Tax hike could keep B&B hosts in shadow

THE ISSUE The city might nearly quadruple the property tax on houses used for vacation lodging.

A proposal to sharply increase property taxes for homes used as vacation lodging and bed-and-breakfast rentals has become part of the mix involving the controversial short-term rentals. While the city is considering allowing more such units in residential neighborhoods, the tax hike would be a disincentive for illegal owners to come clean.

The city Planning Commission heard testimony in November on proposals lifting the lid on B&Bs in residential areas while requiring disclosure of more information from owners in their advertisements. The commission's advisory report will be forwarded to the City Council, which banned short-term rental of houses and bed-and-breakfast rentals in 1989, grandfathering and issuing permits for 141 existing rentals.

That number has dwindled since then to about 50, although a 2005 Internet search found 9,000 such vacation units being advertised in the state. The City Council increased daily penalties for illegal vacation rentals to $1,000 from $50.

The Council now has begun considering a bill that would require owners of short-term rentals to pay taxes at the rate of $12.40 per $1,000 of assessed value, instead of the normal rate of $3.29. That would raise the yearly property tax rate for $600,000 houses and condominiums to nearly $7,500 from less than $2,000.

The ability to enforce such taxation is questionable. The state Tax Department reported a year ago that 68 companies operating vacation rental houses and B&B units owed $1.5 million in tourist accommodation and general excise taxes, and 237 others were under investigation. Hosts are likely to pause -- at the very least -- before coming out of the shadows.