Yesterday afternoon, Gov. Scott Walker signed into law the new State Budget that will go into effect Tuesday, including 104 vetoes addressing a number of issues negotiated throughout the budget process, some of which will impact our industry, and are outlined below.

ROOM TAX REFORM

First, we are so pleased to share that a Room Tax Reform package was accomplished, despite many efforts to prevent this by numerous municipalities, and we sincerely appreciate all the calls and emails our members did last week to get us through the final stages!!

What has changed since our last WH&LA Capitol Insider outlining Senate Amendment 2 passed in the legislature last week? Gov. Walker supported our request for the two of four vetoes to partially offset the last minute damage from the Senate Amendment 2 revisions pushed by Sen. Jerry Petrowski (R-Marathon). His vetoes corrected last-minute Senate challenges to the definition of "tourism entity," and removed the last-minute language on contracts that would have allowed municipalities retaining more than 30 percent of room tax revenue for their own purposes to use a loophole allowing them to get around the new dollar caps for what they can retain in the future. As there was no easy way to undo the language from the Senate Amendment relating to pushing back implementation (our other two veto requests) without changing the five-year phasing concepts approved by Joint Finance, this language remains as stated in Senate Amendment 2.

There are many key individuals in the success of this major effort, such as Gov. Walker, Assembly Speaker Robin Vos, Senate Majority Leader Scott Fitzgerald, Joint Finance Co-Chairs Rep. John Nygren, Sen. Alberta Darling, the members of Joint Finance who voted in favor, the WH&LA Board of Directors who envisioned and supported this pursuit, WH&LA Executive Committee and our Legislative/Tourism Committee chairs who were kept connected with all major change decisions and advancements, and our lobbying team.

Within the coming week WH&LA will create a new overview of the changes, but the following provides a brief summary today.   

The Basic Final Room Tax Reform Package 

Oversight of Tourism Promotion & Tourism Development Expenditures

Instead of a municipality being able to spend this revenue on their own or choosing to create a tourism commission to oversee these expenditures, the new choice for a municipality is to either create the tourism commission OR provide oversight directly to a tourism entity, as newly defined. Both options have to report annually to the municipality on this oversight and both must have at least one lodging property representative.

New Definition of Tourism Entity

A "Tourism Entity" must be a non-profit organization created by 1992, and if created since then it may be recognized as such in 2016. It must spend at least 51 percent of its revenue on tourism promotion and tourism development and provide destination marketing staff and services for the local tourism industry. If there is no such organization, a tourism commission can still contract with an entity to provide the tourism promotion and tourism development services. The new definition would be most critical in the cases where the municipality chooses to allocate the tourism portion of room tax revenue directly to a tourism entity instead of through a commission.

Municipalities Currently Retaining More Than 30 Percent of Room Tax For Their Own Use

Starting in 2017, a municipality that is grandfathered to currently retain more than 30 percent of room tax revenue for their own use, may only retain the total amount they retained in 2014. In 2018 the cap would be from the year 2013, in 2019 the cap would be from 2012, in 2020 the cap would be from 2011, and from 2021 on the cap would be from 2010. The municipality would have the right to retain either the capped dollar amount just noted, or 30 percent - whichever is greater. Any amount over the cap will go to tourism promotion and development, to finally start allowing more room tax revenue in these areas to help to grow local tourism, the core intent of enabling a room tax.

New Requirements for Annual Reporting of Room Tax

Starting in May of 2017, each municipality imposing a local room tax must remit an annual report to the State Department of Revenue (DOR), on standard forms that will be available for public inspection. The DOR may assess an up to $3,000 penalty fee for those not remitting. Information will include total room tax collections (not by individual property), the room tax rate, the portion allocated to tourism promotion and tourism development, what body oversees the tourism portion (a commission or tourism entity), and a roster of the leaders of such body (including their employer).

Clarification of Room Tax Expenditures on Development

The word "tourism" has been added before the word "development" to now make it completely clear that room tax revenues for tourism promotion and development are not general economic development projects, but are tourism development projects.

TOURISM BUDGET

The Governor removed the language requiring creation of a Frank Lloyd Wright Heritage Trail and a $500,000 earmark for this in the Tourism Budget. Instead the Governor is asking the Department of Tourism to include promotion of Frank Lloyd Wright structures in it's overall statewide marketing strategy. It is unclear until the formal Budget documents are available, whether the recently added $500,000 to cover the earmark was also removed, although this is likely.

FEES FOR FOOD, LODGING, AND RECREATIONAL ESTABLISHMENT LICENSING

The budget includes the final shifting of licensing for lodging, restaurants, pools and more from under DHS jurisdiction to DATCP, as previously announced; however, also in the budget was a provision that prevented DATCP from modifying current license fees, and that created a Food Safety Advisory Council within DATCP. The Governor vetoed both requirements to allow fees to cover costs, and because DATCP can already create such a council if it wishes.

ALCOHOLIC BEVERAGE LICENSE MODIFICATIONS

The budget included two changes relating to "Class B" licenses:
1.  A municipality that reached its cap for these licenses would be able to obtain additional licenses from contiguous municipalities that had not reached their cap, for a $10,000 fee, which then would transfer to the new municipality.
2.  Elimination of the current provision that municipalities that have reached their liquor license cap could still issue a license to restaurants that seat at least 300 people.

The Governor vetoed both provisions, meaning buying additional licenses from a neighboring municipality will not be allowed, and the current option for additional licenses for restaurants seating 300+ people will continue to be allowed.

PROCUREMENT

The Governor vetoed the segregation of university purchasing from the rest of state government, which may impact UW procurement relating to overnight stays; however, clarifications on the impact of this will be needed, and we will advise when more clarity is available.

The above is an overview of the key changes impacting the lodging industry in the Governor's vetoes and the signed budget since our last communications. We will continue to report with updates and clarifications when they are available. Should you wish to have WH&LA present an overview on Room Tax Reform to your local lodging organization, please send a note to [email protected], and we will do our best to accommodate your request.

This communication is an important membership service available to you as a WH&LA Lodging Member. If you know of any lodging property that is not a member that may wish to receive future WH&LA Capitol Insiders, please send us an email or refer them directly to Jim at 262/782-2851 or to our online membership application.