Considering Renting Out Your House For Short Term Stays? Beware!
By Vande Castle, S.C., Feb 8 2017 03:06PM
Property owners in Wisconsin considering renting out all or part of their home or cabin, or even their boat or RV for short term, overnight stay purposes, face a number of significant concerns and obstacles. This activity is considered a commercial venture and is subject to a number of State and local regulations. The cost of complying with those regulations can be substantial. Furthermore, the permitting process can be daunting for anyone unfamiliar with such activities.
LOCAL REGULATION AND PERMITTING
The starting point for your analysis is your local municipalities. City and Villages may have rules and regulations relating to transient rentals. In unincorporated areas, the regulations may be administered by either the town or the county.
While many municipalities in Wisconsin have regulations that allow short-term rentals, many do not. There is no inherent right to convert your residential or recreational property to a commercial enterprise. Even in those municipalities that allow short term rentals, those rentals are not necessarily universal throughout the municipality. Short term rentals may be limited by local zoning ordinances to certain defined areas within the municipality.
If the municipality in which the proposed rental property is located does allow for short term rentals it is also likely that the municipality will also require the property owner to register that property with the municipality and obtain a permit for the conversion of the property for commercial use. There will be a cost for that permit.
The local permitting process may in turn also require that the property meet certain building and commercial use codes before the permit can be issued. There are potentially local as well as State building code requirements that could apply to the proposed transient rental property.
The State of Wisconsin also regulates transient lodging activities throughout the State. Those regulations are primarily administered by the Wisconsin Department of Agriculture, Trade and Consumer Protection (“DATCP”). DATCP requires that various types of transient rental properties be registered and licensed with the State through DATCP.
The State licensing process will also require that the proposed transient lodging facility meet certain commercial code requirements and regulations. Compliance with these requirements will also general necessitate an inspection by an authorized and licensed inspector. There may also need to be multiple inspections throughout the year to confirm continued compliance.
Converting a residential or recreational property to a commercial use for transient rental purposes will also change the nature of the property for insurance coverage purposes. Most home owner’s insurance policies will exclude commercial use of the property from coverage. A thorough review of the insurance coverage will be necessary not only for the property owner’s protection but also for municipal regulation that will likely require, as part of the licensing process the submission to the municipality of a certificate of insurance.
Private transient rentals are subject to various federal, state and local taxes. The revenues received from those operations must be properly accounted for and reported.
The revenues received from renting your property are subject to federal and state income tax. In addition, those revenues may also be subject to a local municipal revenue tax. Property owners renting their properties must also properly record, account for and report those revenues.
Many Wisconsin municipalities, either individually or regionally, have adopted and administer a room tax under the provisions of Wisconsin’s Room Tax Law, Sec. 66.0615 of the Wisconsin Statutes. Room tax is considered a “fiduciary tax”. Like the state-wide sales tax, the room tax is a tax that the lodging provider is required to impose on and collect from the transient lodger and then report and pay over to the municipality or room tax authority.
The amount of the room tax will be a percentage of the rental rate. That percentage varies among communities. The permitting, collecting and reporting requirements for the local room tax can also vary from community to community. The State has provided substantial penalties for failing to properly report, collect and transmit room tax to the local taxing authority. The lodging provider remains personally responsible for payment of the tax even if they fail to collect it from the lodger.
The failure to comply with and adhere to the State and local requirements associated with transient rentals can be substantial. The fines alone can run into several thousand dollars for failure to register and report the transient rental operations. Municipalities that have transient rental regulations and room taxes have staff that regularly monitor public rental sites like AirBNB, VRBO, HomeAway and others. Some of the municipalities even have working agreements with those entities to report the rental activities back to the municipality.
If your municipality allows transient rental activities in other wise residential or recreational properties compliance with all applicable state and local regulations will be necessary to avoid substantial fines and penalties as well as other potential detrimental sanctions. If you are considering exploring this type of commercial activity is essential as well as prudent to consult legal counsel familiar with the applicable rules and regulations. If you have any question regarding navigating through this complex regulatory process please contact us.
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