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New Airbnb tax plan hits snag as summer tourism comes to Michigan

Democrats in the Michigan House of Representatives are again eyeing an attempt to regulate short-term rental properties in Michigan. Ascannio / Shutterstock.com.

by Jordyn Hermani (Bridge Michigan)

LANSING — As another Michigan summer approaches, bringing with it a wave of tourism, over 150 municipal leaders are again begging state lawmakers for support as they attempt to regulate Airbnbs and other short-term rentals in their communities.

But that season will likely come and go without any major action in Lansing, according to the sponsor of new legislation that would create a tax on short-term rentals and prohibit companies like Airbnb or Vrbo from working with property owners who fail to comply with local ordinances.

While the proposal is “still alive” after two legislative hearings, additional negotiations are necessary to win enough votes in the state House, said sponsoring Rep. Joey Andrews, D-St. Joseph.

“There are obviously some groups that are just never going to support something like this, but I think there a few that we’re close in negotiating with,” he said.

Efforts to restrict rental apps have persisted for nearly a decade in Lansing, with Michigan lawmakers and local governments sparring over how to best deal with the subject.

Proposals to allow communities outright ban short-term rentals have always been a non-starter in Lansing, though some communities have enacted caps of their own or other regulations.

Proponents of regulating short-term rentals say it’s unfair to leave municipalities on the hook for infrastructure tourists benefit from but don’t pay for due to renting. There also the argument that rentals keep housing stock away from those hoping to plant roots in a community.

Opponents contend regulation encroaches owners’ right to rent their properties as they wish.

“Any state solution needs to specifically protect the right to rent and define its use,” said Brad Ward, vice president of public policy and legal affairs for the Michigan Realtors Association.

The latest legislation

The state latest attempt at tackling short-term rentals comes in the form of a 10-bill House package that would levy a 6% excise tax on properties rented for at least 15-days a year.

If enacted, that tax could generate anywhere from $35 million to $75 million for Michigan, according to a review from the state nonpartisan House Fiscal Agency. Most of that money would go back to the municipality where the short-term rental is located.

The legislation would also mandate that all short-term rental owners carry $1 million in liability insurance, require platforms like Airbnb to pay an annual $100 registration fee per listing — capped at $50,000 — and ensure their properties have safety measures like fire extinguishers on every floor or install carbon monoxide detectors.

The proposed legislation would allow cities to dictate how many short-term rentals could exist within their jurisdiction but would require the Michigan Department of Licensing and Regulatory Affairs to create a statewide database of where those short-term rentals are located.

That database would include identifying information of the owner, the address of the short-term rental, emergency contact information for a person who lives within 30 minutes of the rental and certifications indicating the owner has both liability insurance and is in compliance with all local requirements.

As the state doesn’t currently know how many of these rental apps operate in Michigan, “it is unknown how much revenue this registration fee would generate,” according to analysts with the House Fiscal Agency.

There is some indication, however, that Michigan short-term rental footprint is continuing to expand, according to data from the national short-term rental tracking service AirDNA.

In Detroit, there are about 1,200 actively listed short-term rentals – a 7% increase from the year prior. In Traverse City, there are about 1,028 active short-term rental units, an increase of 33% from 2023.

Rep. Jenn Hill, D-Marquette, said the prevalence of short-term rentals in her district “is swamping” local communities and has left businesses unable to hire due to a lack of available housing for workers.

“Local governments are absolutely starving for revenue,” Hill said. “It ridiculous every single one of my communities has to ask for a grant for fire trucks. That what taxes are for.”

Airbnb has raised concerns with the legislation, saying it already voluntarily remits tourism tax to the state but that the proposal would effectively double the rate guests would pay compared to hotels.

“The majority of hosts in Michigan share just one home to supplement their income and help welcome guests whose spending supports small businesses in communities across the state,” Airbnb Regional Lead Nathan Rotman said in a statement.

“…We look forward to working with lawmakers on sensible short-term rental policies that support the state’s tourism economy without unfairly targeting residents who share their home.”

A patchwork approach

Regulating short-term rentals has seen growing interest nationwide in recent years, though the approach has mostly been on a city-by-city basis.

California has no real state-level laws, but the city of San Diego has extensive requirements for its short-term rentals, separating them into four different categories depending on where the unit is and how often it rented. In its Mission Beach neighborhood, one of San Diego biggest tourist areas, rentals are capped at 30% of all available units.

In Florida, its state Legislature only recently passed short-term rental regulations which allows local governments to register short-term rentals in their municipality, spelling out fines and fees for failing to do so.

Michigan seen its share of local rental regulation efforts as well.

Cities including Ann Arbor allow short-term rentals in certain circumstances, though not if they’re managed by third-party companies. Holland has a 25-unit cap on short-term rentals, while neighboring Grand Rapids doles out 200 one-room rental licenses a year.

Then there New Buffalo, a community on Lake Michigan southern shores. Owners there sued and lost in court last year over a moratorium on short-term rentals in the community.

Short-term rentals still exist within city limits — its code acknowledges “that a major part of the tourism industry is the short-term rental or vacation rental marketplace” — though new short-term rentals are no longer allowed to operate in residential zones.

Marc Florian, a Lincoln Charter Township trustee and member of its planning commission, said his Lake Michigan community has already adopted ordinances limiting things like occupancy, noise from the unit and parking.

But he opposed to the state latest attempt to regulate rentals as he feels the House package places an undue tax burden on owners, like himself.

In Florian community, taxes imposed on hotels and motels are managed by the Southwest Michigan Tourist Council, which uses the revenue to promote tourism. It concerned him, then, that “an as yet undefined portion” of the state-collected excise tax would go back to communities, “where, incidentally, the purpose for their use is also undefined.”

Tax, database proposals under review

Andrews, the lawmaker whose House district runs along Lake Michigan shores, said conversations regarding tax allocation are ongoing. The type of information collected in the proposed state short-term rental database, he added, is being reviewed as well.

He confident, though, that some kind of agreement can be reached. Even if that doesn’t involve all stakeholders.

“If you don’t have roads and you don’t have water and you don’t have public safety, you’re not going to have tourists,” Andrews said. “So, it really is in everyone best interest to come together and find a solution.”

Saugatuck Mayor Pro-Tem Helen Baldwin was among the handful of mayors to throw their support behind House Democrats’ bill package in April.

With an annual revenue “south of $5 million,” Baldwin said money gathered through that proposed 6% tax would “provide a much needed revenue source to allow the city to create, maintain and improve the very features that tourists come to Saugatuck to enjoy.”

She was also among the more than 150 municipal leaders to sign off on a public plea to the legislature to pass the package earlier this week.

Joining her push for action was Monroe Mayor and Michigan Municipal League Board Chair Robert Clark, who said in the statement that if the state hopes to achieve its population goals then it needs to wrestle with its growing stock of short-term rentals.

“Every home that is used as a permanent short-term vacation rental is one less home available for Michigan families,” Clark said, “so it critical that local leaders have tools available to them to develop and enforce regulations to meet the unique housing needs of their communities.”

by Sara Swanson

Sara Swanson is an editor, writer and a founder of the Manchester Mirror.