PROVINCETOWN — The Outer Cape had another banner year for rooms tax receipts, with revenue up 42 percent over last year in Eastham, 46 percent in Wellfleet, and 47 percent in Truro.
Those numbers come on top of large gains in the three prior years. The tax that once brought in $293,000 per year in Eastham (in fiscal 2019) is now bringing in $2.1 million per year. In Wellfleet, those numbers were $116,000 in fiscal 2019 and $1.6 million now; in Truro, receipts rose from $370,000 to $1.8 million.
The gains come from two factors, the first being the statewide expansion of the rooms occupancy tax, formerly levied on stays in hotels, motels, and campgrounds, to apply to short-term rentals such as those booked through Airbnb and VRBO. That change took effect in 2019; voters in Truro, Wellfleet, and Eastham elected to raise their “local-option” rooms tax rates, effective in 2021.
The story in Provincetown has been a bit different. The town has a much larger base of hotels, so it was already collecting more than $2.2 million in rooms taxes even before the expansion to short-term rentals in 2019.
The town also had already adopted the highest possible local-option tax rate of 6 percent in 2010 — so Provincetown did not have the same opportunity as the other three Outer Cape towns to juice its revenue by raising its tax rate.
Nonetheless, the town’s rooms tax revenue more than doubled in three years, from $2.2 million in fiscal 2019 to $5.03 million in fiscal 2022.
That growth came to an abrupt halt this year, however. The town’s rooms tax receipts actually declined slightly, to $4.93 million in fiscal 2023.
The town has lost a few hotels recently, with some properties becoming workforce housing while others became condos or single-family homes. The “traditional lodgings” part of the rooms tax, however, has continued to increase, according to figures provided by the state Dept. of Revenue (DOR) to the Independent.
According to the DOR’s figures, the short-term rental part of the rooms tax brought in $2.33 million in fiscal 2022 but only $2.15 million in fiscal 2023 — a decrease of almost 8 percent.
Other data sources do not show a decrease in sales, however. The market-research website AirDNA.co, which aggregates data on bookings on Airbnb and VRBO, shows a big increase in sales in Provincetown’s short-term rental sector last summer and this spring: from $39 million total sales in fiscal 2022 to $52 million total sales in fiscal 2023.
Other towns on the Outer Cape show similarly large increases in the same period, with Eastham going from $17 million in 2022 to $29 million in short-term rental sales logged by AirDNA in fiscal 2023.
In fact, the sales figures that AirDNA recorded, which came only from Airbnb and VRBO, multiplied by Provincetown’s 6-percent local-option tax, would come to $3.1 million in short-term rental taxes in fiscal 2023 from just those two websites — about a million dollars more than was actually received by the town.
There are several dozen smaller websites that also book short-term rental stays that are not included in AirDNA’s sales figures.
Sales data in AirDNA had closely tracked tax receipts in previous years, so the Independent asked Provincetown Assistant Town Manager Dan Riviello and Graeme Dempster, director of North American sales for Granicus, which offers short-term rental compliance tools to governments, for their thoughts on the discrepancy.
A Missing Million?
“By nature, I tend to think there are probably multiple totally benign explanations,” said Riviello. “Nonetheless, it’s interesting.”
Riviello said that the AirDNA figures are a secondary source that are standing in for the real information, which is what Airbnb and similar websites are actually reporting to the state.
“I wonder if cancelations could possibly be inflating those sales figures, or if cleaning fees are getting added to the sales figure — something that looks like a transaction to AirDNA’s engine but isn’t actually a bookable, taxable night,” Riviello said.
Provincetown’s current contract with Granicus for short-term rental compliance support includes property address identification and compliance monitoring, Riviello said. The company has products that can estimate sales revenue across more than 60 different booking engines, but the town hasn’t purchased that service, Riviello said.
Dempster works on short-term rental compliance for a living, and he had several ideas about the discrepancy.
“In the Northeast, there’s always this wrinkle because the market there has these established family homes that are maybe even second-generation now,” Dempster said. “People block weeks off for family gatherings, or maybe it’s rented to cousins or friends, and it can be difficult to tell whether that’s a paid activity or not.”
If the computer programs that AirDNA and Granicus use have trouble telling the difference between a reservation for personal use and an actual sale, then estimated sales could be too high relative to actual sales.
“Airbnb and VRBO have an earnings report where the user is supposed to document every paid transaction,” Dempster said. “They know how many nights were actually booked.
“There’s a wrinkle with the state, though,” Dempster continued. “They have voluntary collection agreements with Airbnb and VRBO, and I believe the agreement there prevents the state from auditing Airbnb.
“By giving the platforms the ability to collect tax on your behalf, you just have to trust that they’re doing the collection,” he added. “You can’t actually go back and audit the platform.”
Some cities and states have had problems with this arrangement, Dempster said, including New Orleans and Hawaii. Questions about revenue discrepancies are not uncommon, he noted, and the numbers can be sizable.
“Some of the communities we’ve worked with, once they got the data, they looked back and realized they missed out on a significant portion of revenue,” Dempster said. “It’s definitely not unique to Provincetown to see a discrepancy between sales figures and tax collected.”
