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Our members are the local governments of Massachusetts and their elected and appointed leadership.
May 12, 2015
The Honorable Jay R. Kaufman, House Chair
The Honorable Michael J. Rodrigues, Senate Chair
Joint Committee on Revenue
State House
Boston, MA 02133
Dear Chairman Kaufman, Chairman Rodrigues, and Distinguished Committee Members,
On behalf of the cities and towns of the Commonwealth, the Massachusetts Municipal Association appreciates the opportunity to offer testimony on several bills relative to the property tax, room occupancy excise tax and other related matters before the Committee today. We strongly urge you to give a favorable report to legislation to enable local-option payments in lieu of taxation for tax-exempt organizations, to close the online room reseller loophole, to make short-term non-hotel accommodations subject to the rooms tax, to allow municipalities to include approved advertisements with local tax bills as a source of non-tax revenue, and to close the telecommunications tax exemption loophole. We respectfully request that the Committee give an unfavorable report to bills that would decrease local property tax revenue by lowering the excise tax rate or creating new classes of individuals exempt from the property tax. Below, you will find detailed information on each of these bills in the order in which they appear on the hearing docket.
Marine Vessel Excise Tax
H. 2482, An Act Relative to Marine Vessels, would cut in half the excise tax rate for marine vessels, from $10 per $1,000 of valuation to $5 per $1,000 of valuation, and establish an accelerated depreciation schedule. This would result in decreased local revenues and undermine municipal finances, and we oppose this legislation for that reason.
Information Included with Municipal Tax Bills
H. 2488, An Act Relative to Information Included with Municipal Tax Bills, would allow cities and towns, with the approval of the Board of Selectmen or Mayor, to include non-political advertisements with local tax bills mailed or sent electronically. This legislation would strike the current limitation that any information sent with local tax bills include only “municipal informational” and expand the provision to include “informational or marketing.” This legislation, if enacted, would provide cities and towns with a much-needed new non-tax revenue option, and we strongly urge you to give it a favorable report.
Hotel Rooms Booked Online
H. 2515, An Act Relative to the Modernization of the Room Occupancy Tax, H. 2539, An Act Relative to Hotel Rooms Booked Online, and S. 1523, An Act Clarifying Occupancy Excise and Internet Hotel Room Resellers, each seek to create a more modern and equitable system of taxation for hotel rooms booked through online room reseller websites, like Travelocity and Orbitz. Because of a glaring loophole, when a hotel reservation is made through an online hotel room reseller, the tax that is collected is based on an artificially low room rate, not on the room rate that the consumer actually pays. Online room resellers generally calculate state and local occupancy taxes based on the wholesale cost that they pay to a hotel for a room rather than the retail price that they charge a consumer. This internet reseller business model of contracting for hotel rooms at a wholesale cost and selling them to the end-consumer at a premium allows a portion of the price paid by the consumer to escape state and local hotel occupancy taxes.
The current Massachusetts room occupancy statute, Chapter 64G, has been in effect since 1966, well before the internet, and well before the concept of online reselling or internet intermediaries existed. The statute bases the excise tax to be collected on the amounts paid to an operator of a hotel or motel. What happens now is that internet resellers pay lower room rates to hotels and motels, then mark up the price when they charge the consumer, but collect and submit taxes bases on the lower wholesale room rate, not the real and actual room rate paid by consumers.
Nationally, the Center on Budget and Policy Priorities estimates that states and localities lose up to $400 million in revenue annually through online room reseller tax loopholes, and up to $9 million in Massachusetts. Room rentals booked through online room resellers represent a significant and increasing share of the market –with 19% of the market share in the first months of 2015, up from 14% in 2011. We respectfully and strongly request that the Committee favorably report legislation to close this expensive and inequitable tax loophole.
Creating New Property Tax Exemptions
H. 2592, An Act Extending a Property Tax Exemption to the Surviving Spouse of Blind Persons and S. 1533, An Act Relative to Tax Abatements for Deaf Residents would both create new tax exemptions and decrease local property tax revenue at a time when it is much-needed to fund essential local services. H. 2592 would transfer the local property tax exemption afforded to a blind resident of a city or town to that resident’s surviving spouse, upon the blind resident’s death. The surviving spouse would retain the tax-exemption until remarriage. We urge you to give this legislation an unfavorable report, as it is beyond the scope of the original intent of the exemption and would deprive cities and towns of property tax revenue. Similarly, S. 1533 would create a new property tax exemption that would result in decreased local revenue, and we ask the Committee to give it an unfavorable report as well.
Room Occupancy Tax for Transient Rentals
H. 2618, An Act Regulating Short-Term Residential Rentals, H. 2621, An Act Relative to the Room Occupancy Excise, H. 2645, An Act Providing for Local Aid Enhancement, and S. 1614, An Act Relative to Room Occupancy Excise Tax, each seek to modernize the rooms occupancy tax by making it applicable to short-term or seasonal lodging rentals in private homes or other similar accommodations, a practice that has become increasingly popular and common with the expansion of the sharing economy and the advent of online booking site like Airbnb for such rooms. H. 2648, An Act Approving the Application by the Town of Truro of the Local Option Room Occupancy Excise to Seasonal Rental Properties in the Town of Truro is a home rule petition consistent with these bills. When a tourist rents a room in a private home rather than in a hotel or motel either for a single night or seasonally, no room occupancy tax is captured or remitted to the municipality in which it is located or to the state. These private rental arrangements are rapidly increasing in number and are creating stiff competition within the hotel market. In fact, there were over one million rooms available for rent internationally on Airbnb in December 2014, with analysts predicting in a Barclay’s report that the number could triple by the end of this year. Because this type of accommodation rental is rapidly changing the nature of the hotel market, we urge the committee to favorably report legislation to close this tax loophole to allow for the collection of local room occupancy tax on these transactions.
