Real Estate Resistance to the 'Taylor Swift Tax' Erupts: Will Common Cottages Be Next?

Star entertainer Taylor Swift would owe Rhode Island around $136,000 in new taxes on her Watch Hill mansion if a new charge to high-end vacation homes proposed in the House version of the state budget passes.

And Rhode Island real estate professionals, who successfully defeated a similar tax plan a decade ago, are mobilizing to kill the tax hike again and argue that even if Swift can afford it, she and others in her position shouldn't have to pay.

"We're screaming from the top of Jerimoth Hill. ... Do not hurt our housing market right here more than you are," Chris Whitten, president of the Rhode Island Association of Realtors , told The Providence Journal in a June 12 phone interview. "Because who knows what the slippery slope leads to? Let's heal. How about we heal our housing crisis we have here in Rhode Island, which is the worst in the nation by many of the stats that we see."

The "Taylor Swift tax," if it passes, would apply to second (or third or fourth) homes with assessed values of more than $1 million, and its proceeds would fund the state's low-income tax credits that help finance affordable housing developments.

How much money would the new tax raise?

How much it will raise is murky.

Because the tax wouldn't go into effect until July 2026, House budget writers did not have to estimate its financial impact on the 12 months starting this July 1.

But real estate brokers and agents, who are even more ticked off about a proposed 61% increase in the conveyance tax on home sales , say soaring property values means the tax on expensive properties will hit more than just pop stars.

"Think about that family that has had this Narragansett Beach house in their family for four generations, and the family collectively uses it various weeks throughout the summer, and in the winter it just stays vacant," Whitten said. "They're going to be whacked with this."

How would it work?

The Taylor Swift tax, officially called the "non-owner-occupied tax," applies to all residential properties assessed at more than $1 million that do not serve as a primary dwelling. To qualify as a primary residence, an owner has to live there more than half the year, or 183 days.

The non-owner-occupied tax rate of $2.50 cents per $500 of value only applies to assessed value above $1 million, so even homes worth exactly $1 million would pay nothing.

Properties that are rented − either in traditional long-term leases or short-term through online platforms − would be exempt from the tax as long as, again, they are occupied at least 183 days a year.

Beyond the revenue benefit of the tax, House supporters of it point out the potential added benefit of creating an incentive for property owners to make more productive use of their luxury pads.

Swift could avoid the tax if, instead of spending a few summer weekends here, she becomes a bona fide 183-day-per-year Rhode Islander.

Alternatively, she could rent out the 1904-built, seven-bed, nine-bath estate during the cold winter months.

Either option would likely pump some welcome economic activity into Watch Hill during the offseason when the enclave can resemble a ghost town.

"You'll have to ask her," House Speaker K. Joseph Shekarchi said June 12 when asked if he hoped the tax would encourage Swift to move here full time. "I welcome any and all people who spend more time around Rhode Island. It's a beautiful state, and I love it dearly."

What does this mean for the future?

Since then-Gov. Gina Raimondo first proposed a tax on luxury vacation "cottages" shortly after her inauguration in 2015, the politics around investment properties, out-of-state buyers and waterfront homes that sit vacant most of the year had not reached the boiling point where it is now.

In the last decade, local governments have passed all kinds of ordinances restricting short-term rentals and lawmakers have considered numerous measures to encourage full-time owner-occupants but have largely maintained the status quo.

A preamble to the new tax in the budget rails against absentee property owners, calls owning a property you don't live in a "privilege" and suggests that more moves to push homes into year-round occupancy could be ahead.

"Non-owner occupied properties sometimes place a greater demand on essential state, city or town services such as police and fire protection than do occupied properties comparably assessed," the budget article says. "The residents of non-owner occupied properties are not vested with a motive to maintain such properties."

And, it goes on, "some properties are deliberately left vacant by their owners in the hope that real estate values will increase, thereby enabling the owners to sell these properties at a substantial profit without making any of the necessary repairs or improvements to the property."

Is some of that criticism of the high-end market fair?

Whitten: "It's tough when people try to paint a broad picture, and it's a much more intricate situation. Just like landlord tenants, everybody's fighting at the State House, but we as Realtors are in the middle on that. We see both sides."

How does this compare with the last time the tax was proposed?

The tax rate in Raimondo's 2015 Taylor Swift tax proposal was half that of the current plan, at $2.50 per every $1,000 of value instead of $2.50 per $500 of value.

It was estimated to generate $11.8 million in new revenue, but was not included in the House budget that year.

This article originally appeared on The Providence Journal: Real estate pushback to the 'Taylor Swift tax' begins. Will the charge hit everyday cottages?