Given the likelihood that Massachusetts will pass a Lodging Tax bill at some point after January 1, many homeowners are wondering how the tax might impact their rental business in the meantime. Should they inform their past guests about the tax? If so, how and when? Should they price their homes any differently given this significant new tax? Should homeowners absorb some or all of the tax themselves rather than pass it all along to their guests?
In a prior post, we urged our homeowners to contact their past guests regarding the tax so that they can book early and avoid having to pay the tax. But here’s some advice about pricing your home vis-à-vis the tax.
Should you refrain from raising your rates for the upcoming season to mitigate the blow?
Tough decision. A couple of things to keep in mind:
1) Every other rental property will be assessing the tax, so your competition would remain the same and include the same “increase” you are.
2) As is always the case with pricing, consider how easily you booked your home last season. If you had no problem booking your home and did so early in the booking season, there’s a good likelihood that you are safe in raising your rates for next season, with or without the added tax. Conversely, if you struggled with bookings and ended up with vacancies, you probably should not raise your rates.
Should you absorb some or all of the tax?
We do NOT recommend that you offer to absorb any of the new tax! It’s specifically the responsibility of the vacationer. After all, it’s the guests who stay at a hotel or motel who pay the tax, not the hotel or motel.
If you choose to mitigate the impact of the new tax, especially for your loyal past guests who have stayed with you for many years, do so in other ways: offer to give them a small discount off the rent; or, if you are raising your rates, perhaps allow them to pay last year’s rate; or don’t charge them any extra fees that you might normally require (cleaning, linens, etc.).
It’s fine to consider softening the blow of this significant tax initially, but sooner or later, they will have to get accustomed to paying it anyway. So don’t be more generous than you need to be.
What about charging other fees?
With this new tax, you may find that it’s more difficult to charge your guests other non-refundable fees such as for cleaning or linens. The tax would not be assessed on these fees, but it’s certainly off-putting to add so many extra fees on top of your base rent. On the other hand, if you include the costs of cleaning, linens, etc. in your rent, your guests would, of course, have to be taxed on them, too, as part of the rent. So there are advantages to separating the rent from the extra fees.
For more information about the proposed Lodging Tax bill, see our Lodging Tax FAQ’s post.