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Rhode Island’s ‘Taylor Swift Tax’ on vacation homes of the wealthy is spreading to other states
Taylor Swift attends the 67th GRAMMY Awards on February 02, 2025 in Los Angeles, California.
Frazer Harrison | Getty Images Entertainment | Getty Images
A version of this article appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
A new push by states to tax the real estate of the wealthy has sparked a backlash among brokers and potential buyers, who say the taxes punish the most important local spenders.
From tax hikes on pricey second homes in Rhode Island and Montana to Cape Cod’s proposed transfer tax on homes over $2 million and the L.A. mansion tax, state and local governments see a revenue gold mine in the pricey properties of the wealthy.
“It’s a smack in the face to people who just spend money here,” said Donna Krueger-Simmons, sales agent with Mott & Chace Sotheby’s International in Watch Hill, Rhode Island.
The tax hikes are being driven by tighter state budgets and populist anger over housing costs. States are looking to offset budget cuts expected from the new tax and spending bill in Washington. At the same time, the housing market has become a tale of two buyers, with the middle class and younger families struggling to afford homes while the luxury housing market thrives from wealthy all-cash buyers.
The solution for many states: tax the homes of the rich.
Rhode Island’s new levy, nicknamed “The Taylor Swift Tax,” is among the most extreme. The popstar bought a beach house in the state’s elite Watch Hill community in 2013.
The measure imposes a new surcharge on second homes valued at more than $1 million. For non-primary residences, or those not occupied for more than 182 days a year, the state will charge $2.50 for every $500 in assessed value above the first $1 million. That charge is on top of existing property taxes and will add up to big increases for luxury homes in Newport, Watch Hill and other well-heeled, summer communities in the state.
Swift’s house, for instance, is assessed at around $28 million, according to local real estate records. Her current property taxes are estimated at around $201,000 a year. The new charges will add another $136,442 to her annual taxes, bringing her yearly total to $337,442 – even though locals say she rarely visits.
Real estate brokers say the increase targets the very taxpayers who already contribute the most. Wealthy second-homeowners pay hefty property taxes but don’t use many local services, since their primary residences are in New York; Boston; Palm Beach, Florida; or other locales. Their kids typically don’t attend the local schools, and they’re infrequent users of the police, fire, water and other municipal services since most stay for only 10 to 12 weeks out of the year.
“These are people who just come here for the summer, spend their money and pay their fair share of taxes,” said Krueger-Simmons. “They’re getting penalized just because they also live somewhere else.”
Brokers and longtime residents say the summer residents of Newport, Watch Hill and other seasonal beach towns are the economic engines for local businesses, restaurants and hotels.
“You’re just hurting the people who support small business,” said Lori Joyal, of the Lila Delman Compass office in Watch Hill. “You’re chasing away the people who spend most of the money in these towns.”
Rhode Island is also hiking its conveyance tax on luxury real estate starting in October. The tax on real estate sales will be an additional $3.75 for each $500 paid above $800,000 for a real estate purchase. At the same time, the state’s steep estate tax deters many of the ultra-wealthy from living there full-time.
Brokers say some second-home owners are considering selling and many would-be buyers are pausing their purchases. While the tax hike alone isn’t expected to lead to any significant wealth flight, Joyal said potential buyers in Rhode Island are already looking at coastal towns in Connecticut as alternatives.
“It’s always about choices,” she said. “At the end of the day it’s about how they can choose to spend their discretionary dollars. Connecticut has some beautiful coastal towns without some of these other high taxes.”
FILE – In this May 27, 2013, file photo, people walk past a house owned by Taylor Swift in the village of Watch Hill in Westerly, R.I.
Dave Collins | AP
Montana has passed a similar tax. The influx of Californians and other affluent newcomers who poured into the state during Covid has led to soaring home prices and growing resentment over gentrification. Meanwhile, the state’s low income tax rate and lack of a sales tax has left it little room for revenue increases to handle the necessary increase in services.
In May, the state passed a two-tier property tax plan, lowering rates for full-time residents and raising taxes on second homes and short-term rentals. For primary residences and long-term rentals valued at or below the state’s median home price, the tax rate will be 0.76%. Homes worth more than that will face a tiered-rate system of up to 1.9% on any value over four times the median price.
The Montana Department of Revenue expects the changes, which will start next year, will hike second-home taxes by an average of 68%. Brokers say some buyers are waiting to see the tax bills next year before making any decisions about whether to buy or sell.
“I’ve heard about some buyers who have put on the brakes to wait for the dust to settle and see what happens,” said Valerie Johnson, with PureWest Christie’s International Real Estate in Bozeman, Montana.
Johnson said that while the tax was touted by legislators as hitting wealthy second-home owners, it will also hit longtime locals who own investment homes and rent them out for income.
“These are small businesses for many people,” she said.
Manish Bhatt, a senior policy analyst at the Tax Foundation, said tax hikes aimed at wealthy second-home owners may be popular politically, but they rarely make for successful or efficient tax policy. Real property tax reform should be broad based, rather than focused on taxpayers who are singled out just because they don’t live in a community full-time, he said.
“There is a grab to find revenue right now,” he said. “But taxing second-home owners could have the opposite impact – dissuading people from owning a second home or continue to own in those communities.”
While the new taxes alone might not drive out the wealthy, “we do know that taxes are important to businesses and individuals and could cause people to make a decision to buy in another nearby state,” Bhatt said.
The projected revenue from the new taxes may also disappoint. When Los Angeles passed its so-called “mansion tax” in 2022, proponents touted revenue projections of between $600 million to $1.1 billion a year. The tax, imposed on real estate sales over $5 million, has only raised $785 million after more than two years, according to the Los Angeles Housing Department.
