Right to Rent
Five things REALTORS® need to know about Wisconsin’s new short-term rental law
Tom Larson | November 09, 2017
As part of the 2017-19 state budget, Wisconsin lawmakers enacted a new law that protects the ability of homeowners to rent out their homes on a short-term basis. The law was passed in response to a growing number of communities banning the rental of residential dwellings for any period of time less than 30 days. Rather than regulating the behavior of the occupants of short-term rentals like any other property to ensure compliance with noise, parking and other local ordinances, these communities have placed blanket prohibitions on any rental less than a month.
Due to the growing popularity of short-term rentals through online platforms like AirBnB and VRBO, lawmakers feared these bans would negatively impact both the tourism industry and second-home real estate markets. Accordingly, the new law encourages local governments to regulate short-term rental activity rather than ban the activity altogether.
As in other parts of the country, short-term rentals of personal residences have become a growing part of Wisconsin’s rental real estate market, especially in high tourism areas. According to recent polling, 70 percent of Wisconsin residents would be either very or somewhat interested in renting a home or cabin if they took a vacation of one week or longer in Wisconsin. For those individuals who have vacationed in one place for a week or longer in Wisconsin, approximately 50 percent have rented a home or cabin.
Moreover, the ability to rent a home is becoming more important to prospective buyers in second-home real estate markets like Door County, Lake Geneva and Minocqua. In these markets, the consumer demand for owning second homes has declined over the last decade in part because busy lifestyles make the ownership and maintenance of a second home less attractive. Alternatively, consumers prefer to rent a home for several weeks during the year or, if they do purchase a home, they want to have the option of renting the properties on occasion to generate additional income to help pay for the property taxes and maintenance costs. Before buying a second home, one of the most common questions asked by prospective buyers is whether the property can be rented out on a short-term basis. When asked if they were to own a second home, over 40 percent of Wisconsin residents indicated that the ability to rent it out for a week or longer would be important to them.
With the passage of the right-to-rent law, Wisconsin joins a growing number of states that have either passed laws or have pending legislation pertaining to short-term rentals. Twenty-four states currently have legislation pending on the issue of short-term rentals. While each piece of legislation is unique, all of the legislative proposals fall into one of two categories: authorizing state and local governments to collect taxes on short-term rentals, and/or preempting local government regulation of short-term rentals. Wisconsin’s law contains elements of both categories and is somewhat different from laws enacted in other states because it creates two categories of short-term rentals of less than seven days and short-term rentals of seven days or longer.
With the growing popularity of short-term rentals, REALTORS® need to know the following five things about Wisconsin’s right-to-rent law:
- Local governments can regulate but not prohibit short-term rentals: The new law prohibits local governments — which include counties, cities, villages and towns — from banning the rental of a residential dwelling for a period of time of seven consecutive days or more. Under the law, “dwelling unit” is defined as “any building or structure, that is used or intended to be used as a home, residence, or sleeping place by one person or by 2 or more persons maintaining a common household, to the exclusion of all others.” This restriction on local government authority applies regardless of the zoning classification. In other words, a local government cannot prohibit the rental of a residential dwelling for seven days or more in any part of the community — such as shoreland areas — or in any zoning classification. The law does not prevent local governments from banning nightly rentals or rentals of less than seven consecutive days. The law treats rentals of less than seven consecutive days differently because lawmakers believe such rentals are more of a commercial use of property, which may be inappropriate in some residential areas. The law does not prohibit local governments from regulating short-term rentals of any duration. A community, therefore, may enact regulations that require property owners to comply with noise standards, parking requirements, obtaining a local permit, paying penalties for ordinance violations or comply with other local standards. REALTORS® should closely monitor local ordinances to ensure that any regulations are fair and reasonable.
- Local permits are allowed: While local governments are not allowed to prohibit homeowners from renting out their homes for seven days or more under the new law, local governments can require property owners to obtain a permit to rent out their homes. The local permit, however, cannot be overly restrictive, resulting in a de facto prohibition on a short-term rental. Such local permits should be more administrative in nature and contain objective and reasonable standards. A common question is whether a local community can require a conditional use permit (CUP) for a short-term rental. The answer depends on the nature of the CUP requirement. If the CUP requirement is overly restrictive and either explicitly or implicitly makes certain residential dwellings ineligible for a permit, then the CUP requirement is in violation of the new law. REALTORS® who encounter local permit or CUP requirements that are unfair or overly restrictive should contact the WRA about a possible legal challenge to the ordinance through the WRA’s Legal Action Program.
