Dear WH&LA Lodging Member:
You likely will recall that last fall in the State Budget WH&LA was able to work with legislative leaders to include new requirements and clarifications in state law that would:
- Require "short-term rentals", defined in the law as residential dwellings rented out to the public for less than 29 consecutive days, to become licensed as a "tourist rooming house" and to collect and remit local room tax , in areas with this tax. This was a major clarification that needed to occur first.
- Require "Lodging Marketplaces", defined as "an entity that provides a platform through which an unaffiliated 3rd party offers to rent a short-term rental to an occupant and collects the consideration for the rental from the occupant", to collect and remit on behalf off the owner state & county sales tax, local room tax, and other taxes on sales like premier resort area or special district taxes.
IMPLEMENTATION CHALLENGES
1. SHORT-TERM RENTALS LICENSING AND TAX PAYMENTS.
DATCP, the state agency responsible for oversight of licensing of lodging properties, does not have sufficient staff to actively pursue those renting without compliance. On the local level, local or county public health agencies designated as local agents for DATCP licensing, usually tries to locate violators, but they too usually have insufficient staff to do the research and individual contacts. In a slowly growing number of municipalities (Madison was first, and Green Bay most recent), they are contracting out with vendors such as STR Helper, Host Compliance, and others who utilize custom platforms to identify all rentals in the area and provide contact information to the municipality so they can then pursue compliance or they actually send out notifications to these violators - for fees based on services. The fees are usually more than offset by more tax revenues coming in. In Door County they have a staff person dedicated to finding all rentals and pursuing their licensing and tax remittances. The good news is there is an improvement, now that the laws are clear, however it has not yet expanded sufficiently, and will take some time.
2. LODGING MARKETPLACE TECHNICALITY.
It took a few months before a significant glitch was uncovered with this requirement.
The Lodging Marketplace requirement was intended to require the online rental platforms (such as Airbnb and others) that directly collect the money from the traveler, to also collect and pay all sales-related taxes when charging the traveler. This component would have ensured that all taxes from the major sources of online rentals were remitted and would have avoided any need for individual contract negotiations by municipalities with vendors such as Airbnb who may have contract clauses preventing municipalities from any normal audit and checks and balances to ensure payments are complete and those renting are licensed.
The challenge was missed in the drafting process of the budget bill and relates to the U.S Supreme Courts' interpretation of the Constitution that only vendors with "nexus" in a state can be required to comply with state tax laws. In general, this has required a physical presence by the vendor in the state (not the product, which in this case is a residential dwelling being rented). This technicality has provided an "out" for online platform vendors, such as Airbnb, without a physical office or presence in Wisconsin. Some states do not face this obstacle, such as the state of Oregon, which recently passed a similar requirement, but since Airbnb has offices in their state, the platform had to comply. Thus, the only "Lodging Marketplaces" that have registered as such in our state that now collect and remit state and local taxes for owners are 13 smaller online marketing platforms, based in Wisconsin, that are listed on the state DOR website at https://www.revenue.wi.gov/DOR%20Publications/list-of-active-licenses.pdf. Any change in the "nexus" challenge needed to come either from Congress in passing a law to change Interstate Commerce laws, or required the U.S. Supreme Court to overturn the previous decision precedent upholding "nexus" in Quill vs. North Dakota (1992).
LATEST DEVELOPMENT
The WH&LA has been closely monitoring the U.S. Supreme Court's consideration of arguments in the South Dakota vs Wayfair Inc., Overstock Inc. and Newegg Inc. lawsuit heard in April, with a decision projected this month from the Court before they adjourned. This case challenged the old interpretation of "nexus", and in a major precedent decision last Thursday the U.S. Supreme Court overturned the previous decision 5-4 in favor of enabling states to collect sales tax from retailers without a physical presence in the state. While this has had a fair amount of media coverage on the national and more recently state level (as it could significantly increase state sales tax revenues), it has not been noted anywhere yet how this can also have a major impact on the new Wisconsin Lodging Marketplace requirements already in the law, and on the growth of potential new revenue from local room tax.
HOWEVER, it is also important to note that in meetings with key legislators after we learned of the challenge to Lodging Marketplaces, there may be a small, but still significant additional barrier in state law that will require state legal counsel interpretations to better gage the direct impact. The WH&LA is working on scheduling further key legislator meetings to pursue clarification to find out once and for all if the language passed on Lodging Marketplaces can be implemented as intended now that the Supreme Court ruling opens the door. If there remains a wording barrier, we would need to actively pursue legislative support to introduce and pass legislation to make a change when the state's new session begins in January of 2019.
The bottom line is that the recent U.S. Supreme Court decision has opened the door to the potential of having any online platform renting out short term rentals in Wisconsin, regardless of their physical location, required to collect and remit not only state and county taxes, but also the important source of local tourism promotion funding - local room tax, without the need for the onerous local individual municipal agreements with Airbnb and possibly others.
We will share an update when firm interpretations on the remaining state statutory language become available. In the meantime, WH&LA's New Short-Term Rentals Law overview remains as a quick resource on what was included.
As always, thank you for your interest and support.
If your membership is up for renewal, please renew in a timely manner to continue to receive issue updates from the WH&LA as a member service.
