Unlike the popular home-renting service Airbnb, which returned hundreds of thousands of dollars to Madison and the state of Wisconsin in the first year of a tax collection agreement, similar companies leave tax payment up to individual property owners.
In Madison, property owners who rent out all or parts of their their houses are required to pay the city’s 10 percent nightly room tax. Airbnb collects the local taxes from users on behalf of property owners.
Under voluntary agreements with Madison, Airbnb returned $324,000 in room tax revenue in the first year of payments. The company returned $2.5 million to the state of Wisconsin over the first year of its agreement.
Ben Breit, a spokesman for Airbnb, said the company created the tax collection service as a way to assist hosts who may have difficulty navigating local tax policy and government, which want to take full advantage of the short-term rental economy.
“For us, when we have happy hosts and happy local governments, that’s certainly good for our platform and for our community,” Breit said.
However, other major players in the home rental business, like Homeaway and VRBO (both owned by Expedia), do not charge the required local taxes up front. Hosts who use these platforms are responsible for collecting and returning local taxes to the municipality.
Spokespeople for those companies did not respond immediately to requests for comment.
Assistant City Attorney John Strange said the key question is whether or not state law holds those companies responsible for payment of the taxes.
“In Wisconsin, this current room tax statute does not allow us to go to places like Airbnb, VRBO and Homeaway and say, ‘You’re responsible for this yourself,’” Strange said.
Under Wisconsin law, people renting out rooms to the public for periods of less than one month are responsible for collecting and paying short-term lodging sales tax. The state only requires companies that have a nexus, or a connection between a seller and the state, to collect tax on sales made in Wisconsin.
Activities that create a nexus in Wisconsin include:
- A physical presence or employees on the property.
- The delivery of products into Wisconsin in company-owned vehicles.
- Selling, servicing, repairing or installing products.
- Performing construction activities or other services.
“None of those big businesses have a nexus in Wisconsin, and so this law doesn’t apply to them,” Strange said.
Wisconsin has a list of 14 marketplaces that have an active lodging marketplace license and collect taxes on the owner’s behalf.
Some cities and states have taken other measures to ensure they are receiving the local taxes owed to them. In Broward County, Florida, lawmakers persistently negotiated with Homeaway until they came to a deal. Portland, Oregon, pursued litigation, and the state of Idaho created a new law.
However, Strange said it is unlikely that Madison is losing out on much revenue because the majority of short-term rentals in the city are through Airbnb. Host Compliance, a company that monitors short-term rentals, determined that about 400 of the 500 - 600 hosts in the city list their homes on Airbnb.
Strange thinks Airbnb may be a more popular platform in Madison because the city is geared more toward rentals of a few days rather than week-long getaways, which is more common on Homeaway and VRBO.
“Madison’s marketplace is not seven-day vacation rentals,” Strange said.
Wisconsin Dells Treasurer Karen Terry said her city struggles to compel rental companies to comply with the permit process and report occupancy and premier resort taxes.
She said much of the problem for the city comes down to homeowners not realizing it is their responsibility to submit taxes to the city.
“It is very difficult and time consuming to track down these owners, and in addition, it is easy for them to list their properties without the city having any knowledge,” Terry said.
Airbnb currently collects and submits the city’s premier resort tax on behalf of their owners, which Terry said is a “start.” However, the “grand solution” she envisions is changing state law to require short-term rental companies to collect and remit all taxes on behalf of property owners.
In Door County, another busy area for vacationers, officials are confident that nearly all short-term rental units have the proper permits without agreements with the rental companies, Tourism Zone Commission Chair Josh Van Lieshout said.
“Door County has been very proactive in dealing with the online lodging marketplaces and getting property owners permitted,” Van Lieshout said.
Though the agreements are “appealing,” they do not reveal individual properties using the short-term rental online platforms. Additionally, he said the some lodging marketplaces collect taxes by zip code, making it challenging to know how much each municipality should receive when their boundaries cross those lines.
The Tourism Zone Commission is a separate entity comprised of members from all 19 municipalities in Door County and is responsible for collecting and remitting room taxes on behalf of each municipality. Kim Roberts, the commission’s administrator, spends a majority of her time scouring short-term rental websites for new properties showing up for rent in Door County.
“By taking that investigation step and doing the leg work, I think the commission has a very good handle on how many units we have for rent in the county,” Van Lieshout said.