BI Realtors burdened by 8 percent tax
The Rhode Island Association of Realtors (RIAR) may have lost the war regarding the state’s passage of an 8 percent vacation-home rental tax, but that doesn’t mean that they won’t continue to fight it. The budget bill tax would levy a 7 percent state sales tax and 1 percent local hotel tax on private home rentals of 30 days or fewer and become effective on July 1, 2015, in hopes of raising a projected $5.4 million for the state. Rentals that are paid in full before July 1 would be exempt.
In the interim, the RIAR petitioned the Governor and Senate asking for a delay of enforcement of the tax until Jan. 1, 2016, which Block Island Realtor Mary Stover said will be ruled upon on June 26.
“I am not hopeful of postponement. It is the Senate that is doing the voting on the 26th,” said Stover, principal broker and owner of Beach Real Estate located on Chapel Street on Block Island, who has led the charge against the tax bill. “But we in the real estate world have been spreading the petition to postpone through social media for delay of the tax until Jan. 1, 2016.”
"The Senate will take up the budget, and hopefully amendments will be offered then. I've communicated the need to do so to my Senate colleagues," State Rep. Blake Filippi told The Block Island Times. "However, I'm not too confident the Senate will amend the budget because the House will then have to pass it again in concurrence. Traditionally, this does not happen."
“It’s the least they can do," said Gail Ballard Hall, principal broker of Ballard Hall Real Estate, referring to delaying the enforcement of the tax until Jan. 1, 2016. "We then have time to discuss with homeowners if they will be renting again, which will determine whether or not we will all have jobs next year. Sounds dramatic, but the rental business is a substantial component of our business.”
Filippi thinks that the rental tax will not only hurt the real estate business, but the state's tourism economy as well.
"The rental tax is a mistake — both substantively and procedurally," said Filippi. "Substantively, over the long term, it will end up hurting tourism, our state's most vibrant industry. Procedurally, the July 1st imposition date is a slap in the face to those who have invested here, and to the many people who work in the real estate industry. Government needs to be better than this."
Stover said the Board of Realtors has been to the “state capitol several times to make a common sense appeal to the [General Assembly] to delay the tax.” She said that would give “all concerned time to understand the ramifications of imposing such a tax on the one industry that has a chance at growth going forward. We need to spur this industry with favorable treatment to investors into our beautiful state, not throw roadblocks down to stall it. Economics 101 teaches this very lesson.”
“I also question the math used to calculate the tax revenue from home rental income,” said Stover. “Many vacation homes are loved family homes, that the owners do rent for some periods of summer weeks in order to keep their homes, and save some weeks for their own enjoyment. For this reason, and given the manpower needed to register homeowners, collect and enforce violators will be expensive. It’s my strong belief the true revenue realized will be negligible.”
"During the budget debate, we offered and supported amendments on the House floor to reduce the tax and delay its imposition. Unfortunately, those efforts failed," said Filippi. "I urge any interested readers to check out the Article 11 floor debate on my YouTube page."
For Block Island Realtors, regardless of whether the tax is delayed, they still think that it will be damaging to their business.
“It’s all negative and potentially damaging,” said Susan Weissman, owner of Attwood Real Estate on Block Island. “Commonality is that it's taxation without representation in its worst form.”
“It’s not a very friendly way to welcome vacationers to our beautiful island,” said Stover, “but we are so unique, and our hope is that vacationers will not let this small increase interfere with their love of one of the last great places on earth.”
Although the rental tax hasn’t been imposed yet, it is already creating a real burden for Block Island realtors.
“The 8-percent rental tax means more bookkeeping that was not planned for at our busiest time of year, getting rental homes ready and open for the high season,” said Stover. “We have to notify all of our tenants with balances due to send checks in prior to June 30, with enough time to get checks processed and in the bank so they can avoid the tax due after June 30.”
“This all seems rash, illogical, unplanned and the results could prove to be detrimental to our economy,” said Hall. “The next issue is implementing this tax after the season has started and contracts are all signed. Suggesting a seminar to learn about implementation during Race Week or anytime during a busy summer season simply does not make any sense.”
"We agree with Mary [Stover], it will be a burden, especially in the beginning while we all try to navigate the new waters," said Robin Lewis Vila, principal broker and owner of Offshore Property. "That having been said, we will do our best to make it as painless as possible for both our homeowners and tenants."
"So many interpretations, but someone from the Department of Revenue will have to send us 'collectors' precise procedures for collecting and reporting this tax," said Weissman. "I don't see that happening anytime before July 1."
Stover said that while tenants have been cooperative, the process of taking the time to inform them about the particulars involved with the tax has been time consuming.
“Most tenants have been responsive, but the process is time consuming because the tenants want an explanation,” said Stover. “The state, for their part, has not notified us of any obligations for collecting taxes, which real estate companies are not currently registered to do. There are a lot of administrative issues that the state was not prepared for in the short amount of time necessary to meet a July 1, 2015 deadline.”
“We, all licensees and administrative personnel, have been actively expressing our opposition to this proposed tax,” said Hall. “We have been educating our clients and customers, homeowners and tenants, throughout the year in regard to the tax. We feel it will directly impact business.”
Moving forward, Block Island Realtors are hoping that the new rental tax will not deter vacationers from renting property on the island.
“Tenants who save all year for their one-week vacation, who cannot afford to pay an additional 8 percent, can easily decide to rent a property in Connecticut or Massachusetts,” said Hall. “Can Block Island or the State of Rhode Island afford to lose this business?”
“We are all anxiously waiting the outcome of this vote,” said Stover, referring to the June 26 Senate ruling.
Three representatives from the state's Division of Taxation will conduct an informational tax forum at Town Hall on Tuesday, June 30 from 5 p.m. to 7 p.m.