Rhode Island Enacts 'Taylor Swift Tax' on Second Homes to Fund Affordable Housing
Rhode Island has implemented a new annual property tax on second homes, dubbed the "Taylor Swift Tax" after the state's most famous non-resident homeowner. The tax, effective from June 2024, charges $5 for every $1,000 of assessed property value above $1 million on vacation homes. This measure targets wealthy out-of-state owners in upscale coastal areas like Newport and Little Compton, aiming to raise funds for affordable housing development.
Taylor Swift's own estate in Watch Hill, valued at $28 million and spanning approximately 1,180 square meters, will face an additional tax bill of about $136,000 annually. Despite the high-profile nature of Swift's property, the loudest opposition comes from middle-class families who own smaller, often inherited vacation homes. Many of these properties have seen their values surge due to expensive coastal land, leading to tax increases exceeding 50 percent for over 8,000 affected owners.
Local residents like 83-year-old Ed Berk from Boston, who shares a 176-square-meter cottage in Middletown with family, fear the tax hike could force them to sell century-old homes. Legal challenges are underway, with the Hinckley Allen & Snyder law firm preparing a constitutional lawsuit on behalf of homeowners. Rebecca Holt Fine, whose family owns a three-bedroom cottage in Watch Hill, argues the tax is unfair since their home cannot be rented out year-round due to lack of heating and insulation.
Politically, the tax reflects a broader Democratic trend toward taxing the wealthy to address cost-of-living and inequality concerns. Rhode Island joins states like Massachusetts and Maine with similar "millionaire taxes," while California and New York have enacted or are considering taxes on net worth and second homes. Proponents, including state Senator Megan Kallman who sponsored the law, argue the revenue is vital to offset federal Medicaid cuts and fund housing tax credits for low-income residents.
Despite the tax, luxury home prices in the Providence area rose 6.3 percent annually to $1.7 million by May 2024, driven by limited supply. However, some buyers, such as a Texas investor, have withdrawn from the market due to the new law. The state expects to collect $24.5 million from the tax in the upcoming fiscal year, a small fraction of its $15.2 billion budget, with initial noncompliance rates anticipated to be high due to the law's complexity.