PILOTS and Tax-Exempt Organizations
S. 1451, An Act Relative to Payments in Lieu of Taxation of Organizations Exempt form the Property Tax, would allow a municipality, upon acceptance at local option, to implement a program through which nonprofits would make an annual PILOT to the municipality equivalent to 25 percent of the amount that the organization would have been assessed on real and personal property if it were not exempt from taxation. Municipalities that adopt this section would craft local ordinances or bylaws to allow for PILOT agreements between the municipality and nonprofits, and may allow for exemptions or consideration of community benefits that reduce the amount of the required PILOT by the nonprofit.
Statewide, Massachusetts hosts over 23,000 nonprofit public charities that own over $22 billion in tax-exempt property, and cities and towns provide a wide array of costly core services that benefit these organizations, including police, fire and emergency response services, public works maintenance for the sidewalks and roadways surrounding the property, planning, zoning, and economic development services to facilitate safe access to the property, appropriate commerce and development in the area, and much more.
This legislation would simply create a process for municipalities and nonprofits to work closely to ensure their mutual interests and create a sustainable system to ensure that nonprofits make a consistent contribution to fund local public services. Many municipalities have experienced a dramatic reduction in their taxable property base because a significant portion of the total property within their borders is tax-exempt, leaving the municipalities with a comparatively small tax base to finance the provision of a wide array of services. Other municipalities see properties leave the tax rolls for nonprofit use as the nonprofit sector continues to grow, constricting the tax base they rely on to fund essential municipal services. In fact, from 1999 to 2009, the number of nonprofits operating in Massachusetts grew by over 7,000. With this increase, real property that was taxable attained tax-exempt status, leaving a host municipality with less revenue to provide the same level of services to the community.
This legislation offers a timely opportunity to ensure that a municipality may receive a payment from a nonprofit approximately equal to the costs of the public services that the municipality expends on the nonprofit’s behalf(the most recent Census of Governments, completed in 2007, indicates that on average, 27.3% of local government general expenditures are police and fire protection and roads).
Nonprofits play a crucial role in the social, cultural, and economic fabric of our communities, and ensuring their long-term viability and success is truly a shared priority with municipalities. However, municipalities provide important necessary public services to the nonprofits within their borders, including police and fire protection, infrastructure construction and maintenance, and water and sewer, at a cost borne by local government and the residential and commercial taxpayers in the community. This bill would create a consistent structure through which a nonprofit would contribute resources to support the municipal services that the nonprofit directly enjoys.
This legislation offers an important mechanism to close a loophole created by the property tax exemption of nonprofits, in that those non-profits with the highest-value property receive significant benefits regardless of whether they are providing the highest-value services to the community. Under this legislation, municipalities could exempt nonprofits offering crucial social services to members of the community, or reduce the required PILOT below 25 percent, based upon the degree of community benefit.
In addition, many cities and towns host nonprofits that provide services that do not primarily benefit residents of those cities and towns, but instead benefit residents of other communities, states, or countries. However, all of the public service costs associated with the nonprofit are borne by the host community alone. This legislation would allow for the consideration of the direct benefit that the nonprofit has within its host community, with a resulting PILOT that makes a direct community contribution and offsets the public service costs expended by the municipality.
Massachusetts is fortunate to be home to some of the finest non profits in the nation, many of international renown. From acclaimed museums and cultural institutions to cutting-edge medical centers to the best universities and private schools in the world, our cities and towns are enriched by our nonprofits every day. Nonprofits employ over 10 percent of the state’s workforce, a rate much higher than the national average. While municipalities are dedicated to the continued prosperity of these nonprofits, the nonprofits must in turn have an interest in the fiscal vitality of local communities, as their long-term prosperity is ultimately linked. This legislation would create an equitable framework for PILOT agreements between nonprofits and municipalities that would allow municipalities to meet continued demands for public services, and allow nonprofits to make contributions proportionate to the public services they receive.
Closing the Telecommunications Loophole
S. 1456, An Act Eliminating Telecommunications Tax Exemptions would adjust the tax exemption enjoyed by telephone and telegraph companies. Current law provides a tax exemption to certain companies for the cost of real estate, poles, underground conduits, wires and pipes, and machinery used to conduct their business. This legislation would disallow the exemption on machinery leased to a telephone or telegraph company by a company that is not a telephone or telegraph company, more properly aligning the scope of the exemption and generating local tax revenue. We urge the Committee to issue a favorable report to the bill.
Thank you very much for the opportunity to submit testimony on these bills, each of which would have a very significant impact on local taxation for cities and towns. If you have any questions, please feel free to have your staff contact me or Catherine Rollins of the MMA staff at 617-426-7272 at any time.
Sincerely,
Geoffrey C. Beckwith
Executive Director & CEO