Governor and municipal leaders both want more money from short-term house rentals. Who gets it?

For years, municipal leaders, hoteliers and even some short-term rental owners have been begging for equal taxation.

Their calls to stop letting house rentals listed through Airbnb, VRBO and other hosting platforms skirt the 5% state hotel tax have gone unanswered at the Rhode Island State House.

Until now.

Gov. Dan McKee in an April 22 memo and corresponding press release announced a fiscal 2025 budget amendment that would extend the state hotel tax to whole-home short-term rentals, bringing the taxation rate on-par with hotels, long-term vacation homes and short-term room rentals.

“This closes a longstanding loophole whereby partial home short-term rentals are currently taxed at a significantly higher rate (13%) than whole home short-term rentals (8%) without any policy justification for the distinction,” McKee’s office said in a statement at the time the announcement was made.

But, there’s a catch. McKee wants to give the tax revenue to the Rhode Island Department of Housing for homelessness relief programs, rather than using the existing distribution of state hotel tax funds, which are split among regional tourism districts, Rhode Island Commerce Corporation, and cities and towns.

Rhode Island has a long way to go to fix problems caused by short-term rentals

Not the answer that Newport Mayor Xaykham Khamsyvoravong hoped for.

“I appreciate the governor and his teams’ efforts to ensure there are more resources for homelessness in this state,” Khamsyvoravong said in a recent interview. “But with a tax like this, we have an existing model. Maintaining that is important. That’s how we keep some sliver of funding guaranteed to come back to those communities.”

The City by the Sea has been ground zero for a surge in short-term rentals, with more than 600 listed on the statewide registry as of early May, though Khamsyvoravong suspects there are even more operating under the radar.

The explosion of short-term rentals has boosted tourism, but also brought problems with safety, infrastructure, and availability of permanent, affordable housing. In 2021, a guest in a Newport Airbnb was fatally stabbed.

Newport adopted its own set of aggressive regulations and fines separate from and prior to the state-maintained registry enacted in 2021. But the problem and the cost to tackle it remains, making the estimated $5 million in annual tax revenue McKee’s proposal would generate statewide important, Khamsyvoravong  said.

“We need those resources to continue addressing the challenges,” he said. “That tax is directly related to the economic activity having a physical impact in their community.

How lodging tax revenue is split now

Cities and towns that host hotels and vacation homes receive roughly a quarter of revenue generated by the state hotel tax, to be used at municipal leaders’ discretion, according to state law. The rest of the tax revenue is divided among regional tourism districts, Rhode Island Commerce and the Greater Providence-Warwick Convention and Visitors Bureau.

Legislation introduced by Rep. Scott Slater, a Providence Democrat, would maintain that existing split, simply removing the exemption that lets whole home short-term rentals skirt the state hotel tax. Meanwhile, Rep. Lauren Carson, a Newport Democrat and chair of a legislative panel studying short-term rentals, has proposed returning all of that revenue generated by a hotel tax on short-term rental houses to the appropriate municipality. The money would be used “exclusively” for municipal infrastructure improvements, river and coastal resiliency and housing, according to Carson’s bill, introduced on April 18.

The two bills are among a dozen pieces of legislation under consideration by state lawmakers that seek to impose stricter regulations or additional taxes and fees on short-term rentals. 

All this while the 15-member panel — not-so-succinctly titled the Special Legislative Commission To Review And Provide Recommendations For Policies That Deal With Numerous Economic And Social Short-term Rentals Issues — continues its work untangling the web of interests and issues at play. An interim report issued by the commission on April 30 outlines some of its preliminary findings, but also calls for more time and information.

The 2023 legislation that created the panel provides for an April 15, 2024 expiration. Carson has introduced separate legislation allowing the commission to extend its review, with a final report of recommendations due in September 2025, and expiration in December 2025.

“We definitely need more time,” she said. “We have identified several policy areas that need to be addressed, but we need to collect more information and develop recommendations for improvements.”

Including data. A focus of the panel’s work to date has been looking through the state registry list, and comparing its numbers to those in municipalities, some of which have their own, independent registries. What they’ve found so far: The numbers don’t match each other, or the listings on actual hosting platforms like Airbnb.

Inconsistent data across registries

Even Newport, which has the longest-running and most robust local database, is probably leaving out a good chunk of the rentals required to register.

“Our ability to enforce is a bit like a game of whack-a-mole right now,” Khamsyvoravong said. “There are so many inconsistencies in registration practices. It’s bad for the people playing by the rules, because others aren’t.”

On this point, short-term rental owners agree.

Greer Gagnier, executive director for the Rhode Island Short Term Rental Association, and a member of the study commission, backed a separate tranche of bills, including one by Carson, which aim to beef up data collection and compliance with the state registry.

But on the question of higher taxes, or separate community impact fees, as floated by Sen. Dawn Euer, a Jamestown Democrat, Gagnier said it was too soon.

“It’s really premature to pass any legislation around short-term rentals while this study commission is still going on,” Gagnier said.

Leon Amarant, a Middletown resident who owns a short-term rental in town, warned against overtaxation in a recent State House hearing.

“If you add all these taxes up, I am going to be 100% honest with you, I am just going to sell my properties,” Amarant said, speaking to lawmakers on the Senate Committee on Housing and Municipal Government on April 13.

Taxation proponents frame the short-term rental industry as a business that should be treated like any other commercial entity. Yet Amarant countered that most of Rhode Island’s short-term rental owners are local residents like himself seeking to make a little extra money. His Middletown property is only available as a short-term rental on Airbnb for two months in the summer; the rest of the time, it’s occupied by one family who returns from September to June each year because one of the parents works on the America’s Cup fleet in Newport, Amarant said.

“If I list this on Airbnb for two months and then get 12 months of taxes, that doesn’t make sense,” Amarant said.

However, Amarant was open to paying the state hotel tax because it “levels the playing field” with the rest of the hospitality industry.

Khamsyvoravong also framed the hotel tax as a “common sense” solution that he hoped would gain traction despite the attempt to continue the study commission’s work.

But the contradiction remains between how McKee wants to use that revenue, and what local and state lawmakers proposed. Carson acknowledged that McKee’s budget amendment might hurt her bill’s chance of passage.

Ernie Almonte, executive director of the Rhode Island League of Cities and Towns, also stressed the importance of municipal revenue-sharing for taxes on short-term rentals.

“If this amendment is to pass as written, we pledge to collaborate closely with the RI Department of Housing and ensure that our members have a voice at the table regarding the equitable disbursement of any additional tax revenue,” Almonte said in an email on Thursday. “By fostering this dialogue, municipalities will gain greater flexibility to innovate, improve, and potentially save tax dollars while addressing the issues the Department of Housing aims to tackle. We support efforts to create a dedicated funding source for housing stability and homelessness but urge for municipal involvement to best serve community needs.”

Olivia DaRocha, a spokesperson for McKee’s office, responded by email Thursday afternoon.

“We know that short-term rentals have had a significant impact on housing affordability in Rhode Island,” DaRocha said. “As such, the Governor believes this new revenue source should be allocated towards housing stability and homelessness services to help support those Rhode Islanders that have been most impacted by increased housing costs.”