Between April 2022 and 2023, Maine had almost 24,000 rental properties with at least one reservation, according to a statewide housing study. (Maine Morning Star)
Though several legislative attempts to institute taxes on short-term rentals have failed, Democratic lawmakers are trying again this session to institute these surcharges on vacation properties, specifically to support affordable housing for permanent residents and education.
Among these proposals being heard Wednesday in the Taxation Committee is the second iteration of a plan from Rep. Charles Skold (D-Portland). His bill, LD 632, would allow a municipality to impose a local option sales tax of 2% on short-term lodging that is subject to the state sales and use tax, if approved by voters in that municipality.
This is higher than the 1% sales tax on such properties Skold proposed last year in legislation that failed to gain support on the floor after narrowly being backed by the Taxation Committee by a one-vote margin.
Similar to his previous proposal, Skold’s bill would require that the revenue the tax generates be used for affordable housing in that municipality.
The regulation of short-term rentals, such as Airbnbs, in Maine has largely fallen to municipalities, with cities such as Portland, Rockland and Bar Harbor taking it upon themselves to pass local rules.
Portland lawmaker proposes funding affordable housing with short-term rental tax
While noting the importance of short-term lodging on the state’s economy, Skold and others supportive of his plan last year, including residents along the coast, argued that each housing unit converted into a short-term rental takes away units from individuals and families who would like to stay in Maine full time but who are currently being driven away by a lack of housing supply and high prices.
“This bill does not detract at all from the importance of short-term lodging in our economy, but it allows municipalities heavily impacted by this trend to recover some benefit and use that revenue to help meet their own housing needs,” Skold testified at the time.
But real estate, tourist groups and the state’s Department of Administrative and Financial Services opposed Skold’s proposed tax, arguing it could deter tourists because of higher costs or disadvantage businesses in the communities that choose to enact the tax.
There were also concerns over the constitutionality of the bill. DAFS testified that any local sales tax should be structured with the 2018 U.S. Supreme Court decision Dakota v. Wayfair, Inc. in mind, which noted the importance of a simple tax system when imposing sales tax on remote sellers.
Other versions of a short-term rental sales tax are being considered this year, too.
Rep. Gary Friedmann (D-Bar Harbor) also proposed a bill to permit municipalities to impose a 2% sales tax on short-term lodging, if approved by referendum, to be used for affordable housing.
However, Friedmann’s bill, LD 746, would require 10% of revenue generated to be transferred to the Maine State Housing Authority to be used to provide subsidies through the rural affordable rental housing program or another program that supports affordable housing development in rural communities, specifically.
While differing on the specifics, Skold and Friedmann’s proposals to use this tax for affordable housing differ from how Rep. Michael Brennan (D-Portland) is seeking to use revenue generated from such a tax.
Brennan proposed LD 225, which would create a higher tax, an additional 3% sales tax on the value of rental living quarters in a hotel or other lodging, with its revenue reserved for the Maine Department of Education to fund school construction and K-12 education.
Earlier efforts to institute statewide regulations on short term rentals have attempted to impose fees, rather than a tax. That was the case for a bill from Rep. Tiffany Strout (R-Harrington) last session, as well as another bill in the session before last that specifically tried to place fees on second homes unoccupied by a permanent resident. Both bills died.
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