PENDING LEGISLATION: Bill Designed to Correct Room-Tax Collection Issues

A bill designed to make it easier to collect the correct amount of room-tax revenue from short-term-rental companies and digital platforms such as Airbnb is on its way to Gov. Tony Evers for his signature.

“We have asked the governor to sign it by June 29 so the new law can take effect by the fourth quarter,” said Rep. Joel Kitchens (R-Sturgeon Bay).

The bills sponsored by Kitchens and Sen. André Jacque (R-De Pere), and passed by both houses, would correct issues that municipalities have had collecting the correct amount of room tax from lodging marketplaces.

Those companies, which include digital platforms such as Airbnb, have been required since 2019 to register with the Department of Revenue (DOR) and collect room taxes from patrons on behalf of property owners who rent their homes for short-term rentals (STRs). The platform then distributes the revenues to the appropriate taxing authority and notifies the property owner about the collections. 

The problem is that lodging marketplaces aren’t always charging patrons the room tax. When that happens, it leaves the municipality high and dry and the property owners with a surprise tax liability. 

“We can’t just let that go if Airbnb didn’t collect,” said Josh VanLieshout, president of the board of the Door County Tourism Zone Commission (DCTZC).

In Door County, the lodging marketplaces remit the 5.5% room tax to the DCTZC, which then distributes the money to each municipality based on where the STRs are located. When this tax isn’t remitted to the DCTZC, it adds administrative and legal costs to the commission’s budget to recoup the tax. In 2020, the DCTZC filed 11 times in Door County Circuit Court to recoup unpaid room taxes from property owners. The highest amount the commission has had outstanding from a single host was $8,000. 

The new legislation is intended to correct this problem by making technical changes to standardize reporting. The law would also give municipalities and the DCTZC the authority to audit a lodging-marketplace business if the taxing authority has reason to believe the amount remitted is incorrect.

The DOR would be charged with creating a form that lodging marketplaces would be required to fill out. The form would collect information on the total sales for properties located in a municipality with a room tax, the total number of nights such properties were rented, the room-tax rate and the total tax due. The DOR would also post on its website the name of each municipality that imposes a room tax, the rate of the room tax and the mailing address of the municipality. 

Addresses for the lodging places would not be required on the DOR’s new form. That’s also a problem that needs fixing, according to those who gave testimony during the hearings for the Assembly bill, such as the DCTZC and organizations such as the Wisconsin Towns Association (WTA). 

Some lodging marketplaces such as Airbnb lump all room-tax collections by zip code, not by municipality, which creates a problem when municipalities share a zip code. Jacksonport, Sevastopol and Sturgeon Bay, for example, all share a zip code. That forces taxing authorities such as the DCTZC to puzzle out where the money is coming from in order to remit it to the proper municipality.

It’s not clear whether the marketplaces even track address information. Stories told during the hearings for the Assembly and Senate bills told of room taxes collected from one municipality being remitted to another municipality that’s not even located within the same county. That has happened in Door County, VanLieshout said.

Despite the outstanding issue, the pending legislation drew wide support from state municipal, tourism and lodging organizations, such as the League of Wisconsin Municipalities, the Wisconsin Hotel & Lodging Association, and the WTA. Kitchens said he’s confident the pending legislation will correct problems with the system.

“Because these dollars are so important to our tourism industry and our local communities, we have to make sure they are accurate and going to the right places,” Kitchens said.