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Tourism is a considerable contribution to Michigan’s economy. As tourism continues to grow throughout the state, more travelers are choosing a “shared-economy” approach, such as Airbnb, rather than booking a hotel or motel for their vacation.
Airbnb offers minimal fees and, until recently, did not collect tax from users – an attractive vacation package for guests who might otherwise have to pay hundreds of dollars in hotel taxes and fees. But the state is now changing Airbnb’s fee structure, and that cost is being passed down to its customers.
Earlier this year, the State of Michigan began imposing a 6 percent “use tax” on short-term lodging rentals that are one month or less. The tax is similar to sales tax, but it applies to purchases outside the sales tax umbrella. Historically, use tax only applied to hotels and motels – not Airbnb. Therefore, Airbnb did not collect tax and the state did not receive any tax revenue from Airbnb unless its lodging hosts proactively paid the tax.
Now, any type of short-term lodging, including Airbnb and other vacation rentals, is subject to this use tax, which allows the state to tap into substantial revenue that had been previously missed.
On July 1, 2017, Airbnb began collecting use tax for its short-term rentals in Michigan. The tax is applied directly to the consumers as they make reservations on the Airbnb website, and Airbnb remits the revenue directly to the Michigan Department of Treasury.
With this new agreement now in effect, Airbnb hosts or prospective hosts must be aware of both local and state regulations for short-term rental owners. While this takes the liability off the hosts to pay the state’s use tax, it does not cover other state or municipal regulations that may apply to Airbnb hosts, such as rental zoning restrictions. As these services populate, Airbnb hosts should anticipate further regulations from both the state and local governments.
In 2016, Airbnb rentals were worth an estimated $25.2 million to Michigan hosts. This new alliance between the state and Airbnb illustrates the state’s keen awareness of the increasing demand for an online marketplace and hospitality services. It also demonstrates Airbnb’s willingness to work with state officials and comply with Michigan’s regulatory scheme.
While Michigan and its local municipalities provide incentives to regulate shared-economy services, overall regulations have lagged behind the nationwide explosion of short-term vacation rentals. As these popular services continue to grow, states and local municipalities are still playing catch up with regulations that cover taxes, liability, zoning, and licensing. This trend shows no signs of slowing down and will likely affect other shared-economy services nationwide, such as HomeAway. Short-term vacation rental hosts on all platforms should be cognizant of local and state regulations and taxes and should consult with a municipal or state agency or an attorney if they have questions.