When you stay at a hotel, motel or bed and breakfast in Wisconsin, you might notice that you pay an additional room tax on top of the rate for the room.
Wisconsin communities collect nearly $70 million a year in room taxes, and the revenues received from the room tax have increased approximately 3.5 percent a year between 2000 and 2010. Room taxes are one of the taxes that local units of government are allowed to impose to raise revenue These local units of government include cities, towns, villages, counties and local exposition districts.
The room tax was first permitted in 1967. It is a local tax on short-term lodging but is structured so that it does not include hospitals, nursing homes or accommodations provided by charitable, religious or educational institutions.
Prior to 1994, municipalities were allowed to levy a room tax without restrictions on the tax rate or how the money was to be used. In 1993, a law was passed to limit the room tax to a maximum rate of 8 percent and to require that 70 percent of any new room tax be used for tourism promotion.
For room taxes in existence before 1994, the law prohibits the municipality from retaining a greater percentage of the revenue than they retained in 1994. Currently the cities of Madison and Oshkosh are the only cities which exceed the 8 percent cap.
The 1994 law also requires municipalities, or groups of municipalities, to establish tourism commissions to monitor collection of the room tax and to contract with a tourism or development organization to promote tourism in their area.
A recent study by the Wisconsin Taxpayers Alliance found that in 1994, only a little over 25 percent of municipalities had room taxes greater than 5 percent. By 2003, that figure had risen to 40 percent and by 2008, approximately 48 percent of municipalities had room taxes greater than 5 percent.
By 2012, about 50 percent of municipalities with room taxes levied a tax greater than 5 percent.
The study also found that by 2010, 267 municipalities levied a room tax, up from about 177 in 2000. Approximately nine new municipalities joined the ranks of those levying room taxes each year.
State law specifies that 70 percent of the room tax revenue must be used for tourism promotion and development projects. The other 30 percent can be used by the local municipality as they choose. Sometimes, municipalities give a portion of the room tax revenue to the local chamber of commerce or convention and visitors bureau. Roughly half the municipalities surveyed reporting making distributions to these types of organizations. The other municipalities provide the tourism promotion in house.
This past session, I introduced legislation, along with State Rep. Garey Bies, to make some changes to the room tax law that I believe would make the room tax more transparent and better ensure that it is directed toward tourism promotion efforts.
The bill changes the definition of a tourism entity to a non-profit organization that spends at least 51 percent of its revenue on tourism promotion and development and provides marketing staff and service to the tourism industry without regard to when the organization was first established. The bill also requires municipalities that retain more than 30 percent of the room tax revenue to reduce the portion they retain to meet the 30 percent threshold over a three-year period. Municipalities would also be required to report annually to the Department of Revenue on room tax collections and the amounts passed on to the tourism organizations.
Although this bill did not become law, I believe it helped bring attention to a lesser-known local tax to let more people know how the law around the tax is structured so that municipalities can use it to help promote tourism in their area.