- Be aware of a six-month local cap: Under the law, local governments are allowed to place a six-month/180-day cap on the amount of time property owners can rent out their home during any 365-day period. Moreover, the law allows but does not require local governments to require the 180 days to be continuous. In communities that have adopted a six-month cap, property owners are allowed to choose which six-month period the dwelling is rented. For example, if the city adopted a six-month limit on short-term rentals, the property owner could choose March 1 through August 1, April 3 through September 3, May 7 through October 7, or whatever six-month time period the property owner prefers. The six-month requirement is another way in which lawmakers wanted to distinguish between commercial and residential uses of a home. From their perspective, a home that is rented for more than six months during the year is more of a commercial use of property and thus may be inappropriate in some residential areas.
- State licensing and inspection requirements: While not a new requirement, most short-term rentals are required to obtain a “tourist rooming house” license from the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP). Such a license is required for vacation homes, cabins and cottages that are rented out to tourists and transients for more than 10 nights in a 12-month period. See complete details about this license on the DATCP’s tourist rooming house page online at datcp.wi.gov/Pages/Programs_Services/TouristRoomingHouses.aspx. The license is an annual license that extends from July 1 of one year through June 30 of the following year, with an annual license fee of $110. A property owner may rent as many as four units under each tourist rooming house license. As part of the state licensing process, the state will send a sanitarian to inspect the property to ensure that it meets state health and safety requirements. A one-time fee of $300 is required for the state inspection.
- Collection of state sales and local room taxes: Finally, the law requires owners of short-term rentals and lodging marketplaces to collect state sales and use tax, which are 5 percent, and any room tax owed from the person renting the residential dwelling. Under the law, a “lodging marketplace” is defined as “an entity that provides a platform through which unaffiliated third parties offer to rent a short-term rental to an occupant and collect consideration for the rental from the occupant.” This would include AirBnB, VRBO, a property management company or any other entity that rents short-term rentals for the owner. An owner of a short-term rental also will have to collect two variations of tax: (a) the state sales tax and forward it to the department of revenue if annual sales are equal to or greater than $1,000, and (b) any local room tax and forward it to the local government where the short-term rental is located if that local government charges a local room tax. Not all local governments charge a local room tax.
Wisconsin’s right to rent law is intended to provide a balance between the rights of property owners to rent their homes and the rights of their neighbors to use and enjoy their property. Each local government will likely regulate short-term rentals in a somewhat different manner, and this will present some challenges for both property owners and REALTORS®. The WRA will actively monitor the implementation of the new law at the local level and will provide resources to assist REALTORS® in this effort upon request. If you have questions or concerns about a proposed or existing short-term rental ordinance, contact the WRA Legal Hotline for additional information.
How does the Wisconsin state budget become law?
Every two years, the state passes a budget. Prior to the governor providing a proposal, the governor requests each state agency — such as the Department of Revenue, the Department of Safety and Professional Services, the Department of Natural Resources — to provide suggestions as ways the agency can save the state money, create efficiencies as well as offer other improvements. Further, stakeholders such as the WRA, other trade associations and other organizations offer suggestions to state agencies and/or the governor as to how to improve services, create efficiencies and offer other suggested benefits to the state of Wisconsin and, in our case, a focus on its property owners.
- Typically in February of the odd year, the governor proposes a budget for the Joint Finance Committee (JFC) to consider.
- The JFC then will begin to hold informational hearings that bring in each state agency’s secretary and ask questions relating to the agency’s proposal within the budget. The JFC then adopts motions that may include the same proposal as the governor's or modified versions of the proposals. In addition, the JFC may adopt a wrap-up motion, which is intended to be a catchall for technical corrections in previous motions as well as other potential changes.
- The JFC then sends its version of the proposed budget to the Senate and Assembly.
- Each house then must pass the same version of the budget bill in order for the budget to go before the governor.
- The governor then can use a veto power to veto all or parts of the bill. While the governor's veto ability prohibits inserting verbiage into the bill, language may be deleted. For example, in the most recently signed budget bill creating 2017 Wis. Act 259, the governor vetoed the historic tax credit language so that it was no longer a $5 million-per-project limit but rather a $500,000-per-project limit. The veto entailed the governor deleting a zero to modify the cap, for example, $5,000,000 to $500,000.
- The governor signs the bill. At this time, the language becomes law either the day after the bill is published or on a specific stated date relating to that section.
Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.