Massachusetts vacation rental tax guide

Short-term rentals are changing the travel landscape, with many guests choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Boston, Cambridge, and Cape Cod, the Bay State offers potential short-term rental hosts the opportunity to bring in extra income.

But new income opportunities bring new tax implications. Like hotel and B&B stays, short-term rentals in Massachusetts are subject to tax. Vacation rental hosts are required to collect applicable taxes from their guests and remit them to the proper authorities.

Failure to comply with state and local tax laws can result in fines and interest penalties. These may not catch up with you in the short term, but the sharing economy is under increased scrutiny, so it’s important to address compliance before tax authorities address it for you.

Avalara MyLodgeTax has compiled this guide to help you comply with Massachusetts accommodations tax laws. For more information on the tax rates and jurisdictions that apply to your rentals specific location, use our lodging tax lookup tool.

No short-term rental tax guide is a substitute for professional tax advice. Consider it a resource to help you understand and prioritize your short-term rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Massachusetts tax laws.

Short-term rental tax basics

When you start operating a short-term rental, you may not have experience with lodging taxes, but you are probably familiar with income tax. It’s important to understand the difference between the two.

Income taxes are reported and paid annually to the federal and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.

In contrast, a lodging tax on a short-term rental is a percentage of the total rent of your guest’s stay that is added to the guest’s bill. The guest pays the tax, but you’re responsible for collecting and paying it to the proper tax authority.

What is the definition of “short-term rental” in Massachusetts?

Massachusetts defines short-term rentals as lasting 31 consecutive calendar days or less. A short-term rental is an occupied property that is not a hotel, motel, lodging house, or bed-and-breakfast, where at least one room or unit is rented out by an operator through the use of advance reservations. This does not include time-share properties or properties that are rented out through tenancies at will or month-to-month leases.

Who is required to collect and file taxes on short-term rentals in Massachusetts?

If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling for more than 14 days a year, you’re responsible for collecting, filing, and remitting short-term rental taxes to Massachusetts authorities. If the total amount of rent for a short-term property is less than $15 per day, no tax is due.

Short-term rental operators may choose to allow an intermediary or other agent, including hosting marketplaces such as Airbnb or Vrbo, to handle the rental of their property as well as register with tax authorities, collect lodging tax, and file returns on their behalf. However, hosts are still required to register with the state Department of Revenue.

Location is key to compliance

The location of your rental is a crucial piece of information for short-term rental tax compliance. Your address will determine which taxes you need to collect and your tax rates.

You can use our lodging tax lookup tool to get a rate specific to your Massachusetts address.

It should be noted that tax rates and the rules governing rates may change frequently. Please consider your free tax rate from MyLodgeTax to be informative rather than authoritative.

Registering with state authorities

Before you can begin collecting taxes on your short-term rental in Massachusetts, you are legally required to register with the Massachusetts Department of Revenue (DOR). You can register online.

No matter how many days your property is available for rent each year, you must register with the DOR. However, if the property is rented for 14 days or less in a calendar year, you’re not required to collect any tax. If that exception applies to you, you must let the DOR know at the time of registration. If you exceed 14 days of rentals during the calendar year, you’re responsible for paying the taxes that should have been collected for the first 14 days.

Do I need to form an LLC?

In Massachusetts, you do not need to form an LLC in order to register with tax authorities.

Local short-term rental regulations

Short-term rental operators in Massachusetts should be aware of local regulations that apply to them, including rules covering:

• Legality
• Permits, licenses, and registration
• Zoning
• Advertising
• Neighborhood notification
• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of short-term rental policies that apply to your property.

Collecting short-term rental tax

Once you’re registered with tax authorities, you can start collecting lodging taxes, which you’ll add to your guest’s bill when they pay for their stay.

Which taxes apply to Massachusetts short-term rentals?

In Massachusetts, a number of different lodging taxes may apply to your rental, depending on your location. These can include:

Tax rates

Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s important to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. Tax authorities often have the latest rates posted. You can also use our lodging tax lookup tool to find the right rates.

What charges are taxable?

In Massachusetts, all amounts charged by an operator, intermediary, or operator’s agent in exchange for occupancy are taxable. This includes items such as service charges, cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Refundable security deposits are not subject to lodging taxes.

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects taxes for me?

Before collecting any lodging taxes from your guests, you need to be aware of whether any taxes have already been collected for you. Online marketplaces such as Airbnb and Vrbo are responsible for collecting and remitting occupancy taxes on behalf of their Massachusetts hosts when listings are booked. However, hosts are still required to register with the state Department of Revenue.

If taxes aren’t being collected for you, you’re responsible for collecting and remitting them to state tax authorities.

Are guests ever exempt from taxes?

There are situations in which you aren’t required to collect lodging taxes in Massachusetts. For example, a guest who rents for a long term rather than a short term is exempt from short-term lodging taxes. 

In Massachusetts, accommodations that are purchased by federal employees on official business and U.S. military employees on official military orders may be exempt from lodging taxes.  Make sure a group claiming to be tax exempt provides a valid exemption certificate.

Filing short-term rental tax returns

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Massachusetts Department of Revenue. In Massachusetts, you can file short-term rental tax returns and pay the tax online. The Massachusetts Department of Revenue allows credit card payments, but you may be charged convenience fees for this type of payment.

Take the time to double check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. At the state level, monthly due dates are as follows:

I didn’t rent my property during this filing period. Am I still required to file a tax return for my short-term rental with the Massachusetts Department of Revenue?

Yes. Short-term rental operators registered with the Massachusetts Department of Revenue are required to file returns each assigned filing period, regardless of whether you had any short-term rental income or collected lodging taxes. Such returns are commonly known as “zero dollar returns.”  

Are there penalties for filing taxes late?

Whether you choose to rent through a marketplace like Airbnb or Vrbo directly to guests, you open the door to tax liability. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and short-term rental operators not in compliance with local tax laws. Failure to register with tax authorities and file tax returns in Massachusetts on time may result in late fees, penalties, interest payments, and in extreme cases, legal action.

I have been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating a short-term rental but not collecting short-term rental taxes, you may be in violation of Massachusetts tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.

Short-term rental hosts in Massachusetts may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Massachusetts Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.

Are there options for outsourcing transient occupancy tax filing?

Yes. Many short-term rental hosts in Massachusetts and across the country file several state and local lodging tax returns each month or quarter. Filing solutions such as MyLodgeTax manage this burden for owners and hosts.