Rhode Island Should Shake Off ‘Taylor Swift Tax’ on Second Homes

Rhode Island’s so-called Taylor Swift Tax, which adds a levy on non-primary residences worth more than $1 million, has been named after the pop icon whose $28 million summer home would now face an additional $136,000 in annual taxes. The nickname guarantees headlines all too well, but the policy leaves much to be desired.

This isn’t just Rhode Island’s folly. Montana recently passed a two-tier property tax aimed at folks fleeing from California, Cape Cod is considering a surtax on sales of homes worth more than $2 million, and Los Angeles has a “mansion tax.”

Nothing New

Lawmakers nationwide are responding to demands to tax the rich, with varying precision. There’s a difference between what may resonate with the general population and what makes for resilient fiscal policy, though.

The logic of taxing second homes is superficially sound. Wealthy property owners have benefited from post-pandemic asset inflation, and taxing the top of the market a little more seems like a minimally disruptive way to generate revenue.

But narrowly tailored taxes pegged to valuation thresholds are a nightmare dressed like a daydream—they create cliffs, distort incentives, and discourage transactions. The Los Angeles mansion tax raised much less than initial estimates, in large part because sellers simply stopped selling.

Rhode Island is poised to experience a similarly underwhelming outcome when second-home purchasers begin buying their getaways in neighboring Connecticut and declining sales push the valuations for more properties below the $1 million threshold.

Taxing second homes may seem appealing because the homes are expensive, nonessential, and often owned by non-state residents with little political clout. Someone like Taylor Swift is unlikely to show up at the tax board meeting to tell them they should’ve said no.

But the policy’s key flaw lies in that lack of clout or connection to the community.

These properties likely aren’t as embedded in the owner’s daily life as their primary residence. When the carrying costs become too high, getting out of the woods is relatively simple. There is a meaningful distinction between generally raising taxes on the wealthy and specifically targeting their vacation homes.

US singer and songwriter Taylor Swift performs on stage as part of her Eras Tour in Lisbon.

Photographer: Andre Dias Nobre/AFP via Getty Images

Taxing the rich is essential, especially when public goods are at risk and the myth of the millionaire exodus remains just that. But ham-handedly taxing a tiny, visible subset of the rich is a policy misstep.

Although past tax hikes on the wealthy haven’t triggered large-scale relocations, that may be largely because those hikes hit income or wealth, not weekend retreats. Second homes are comparatively easier to shed.

In that sense, the Taylor Swift Tax may not raise as much revenue as it does promote arbitrage. The policy seems to assume these buyers are captive when they likely aren’t. That makes the tax base mobile and evasive—the opposite of what you want when sketching out long-term fiscal policy.

If second homes are already a shaky tax base, they become shakier still when the surtaxes rely on easily gamed distinctions such as “primary residence” and “owner occupancy.” A tax policy that attaches hundreds of thousands of dollars to the question of how many days someone sleeps in a house is practically asking to be undermined.

High-end properties often are owned by entities rather than individuals—LLCs, trusts, shell companies, or specifically created holding entities. These structures provide asset protection but also obscure ownership, can mask occupancy patterns, and will hinder enforcement of any residency-based tax.

Champagne Problems

If Rhode Island sets out to determine whether a house is occupied more than 182 days in a year, and that home is owned by a Montana LLC leasing it to a family trust, good luck getting to a clear answer.

States that are serious about taxing wealth must avoid targeting visibility and start targeting value. That means investing political capital in durable progressive property tax policy: reassessment schedules, vacancy levies, and cost-recovery models that connect levies to how a property and its use affect local infrastructure.

In many states, high-end properties are chronically undervalued because assessments are infrequent or subject to political winds. Regular, market-based assessments—perhaps annually or biannually—would raise stable revenue without garnering any bad blood.

Property taxation can also be better tied to actual use. A large home that sits empty for 10 months a year imposes costs on public services and the housing supply. Taxing based on seasonal vacancy, considering square footage and infrastructure strain, recasts levies as a cost recovery rather than a punishment or cash grab.

It also avoids the enforcement mess of trying to define “primary residence”—the building is either occupied or it isn’t, and its square footage is quantifiable.

Ultimately, even the best-designed tax on second homes will fall flat if states try to go it alone. Wealthy buyers don’t necessarily care about ZIP codes, and they have the means to shift plans and vacations where their dollar goes the furthest—or at least where there aren’t taxes nicknamed after them. If Rhode Island imposes a surtax but Connecticut doesn’t, all the former has done is push discretionary wealth across state lines.

Long Story Short

States facing budgetary shortfalls don’t need better branding; they need better tax policy. If they want to tax high-value property without simply chasing away wealthy vacationers, they’ll need to make use of multistate compacts, harmonized assessment cycles, and coordination in reporting. These approaches won’t solve every problem, but they’ll broaden the base and make the system harder to game.

However, the better bet for state lawmakers would be to focus tax policies on the income and perhaps even the wealth of their high-income residents, rather than just the real estate they occasionally overnight in.

At best, the Taylor Swift Tax will create a modest revenue uptick from a small pool of high-end second homes for a short time. At worst, it will accelerate and crystallize avoidance, suppress transactions, and shift buying behavior elsewhere.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social

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