LANSING — Michigan lawmakers opened hearings Wednesday on bills that would create a state law to regulate and tax Airbnbs and other short-term home rentals while allowing local governments to limit, but not ban, such rentals.
It was the first of what the committee chair said could be two or three hearings of testimony on the contentious legislation, which is supported by municipalities but opposed by Airbnb, Vrbo owner Expedia and other groups representing short-term rental owners.
Pushes to restrict or foster the rentals, a flashpoint in tourist towns especially, have been ongoing for seven years in the state Capitol.
The main measure, House Bill 5438, would create the Short-Term Rental Regulation Act. A 6% state tax would be levied on occupancy charges for houses, apartments and condos that are rented for more than 14 days a year. The estimated $35 million to $70 million in annual revenue would go to local governments where the properties are located, except up to $1 million for administrative costs.
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Owners would be required to have at least $1 million in liability insurance and functioning carbon monoxide detectors, smoke detectors and fire extinguishers. They would have to file a certificate each year to go into a new state-run database of dwellings and provide information such as an emergency contact who lives within 30 miles.
Hosting platforms like Airbnb and Vrbo would have to register with the state, pay an annual $100 fee per listed rental property — capped at $50,000 — and provide a record of booking transactions.
Municipalities could enact and enforce “reasonable” regulations and zoning ordinances to safeguard public health and safety, set the number of allowable short-term rentals — including geographical restrictions — and establish a process to revoke a permit. They could not ban short-term rentals.
House Bills 5437 and 5439-5446 would extend local hotel taxes and assessments that fund sports stadiums, convention centers and visitors bureaus in various communities to short-term rentals. They range from 1% to 5%. A law enacted this month authorizes some counties to go as high as 8% with voter approval.
“We were seeking to find a good compromise here that lets our local governments function, allows the tourism activity to continue, lets short-rentals continue to exist in properly zoned places and ideally takes a lot of the tension out of this argument,” the lead sponsor, Democratic Rep. Joey Andrews of St. Joseph, told the Democratic-led House Local Government and Municipal Finance Committee.
Leaders in Traverse City and the Lake Michigan towns of Saugatuck and New Buffalo advocated for the legislation. They pointed to nuisance issues from the explosion of short-term rentals and said there should be tax parity between Airbnbs and hotels so all visitors contribute toward local budget pressures due to seasonal population spikes.
“We are all under some form of duress from the long-term effects of the unrecovered costs of tourism,” New Buffalo Mayor John Humphrey said, referencing deteriorating roads and old sewer and water infrastructure he blamed on state sales tax revenue-sharing distributions being based on the city’s Census population of 1,800 when it routinely has 15,000-20,000 people in town on any given weekend. “Tourism’s a private enterprise that has a very public cost. Those costs are not renumerated. There are use taxes, lodging taxes or excise taxes available to the city of New Buffalo. That puts the entire burden of tourism directly on the local residents.”
Officials from Michigan Realtors, the Michigan Restaurant & Lodging Association, Airbnb, Expedia, the Rental Property Owners Association of Kent County, the Michigan Short Term Rental Association and other groups testified in opposition.
Nathan Rotman, a regional lead for Airbnb, pointed to its voluntary 2017 tax-collection agreement with Michigan that has generated more than $85 million in revenue for the state from the 6% use tax, including $24.5 million last year. He also cited several county tax-collection deals.
“While Airbnb is committed to responsible regulation and working with local authorities, the bill’s provisions raise serious legal and economic concerns,” Rotman said. “First, the bill introduces a new, anti-competitive short-term rental-only tax, doubling the tax rate for short-term rental guests to 12% while hotel guests would continue to enjoy a 6% rate. This increased tax burden on Michiganders will make holidays, moves, medical stays more expensive. Further, the bill creates a complex, costly and duplicative state registration system. Many Airbnb hosts are already required to register at the local level, and this legislation would burden them with a second registration system with a second set of reporting obligations.”
Trevor Tkach, president and CEO of Traverse City Tourism, spoke on behalf of the Michigan Association of Convention and Visitors Bureaus. He supported local control for governments, the statewide registry and the proposal that short-term rentals pay regional lodging assessments and taxes, though he urged legislators to study taxation disparities depending on hotel sizes and where they are in Michigan. He and others criticized the proposed 6% tax on short-term rentals.
“It leans too far in the opposite direction and penalizes those doing short-term rental business. We are fighting for parity,” Tkach said.
John McNamara, vice president of government affairs at the Michigan Restaurant & Lodging Association, said it is getting more difficult for servers, bartenders and hospitality workers to find affordable housing, particularly in Northern Michigan, because many former long-term rental houses have been converted into short-term rentals.
“What was once a couple-thousand-dollar-a-month rental is now a couple-thousand-dollar-a-week short-term rental,” he said.
He called the excise tax a “non-starter,” though suggesting a compromise under which lodging taxes would apply to all short-term rentals. That could bring $27 million to the state, a significant portion of which should help fund the Pure Michigan tourism campaign, he said.
Andrews, the bill sponsor, contended there would be parity with a 6% excise tax and it would not be out of step with surrounding states.
“I know dollar parity, maybe it doesn’t look like” that, he said. “But in terms of making up the gap on the investment that the community makes when they put in a hotel versus these STRS just being put in, it’s to help backfill the extra demands that are being put on the community to supply public safety and upgrade infrastructure as a rental’s put in.”
Backers of the legislation emphasized that municipalities could not ban short-term rentals or have regulations that effectively prohibit them.
“There’s already law clarifying that locals can’t do that. … That No. 1 concern that we have heard over and over again is being addressed in this bill,” said Jennifer Rigterink, the Michigan Municipal’s League assistant director of state and federal affairs.
The committee chair, Democratic Rep. John Fitzgerald of Grand Rapids, said he hopes to hold another hearing or two this month. He did not commit to holding a vote.
“We do need to understand that the landscape of lodging has evolved. I think these bills seek to address that,” he said. “I’ll be looking forward to seeing the product as it evolves and continues to be brought forward by the sponsors.”
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