Higher interest rates that hurt the housing market have played a role, experts say. Yet Michael Manville, professor of urban planning at the UCLA Luskin School of Public Affairs, said wealthy buyers and sellers also reduced transactions in response to the tax.
“The lower revenue is a reason to be concerned because it suggests that the tax might actually be reducing transactions, which in turn can reduce housing production and property tax revenue,” he said.
Conservative leader Kemi Badenoch has said her party will remove all net zero requirements on oil and gas companies drilling in the North Sea if elected.
Badenoch is to formally announce the plan to focus solely on “maximising extraction” and to get “all our oil and gas out of the North Sea” in a speech in Aberdeen on Tuesday.
Reform UK has said it wants more fossil fuels extracted from the North Sea.
The Labour government has committed to banning new exploration licences. A spokesperson said a “fair and orderly transition” away from oil and gas would “drive growth”.
Exploring new fields would “not take a penny off bills” or improve energy security and would “only accelerate the worsening climate crisis”, the government spokesperson warned.
Badenoch signalled a significant change in Conservative climate policy when she announced earlier this year that reaching net zero would be “impossible” by 2050.
Successive UK governments have pledged to reach the target by 2050 and it was written into law by Theresa May in 2019. It means the UK must cut carbon emissions until it removes as much as it produces, in line with the 2015 Paris Climate Agreement.
Now Badenoch has said that requirements to work towards net zero are a burden on oil and gas producers in the North Sea which are damaging the economy and which she would remove.
The Tory leader said a Conservative government would scrap the need to reduce emissions or to work on technologies such as carbon storage.
Badenoch said it was “absurd” the UK was leaving “vital resources untapped” while “neighbours like Norway extracted them from the same sea bed”.
Her plan echoes US President Donald Trump’s pledge to “drill, baby, drill” and embark on new oil and gas exploration. It is a reversal of former President Joe Biden’s Inflation Reduction Act, which channelled billions of dollars into clean energy.
In 2023, then Prime Minister Rishi Sunak granted 100 new licences to drill in the North Sea which he said at the time was “entirely consistent” with net zero commitments.
Since then, major energy companies such as BP have U-turned on the level of investment in renewables to focus on increasing oil and gas production in order to boost profitability.
Tessa Khan, executive director of Uplift, a research and campaign group, said Badenoch’s plan was “reckless” and would not “bring down energy bills”.
“These rules are the bare minimum to needed hold the industry to account, and removing them will simply mean more emissions, more environmental harm and more handouts to oil and gas giants at the nation’s expense,” she said.
Reform UK has said it will abolish the push for net zero if elected.
The Liberal Democrats and the Green Party have been contacted for comment.
Research shows that 2024 was the first calendar year where the average temperature exceeded 1.5°C.
This made it the hottest year since records began in 1850, according to the Copernicus Climate Change Service, which is managed by the European Commission and uses data from the European Union’s space programme.
The UK was one of 200 countries to sign the Paris Agreement who agreed to “pursue efforts” to limit global temperature rises to 1.5C and keep them “well below” 2.0C above those recorded in pre-industrial times.
The current government said it had made the “biggest ever investment in offshore wind and three first of a kind carbon capture and storage clusters”.
Carbon capture and storage facilities aim to prevent carbon dioxide (CO2) produced from industrial processes and power stations from being released into the atmosphere.
Most of the CO2 produced is captured, transported and then stored deep underground.
It is seen by the likes of the International Energy Agency and the Climate Change Committee as a key element in meeting targets to cut the greenhouse gases driving dangerous climate change.
Kemi Badenoch has committed the Tories to extract as much oil and gas as possible from the North Sea.
The Conservative Party leader said it was “absurd” to leave the fossil fuel resources untapped.
But the Government said issuing new licences for oil and gas exploration would “not take a penny off bills” and would accelerate the “worsening climate crisis”.
A Conservative government would make “maximising extraction” its goal if it wins power, rather than measures aimed at shifting the North Sea industry away from fossil fuels.
Mrs Badenoch will use a speech in Aberdeen on Tuesday to set out her plans.
She will announce that the Tories plan to completely overhaul the North Sea Transition Authority (NSTA), which oversees the issuing of licences, dropping the word transition and giving it a simple order to extract the maximum possible amount of fossil fuels.
Ahead of her speech, Mrs Badenoch pledged that “we are going to get all our oil and gas out of the North Sea”.
She said: “We are in the absurd situation where our country is leaving vital resources untapped while neighbours such as Norway extract them from the same seabed.
“With the ONS (Office for National Statistics) confirming that economic growth is down partly because of falling oil and gas extraction, we cannot afford not to be doing everything to get hydrocarbons out the ground.
“Britain has already decarbonised more than every other major economy since 1990, yet we face some of the highest energy prices in the developed world.
“This is not sustainable and it cannot continue. That is why I am calling time on this unilateral act of economic disarmament and Labour’s impossible ideology of net zero by 2050.
“Russia’s war in Ukraine has only underscored that our energy supplies are a matter of national security.”
A Department for Energy Security and Net Zero spokesman said: “We are already delivering a fair and orderly transition in the North Sea to drive growth and secure skilled jobs for future generations, with the biggest ever investment in offshore wind and three first of a kind carbon capture and storage clusters.
“We are committed to delivering the manifesto commitment to not issue new licences to explore new fields because they will not take a penny off bills, cannot make us energy secure, and will only accelerate the worsening climate crisis.”
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