial operations at the full 6 percent tax while Bourne, Chatham, Dennis, Eastham, Falmouth, Harwich, Mashpee, Orleans, Sandwich, Truro and Wellfleet are taxing at 4 percent.
That’s the background.
Peake’s bill would expand that local option tax to all short-term rentals, including private homes and rooms, and add the 2.75 excise tax onto all vacation rental products, private and commercial, in Barnstable County. Revenue from the excise tax would be earmarked for the trust fund.
The caveat: Any town that expands the local option tax to home and Airbnb-style room rentals would have to also collect the excise tax from private and commercial entities. Revenues from the local option tax would remain with the town.
The bill also levies a 5 percent excise tax on private rentals that would be collected by the state - regardless of whether a town expands its local option tax. Private rentals would not be subject to the existing 5.7 percent state tax on commercial accommodations.
“[The excise tax] would go directly into a trust fund in the treasurer’s office and we in the Legislature could not get our sticky fingers on it,” Peake said.
The fund could issue bonds and disperse monies to pay for wastewater related projects in the participating towns. Under the bill, the city of Boston is also authorized to impose an identical excise tax to use at its discretion (this ropes in the support of that hefty delegation).
“We were looking at challenges here on the Lower Cape, in housing and to fund wastewater infrastructure,” explained Cyr. “The commonwealth is committed to foot the bill for one quarter of the [wastewater work, under the 208 plan], $1 billion over several decades.”
But it has been estimated that resolving all of the wastewater issues on the Cape would cost about $4 billion. The proposed 2.75 percent excise tax could cover a substantial portion of that, over time, lawmakers say.
Peake has a separate measure, House Bill 3902, filed with Dylan Fernandez of Falmouth and Cyr, to create the Cape Cod Water Protection Trust. (Note: The excise/local option tax bill names the entity Cape Cod Water Infrastructure Trust Fund, so there will have to be a reconciliation of the official name.)
A board of trustees would be staffed by two appointees of the governor (he’ll also appoint a chairman) and one person would be appointed by each board of selectmen in towns that decide to levy the local option and the excise taxes.
The trust board would vote to disperse the funds for local wastewater projects and would be able to issue bonds, obtain loans, make loans to municipalities, acquire and sell local town bonds, enter into contracts and take legal actions, among other things.
“We’re not going to lose a large percentage of the money generated by the town to some bureaucracy or general fund?” asked Orleans Selectman Mark Mathison. “The gripe is the Cape pays more to the state than it gets back.”
“I spoke to the woman who runs the state revolving fund. The rap has been ‘no MWRA (Massachusetts Water Resource Authority) for Cape Cod,’ ” Peake said.
“We don’t want 50 cents on the dollar going to salaries and pensions and such. She said we’re in the business of collecting money and turning it around. Every dollar raised here will be a dollar returned locally. You’re going to raise a fair amount of money.”
It isn’t immediately clear how trust fund monies would be divvied up.
"I'm not sure how you'd qualify to receive funding or what the board's decision making power is," Michael Embury, Brewster town administrator, told The Cape Codder this week. He hadn’t yet seen the bill.
"We have needs for wastewater, but not sewers. But funds could certainly end up as money for a loan program for people (upgrading septics, for example) who could qualify financially so there is some benefit there."
While the treasurer’s office can work with a “hosting platform” such as Airbnb to collect taxes, property owners who handle their own rentals or the agency that coordinates their rentals would have to receive a certificate of registration from the state.
The tax bill is before the House Ways and Means Committee.
At a glance
Using Brewster as an example, if H.B. 2642 passes:
Taxes on a private home or Airbnb-type rental:
Local option tax: 6 percent
State excise tax: 5 percent
Trust fund excise tax: 2.75 percent
Total: 13.75 percent
Taxes on a commercial hotel/motel booking:
Local option tax: 6 percent
State tax: 5.7 percent
Trust fund excise tax: 2.75 percent
Total: 14.45 percent