Editor’s note: The following information on the Wisconsin room tax law was prepared by the Wisconsin Hotel & Lodging Association, with interpretations reviewed by UW-Extension. The piece does not constitute a position for or against the implementation of a local room tax.

What is a room tax? A room tax is a tax that may be authorized by a municipality on the renting of sleeping rooms at hotels, motels, resorts, inns, bed and breakfasts and other lodging facilities in the area. The tax rate can be set from 0% to 8%, with limited exceptions.

The original intent of the room tax was to provide funding for tourism marketing and promotions, such as brochures and information services, which are utilized by the very guests paying the tax.

Who pays the tax and where does the revenue go? The lodging property adds the room tax to the customer’s bill when the customer pays for lodging. Room tax is charged in addition to state sales tax (and county sales tax and special district taxes, when imposed).

The revenue is forwarded to the municipality by each lodging property, in accordance with the schedule set by local ordinance. Currently, the property is not eligible to retain an administrative fee (such as that allowed with state sales tax) to offset direct costs such as charge card processing fees, etc.

What can room tax revenue be spent on? State law requires that at least 70% of room tax revenue must be spent on tourism promotion and development, which is also defined in the statute.

The remaining revenue (0% to 30%) is available for the municipality to spend as determined. This may in­clude infrastructure or services supporting both those visiting the community and residents (such as police staffing at local parades or fireworks), or for other purposes determined by the municipality.

In simplified language, the portion designated for tourism promotion and development must be spent on marketing projects to attract tourists, tourist informational services, or municipal development significantly used by tourists. Any funded project, service or development is required to be reasonably likely to generate paid overnight stays at multiple lodging properties (i.e. by the visitors paying room tax).

An exception occurs for municipalities imposing a room tax before May 1994, which had allocated less than 70% of room tax revenue for tourism promotion and de­velopment. Some restrictions apply, and any increases in the 1994 room tax rate must follow the newer state re­quirements.

Who makes the decisions on what is funded by room tax revenue? Expenditure decisions are made locally, within the parameters provided by state law under Wisconsin statutes.

A single municipality may create a tourism commission of four to six members to contract with and oversee a local tourism entity, such as a convention and visitors bureau or a chamber of commerce. The tourism entity (with commission oversight) then selects which projects would best attract paying overnight tourists to its local area. 

The commission is ap­pointed by the chief elected official of the municipality for a one-year term and must be confirmed by the municipality’s governing body. At least one of the appointees must be an owner or operator of a lodging property paying room tax.

If the municipality does not create a commission, the municipal governing body may contract with a local tourism entity or directly spend the revenue on tourism promotion and development still within the parameters and requirements of the definition in the law. Usually, a local tourism entity, with a governing board made up of business operators in the tourism industry, has more expertise in determining expenditures that would comply with the definition and intent of tourism promotion and development.

The law also allows multiple municipalities to band together to create a tourism zone. If they do so, they must create a tourism commission with representation and duties as noted in the law.

It is beneficial in any area to have the input of multiple tourism business professionals, including lodging property operators, when determining how local room tax revenue should be spent to comply with state statutes. Lodging property operators can provide helpful overnight stay data to assist municipalities in complying with the law and evaluating expenditures.