Tax History - Peters Real Estate Cape Cod

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Tax History

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Briefly, the Room Occupancy Tax (hotel/motel tax) was signed into law just about 50 years ago this year.  It was delayed at its inception by a battle between the stae lawmakers and the hospitality organizations representing the commercial accommodations businesses.  At the time, there were virtually no laws or restrictions and the commercial businesses feared that if they had to collect tax and private rentals did not, a lot of business would move to the cottages.  Who wouldn't prefer the bonus of a private setting, possibly near a beach, your own yard, a kitchen, and multiple rooms?  In the end, it was settled by a group of restrictions placed on private property rentals which you are all familiar with:

1)  private cottage or house rentals must be for a minimum of 7 days
2)  private cottage or house rentals cannot provide any launderable linens
3)  private cottage or house rentals cannot provide maid service while tenants are in residence
4)  private cottage or house rentals cannot be affiliated with a commercial tax-collecting accommodations business

This distinction drew a very distinct line between "transients" and tenants.  The state defined tenants as haing a private agreement with a landlord to rent a residence for a period of time, secured by a lease.  They were renters and therefore temporary residents.  A "transient" was defined as a member if the general public who could walk into a public place of business and secure a room or rooms,  for a day or more, a traveler, one if a group who for the most part stayed for less than a week.  

The way the law was finally written and stands today, it is a service tax placed not on the accommodations, but on the conveniences afforded to a traveler,  Sheets and towels and maid service are generally provided, and there is no restriction on the number of nights a transient stays.  The  tax exemption for cottage rentals exempts them from tax only if the 4 rules are strictly met.  There is no 'wiggle room".  renting jut one fall weekend or providing sheets and towels to just one tenant crosses the line into commercial use.  The penalty, which as enforced into the 1980s, calls for an audit and a fine of 5% on ALL rental income for the last 3 years.  

The best thing about the Room Occupancy Tax was actually inadvertent, accidental.  In passing this law, the state created a system that does as much to protect our towns as the Cape Cod National Seashore and other parks and conservation areas.  While they protect select areas of land, the Room Occupancy Tax protects us from certain destructive behaviors.  For example, if half the rental owner on the Cape chose to provide launderable linens to half their tenants, there would still be enough additional detergent-laden "gray water"  soaking into our sandy soil to annually fill several Olympic-sized swimming pools.  The detergent water feeds microscopic marine plant life, which in turn suffocates shellfish.  There are other threats to our ambiance and our surroundings as  well which are controled by the rules that exempt cottages from the tax.  

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