Michigan relies on tourism. Tourism is an important part of the economy for much of the state, and it’s helping many municipalities adapt to new economic conditions and thrive. Having a robust tourism sector requires having places for people to stay — hotels, bed and breakfasts, cottages, cabins and homes.
In popular tourist destinations, short-term rentals have exploded. But many cities in Michigan have banned and limited homeowners’ ability to use their property for short-term rentals. While this hurts the local economy, officials often feel pressure from their residents to restrict short-term rentals, which they view as nuisances.
The trade association for commercial lodging interests has complained that short-term rentals aren’t subject to the special hotel taxes that some municipalities levy, while its members are. This is true. Michigan law doesn’t have a clear structure allowing short-term rentals to be taxed the same way as hotels and other properties.
But there is a problem with using hotel tax revenue. When cities do have local hotel taxes, that money often goes to unnecessary and ineffective tourism bureaus.
House bills 5138, 5139 and 5140 seek to deal with that. The bill package sets up a unified structure to take in short-term rental taxes and lets the money go to the municipality’s general fund. Voters would have to approve the tax, and a small part of the tax revenue — 8% — would go to the state to fund the (wasteful) Pure Michigan advertising program. Local governments could still use the money to fund tourism bureaus if they wanted to, but they could also use the money to deal with the costs of increased tourism.
The bills faced immediate opposition once they were introduced. The Michigan Hospitality and Tourism Alliance is opposed because it wants more money for the Pure Michigan program. “Short-term rentals have directly benefited from tourism marketing efforts without paying equitable taxes or assessments to support them, and while reaping the rewards of increased visitation and demand,” the alliance writes.
That’s a particularly hypocritical complaint. Members of the Michigan hospitality and tourism industry have directly benefited from the Pure Michigan program without paying taxes to support it.
The opposition is also confusing. Right now, no revenue from short-term rentals directly supports Pure Michigan. And short-term rentals do not pay the hotel taxes levied in many jurisdictions. These bills fix the difference in tax treatment that those in the hotel industry have complained about.
Importantly, the new revenue would go to the budgets of local governments, not to tourism bureaus. It’s understandable that some in the industry want more and more tax dollars for these bureaus – but that’s not good public policy. Lawmakers should support a plan that puts the money back into the cities dealing with the costs.
