Lodging Overview on State Budget Issues - What Impacts You 
September 7, 2017
  
Dear WH&LA Lodging Member:
 
It appears necessary for us to mention again that the WH&LA Capitol Insider is targeted for WH&LA Lodging Members as a special member service, instead of broader distribution, so that we can more openly address your interests with those who have invested in lodging membership. We appreciate your honoring of this privilege.
 
Today's overview intends to clarify why and how the state Budget impacts our industry, enabling you to scan through the topics of most interest to you. It is by no means a complete analysis of anything that could possibly impact your operations, and does not cover non-business related issues.
 
Last night Joint Finance Committee completed and passed the last of their State Budget Proposal, which now goes to both the state Senate and state Assembly for deliberations. Leaders of both are predicting that both will be completed within 2 weeks, as the process has already stretched out later than usual and there has been sufficient time for concerns to be  raised. We understand that the Governor stands ready to analyze the final Budget approved by both houses, and wants to sign the Budget Bill, with any veto's he wishes to include, before the end of September, hopefully earlier.
 
The following are components determined by the current package.   Please note that Transportation Funding Issues will be summarized briefly in a later  Capitol Insider.
 
Premier Resort Area Tax (PRAT) in LaCrosse
Opposed by lodging members in LaCrosse, this proposal enabling LaCrosse to become eligible to be a PRAT with an additional sales tax on extensive tourism businesses, including lodging, was NOT INCLUDED in the Budget Proposal.  This means that unless it is introduced as separate legislation in the normal session, requiring committee public hearings and votes in both houses, and a much slower process, it is not moving forward. The WH&LA will continue to watch for potential legislation on this.
 
Special Exposition District in Superior
A proposal expanding what is eligible for becoming a special Local Exposition District and what could be funded from such a district - targeted specifically for the City of Superior - was also NOT INCLUDED in the Budget Proposal, with the same resulting meaning. The considered proposal would have added an additional Room Tax percentage that would have made Superior the highest total Room Tax in the state, and almost 2% higher than Duluth, a nearby competitor. There is still a chance this could be brought forward as proposed legislation, perhaps with revised components, and we will monitor this as well.
 
Personal Property Tax
We shared this with you late yesterday, but will repeat it for your convenience:  The WH&LA has been part of a broad coalition of business organization pursuing a reduction or elimination of Personal Property Tax charged by many municipalities on business equipment and supplies. As a first step, Joint Finance Committee did approve a new exemption for machinery that is not used for manufacturing. This is defined as "a structure or assemblage of parts that transmits force, motion, or energy from one part to another in a predetermined way by electrical, mechanica l, or chemical means", which would include machinery such as laundry machines and dishwashers on your premises, etc.
 
Historic Building Rehabilitation (HBR) Tax Credits
Governor Walker's proposed cap on the total HBR Tax Credit Program of $10 million/year was removed, and instead a cap of $5 million per project was established.
 
Sales Tax on Internet Service
This sales tax was eliminated beginning in July, 2020.
 
Sales Tax on Tournament or League Entrance Fees
This would provide a sales & use tax exemption for such fees that are advertised and set aside as prize money. This may be helpful in attracting sports or other traveling tournaments to Wisconsin versus to other states.
We are separately breaking out into three components the following Short-Term Rentals proposal to better explain the impact:
 
Lodging Marketplace Tax Collections
A "Lodging Marketplace" is defined as "an entity that provides a platform through which an unaffiliated third party offers to rent a short-term rental to an occupant and collects the consideration for the rental from the occupant". This means online platforms such as Airbnb, HomeAway, VRBO, etc. but keeping in mind the definition of short-term rental (outlined below) is a residential dwelling - not hotel, motel, or resort rooms- so it only covers online platforms renting out residential dwellings.
 
The Lodging Marketplace (i.e. Airbnb) must:
  • Be licensed by the state DOR in order to rent residential dwellings in our state
  • Collect and remit state and county and other sales taxes (such as Premier Resort Area Tax or Special District Taxes) to the DOR. Note: Airbnb already has an agreement with the state to do this starting July 1, 2017, so this not only makes this a legal requirement, but would also begin to apply to their competitors renting residential dwellings.
  • Collect and remit municipal room taxes for those with a room tax. Note: this is new and will eliminate the confusion from Airbnb advising their hosts that they are collecting all taxes, when it does not include room tax unless a separate agreement was negotiated between Airbnb and the municipality. Currently, only Madison, Green Bay, and the unique room tax in Milwaukee are known to be covered. Now, instead of allowing Airbnb to selectively choose which large municipalities to negotiate with to collect and remit room tax, they would have to negotiate with all sized municipalities - generating more room tax revenue for tourism promotion and tourism development. Hopefully municipalities will be firm in their negotiations to ensure they will receive basic documentation on their sales, similar to what lodging properties currently must do.
  • Notify the owner of the rental property that the lodging marketplace has collected and forwarded to DOR the sales and room taxes described above, so that they know this has been provided.
"Short-Term Rentals" Requirements
A "short-term rental" is defined as "a residential dwelling that is offered for rent for a fee and for fewer than 29 consecutive days".  To further clarify, a "residential dwelling" is "any building, structure, or part of the building or structure, that is used or intended to be used as a home, residence, or sleeping place by one person or by two or more persons maintaining a common household, to the exclusion of all others".
 
Any person who maintains, manages, or operates a short-term rental, for more than 10 nights each year  (Note: this is the same duration for Bed & Breakfast licensing requirements)  must:
  • Obtain from DATCP (Dept. of Agriculture, Trade and Consumer Protection) a license as a tourist rooming house. Note: this means they must apply, pay fees, and pass inspections the same as others classified as tourist rooming houses.
  • Obtain from a municipality or county a license for renting these dwellings if it is required by ordinance for tourist rooming houses
These requirements, when added to the new tax collections by the Lodging Marketplaces, will help to create a more level competitive playing field with other licensed lodging rentals. In addition, if the short-term rental by-passes using a Lodging Marketplace, as they must be licensed as a tourist rooming house, they then clearly are obligated to collect and remit all sales and room taxes on their own.
 
Municipality Requirements
In the portion negotiated by the Realtors Association, not the WH&LA, the following changes are planned:
  • A municipality CANNOT prohibit the rental of a residential dwelling for 7 consecutive days or longer. However, they CAN prohibit rentals less than 7 days. This relates to prohibition only, and does not relate to general restrictions, however the language does state that any current ordinance that is inconsistent with the prohibition limitation would no longer apply. There may still be some differing interpretations on how this may apply to local zoning requirements, which may be clarified moving forward.
  • A municipality CAN limit the total number of days within a year (365 consecutive days) that a residential dwelling can be rented out, as long as the number is 180 days or more. The municipality CANNOT specify which portion of the year these limited rental days can occur, but they CAN require the limitation to cover a consecutive day period, starting with the first day it is rented out. For example, if a short-term rental is rented out for a week starting May 1st, and the municipality restricts these rentals to 180 consecutive days, they cannot rent it out after approximately November 1 (until May 1 of the next year), regardless of how many nights they rent it out in that timeframe.
The primary battle fought by the Realtors was against total prohibition against residential dwelling rentals, but they had also pursued stopping any restrictions, however that was not successful.
We hope that this Overview was helpful in providing further clarifications on what may matter most to our lodging members. Thank you for your continued support.
 
Best,

Trisha
Contact: Trisha Pugal
Wisconsin Hotel & Lodging Association
[email protected]
262/782-2851