Rise in Online Home Rentals Creates Taxing Dilemma

Over the past decade, the rise of online short-term home rental services such as Airbnb, HomeAway, and VRBO has given customers more options but posed challenges for states like Wisconsin and its local governments seeking to collect taxes on these sales. The online platforms initially left it up to the rental owners themselves to collect and remit any taxes on their sales. That often didn’t happen, leading to lost revenues for governments and different treatment for hotels, which must collect state and local taxes from their customers.

Over time, Wisconsin has gradually ramped up its collections efforts and has now updated state law to hold the platforms legally responsible for collecting revenues from these sales. As of January 1, any lodging “marketplace provider” processing transactions for a third-party seller must also collect and remit all applicable state and local taxes on those sales. The DOR has said it recently sent letters to marketplace providers informing them of this new requirement.

The new state law makes clear that room taxes would still need to be collected by an online business that has no physical presence or employees in Wisconsin but that meets the test laid out in Wayfair of doing 200 or more transactions a year in the state or annual sales of more than $100,000. The law also says that homeowners renting their property through registered marketplaces are not required to collect taxes on those online sales, even if the platform they are using does not.